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Choice of law provisions in ERISA plans will not result in uniformity

Rick Pautler October 21, 2019

A version of this article previously appeared in the October 2019 edition of Benefits Law Journal.

It seems likely that in the next few years the United States Supreme Court will decide whether ERISA plans may include enforceable forum selection clauses. The vast majority of federal district courts and the only two federal appellate courts to address directly the issue have held that forum selection clauses in ERISA plans are enforceable.[1] The Department of Labor (“DOL”), however, persists in its opposition to such clauses. Indeed, the DOL’s arguments have persuaded a few, isolated district courts that they should not enforce forum selection clauses.[2]

When the plan participant in Smith v. Aegon Companies Pension Plan petitioned the United States Supreme Court for a grant of certiorari, the Court invited the Solicitor General to opine whether the Court should grant certiorari.[3] The solicitor general and solicitor of Labor filed their brief for the United States as amicus curiae and recommended against the Court granting certiorari, but only because a split among the circuits did not exist and the Sixth Circuit’s decision did not conflict with Supreme Court precedent.[4] The brief made clear that in the opinion of the solicitors, forum selection clauses in ERISA plans should not be enforceable because in the solicitor generals’ opinion they violate the public policy of ERISA. The Supreme Court denied certiorari.[5]

The Supreme Court again opted not to take up the forum selection issue when it denied certiorari in Lorna Clause v. United States District Court for the Eastern District of Missouri and in Mathias v. United States District Court for the Central District of Illinois.

More recently, eleven law professors filed an amicus brief in Robertson v. United States District Court for the Eastern District of Pennsylvania, a petition for certiorari filed April 23, 2019, asking the Supreme Court to rule that plan sponsors may not unilaterally limit venue in ERISA § 502 claims for benefits. At the time of this article’s submission, the Supreme Court has not ruled on this petition for certiorari.

Although the DOL and the Solicitor General’s united opposition to forum selection clauses in employee benefit plans does not necessarily mean the Supreme Court will invalidate such clauses, it does mean that plan counsel and sponsors should consider their next steps in the event the Supreme Court does strike down forum selection clauses.

Uniformity in plan administration is important. Indeed, some courts, when enforcing forum selection clauses, have cited ERISA’s goal of uniformity of administration.[6] When plan administration comes under the review of courts sitting in different circuits, that uniformity is put at risk with potentially damaging results to plans. In Ingram v. Terminal R.R. Ass'n of St. Louis Pension Plan for Nonschedule Employees, the issue was how to calculate pension benefits. Ingram argued that calculating his pension the plan’s terms entitled him to service credit for time he worked at a prior employer, Union Pacific. The plan administrator interpreted the plan differently. The Eastern District of Missouri held the plan administrator’s interpretation of the plan was reasonable and that Ingram was not entitled to the relief he sought. The Missouri district court entered summary judgment for the plan.

Prior to the Eastern District’s decision, Roger Cocker, also a participant in the same Terminal Railroad pension plan and represented by the same counsel as Ingram, filed the same claim and made the same arguments in his home forum, the Southern District of Illinois. Judge David Herndon, the Illinois district court judge, rejected all of the plan administrator’s interpretations, found those interpretations to be arbitrary and capricious and held that Cocker was entitled to have his prior service included in the calculation of his pension benefit. The Illinois judge entered judgment for Cocker.[7]

Thus, the plan administrator for the Terminal Railroad pension plan had in hand conflicting court orders from districts separated only by the Mississippi River and seven months. Was he to administer the plan one way for participants residing in Missouri and differently for those living in Illinois? Was he bound by principles of estoppel or res judicata to adhere to the Illinois court’s ruling and ignore the Missouri ruling? Could he pay benefits pursuant to the Illinois ruling without at the same time being guilty of wasting plan assets under the Missouri judgment that had instructed he need not include the additional service credit? These questions and many others perplexed the plan administrator until the Eighth Circuit affirmed the Missouri judgment and the Seventh Circuit reversed the Illinois district court.[8] But the two cases make clear why uniformity is necessary and why forum selection clauses are so important in accomplishing that uniformity for ERISA plans.

But what if the Supreme Court invalidates forum selection clauses in ERISA plans? Judge Shadur’s opinion in Coleman v. Supervalu, Inc. Short Term Disability Program, is the case most frequently cited by those seeking to avoid the strictures of a forum selection clause. Judge Shadur’s opinion is one of the most thorough expositions of the arguments against the enforceability of forum selection clauses.

In his opinion Judge Shadur suggested that plans seeking to achieve uniformity in the courts’ reviews of administrative decision have an easy alternative to forum selection clauses – they need only include choice of law provisions in their plans. Judge Shadur belittled the plan’s argument that it needed a forum selection clause in order to obtain uniformity in plan administration. He wrote:

Defendants claim that the Clause will advance that policy [uniformity] by entrusting a single district court with the sole authority to interpret the Program. That, however, is the function of a choice-of-law provision, not a forum selection clause. There is no reason that a plan's choice-of-law designation cannot coexist with a participant's or beneficiary's choice from among a variety of venues when enforcing his or her ERISA rights—the entitlement conferred by § 1132(e)(2). That last line of defendants' attack is purely and simply a non sequitur.[9]

What Judge Shadur seemed to suggest was that a plan could assure that a reviewing court applied the law of a particular circuit simply by including a choice of law provision in the plan. Presumably, Judge Shadur was suggesting a clause such as, “The law as articulated and applied by the United States Court of Appeals for the Second Circuit shall apply and control during any lawsuit, arbitration or litigation challenging an interpretation or determination by the Plan Administrator.” In this way, according to Judge Shadur’s thinking, the plan participant could stay in her home forum and thus not be required to cross the country to litigate her claim in a distant venue pursuant to a forum selection clause, and the plan could be assured of being subject only to the law of the Second Circuit.

Was Judge Shadur correct? Could a plan simply include among its terms a choice of law provision selecting federal law as applied and interpreted by the particular circuit and thereby be assured that all decisions reviewing plan administration would be decided under the law of that circuit? He was not. Indeed, the inclusion of such a choice of law provision would be wholly without effect in litigation brought under Section 502(a) of the Employee Retirement Income Security Act. This result is true for two, related reasons.

First, a federal district court judge exercising federal question jurisdiction must follow the law of his circuit. Stated differently, a federal judge sitting in the Eastern District of Missouri must follow Eighth Circuit precedent in any federal question case; she cannot choose to ignore it to follow Seventh Circuit precedent. A district court judge, deciding a federal question, simply cannot ignore or disregard the controlling precedent of her circuit to apply a conflicting precedent from another circuit.[10] Thus, a federal judge sitting in California or Texas cannot disregard the precedents of the Ninth and Fifth Circuits respectively to apply Second Circuit precedent.

Second, federal courts comprise a single system applying a single body of law and no litigant has a right to have the interpretation of one federal court rather than that of another determine her case.[11] Call it what you will, the federal legal system operates upon the presumption that there is but one, uniform federal law.[12] Any acknowledgment that the law in the Second Circuit may be different or other than that of the Eighth Circuit runs counter to that underlying presumption. Thus, not only can a district court in Missouri not ignore Eighth Circuit precedent to apply Second Circuit precedent, the Eighth Circuit cannot ignore its controlling precedent to apply the precedent of another circuit.[13] The Eighth Circuit might, of course, determine that its precedent was incorrect and opt to follow the precedent of another circuit, but that decision is independent of any choice of law provision included in an ERISA plan.

The question whether a district court may be required to apply the law as interpreted by a different circuit has arisen frequently in the context of a cases transferred from one district court to another. When the court’s jurisdiction is premised upon a federal question, the courts repeatedly have held that the precedent of the transferee’s circuit controls.[14]

In a suit pending in the Northern District of Illinois, Dabertin v. HCR Manor Care, Inc., the plaintiff claimed that the plan had wrongly denied her severance benefits, that her employer had failed to comply with ERISA’s disclosure requirements and had otherwise breached its fiduciary duty. The plan included a provision that “this Plan shall in all respects be governed by and construed in accordance with the laws of Delaware.” The plan argued that even though the case was pending in an Illinois federal district court within the Seventh Circuit, the choice of law provision required the court to apply Third Circuit law. The court quickly dispatched this contention, “In this case, the parties could not choose Third Circuit law. A federal judge (has the) obligation to decide issues of federal law correctly, and not according to the interpretation of a court sitting in another circuit.”

Judge Ruth Bader Ginsburg, at the time sitting on the United States Court of Appeals for the District of Columbia, noted the same principle in In re Korean Air Lines Disaster of Sept. 1, 1983, a non-ERISA case. In Korean Air Lines, the Russian government had shot down a Korean Airline jet over the Sea of Japan resulting in federal wrongful death lawsuits in several district courts (i.e. New York, Michigan and Massachusetts), located within several different circuits. The Panel on Multidistrict Litigation transferred these cases to the District of Columbia for pre-trial proceedings. The central issue in the multiple litigations was whether the Warsaw Convention’s $75,000 limitation for damages applied when the liability limitation appearing on the ticket was in smaller print than required by the Warsaw Convention. The district court held that the smaller print was not fatal to the limitation of liability and then certified the question for appeal.

The issue that first intrigued the appellate court was whether the district court was required to apply Second Circuit law when analyzing the claims transferred from the New York federal courts, Sixth Circuit law to those transferred from Michigan federal courts and First Circuit law to those transferred from Massachusetts federal courts. The Court of Appeals for the District of Columbia held that the district court judge sitting within the Court of Appeals for the District of Columbia was obligated to follow its precedent rather than that of any of the other three Circuits.

The Appellate Court explained that the well-established rule was that when a federal court received a diversity case on transfer, it generally was to apply the law of the state of the transferor court. But it explained that in a unitary federal system it did not make sense to have a judge acknowledge different federal laws existed in different circuits by applying the federal precedent that would have applied in the multiple transferor courts. Judge Ginsburg wrote:

For the adjudication of federal claims, on the other hand, “[t]he federal courts comprise a single system [in which each tribunal endeavors to apply] a single body of law,” H.L. Green Co. v. MacMahon, 312 F.2d 650, 652 (2d Cir. 1962), cert. denied, 372 U.S. 928, 83 S.Ct. 876, 9 L.Ed.2d 736 (1963).

She then continued later in the opinion:

Our system contemplates differences between different states’ laws; thus a multidistrict judge asked to apply divergent state positions on a point of law would face a coherent, if sometimes difficult, task. But it is logically inconsistent to require one judge to apply simultaneously different and conflicting interpretations of what is supposed to be a unitary federal law. […] The federal courts spread across the country owe respect to each other's efforts and should strive to avoid conflicts, but each has an obligation to engage independently in reasoned analysis. Binding precedent for all is set only by the Supreme Court, and for the district courts within a circuit, only by the court of appeals for that circuit.

In In re Ramaekers, the court had before it a motion to compel the production of documents pursuant to a subpoena duces tecum. Reuters News Service, upon whom the subpoena had been served, argued that certain documents were privileged and argued that the New York District Court should apply First Circuit law because that circuit had the most significant contacts to the issues. The district court rejected this argument, explaining, “Choice of law analysis is generally inappropriate in federal question cases, such as the instant action, where the choice involves the law of two or more circuits.” The court, applying Judge Bader’s analysis in Korean Air, determined that because federal courts are a single system applying a single body of law, no litigant has a right to have the interpretation of one federal court rather than that of another determine his case.

Similarly, and not surprising in light of the discussion above, an ERISA plan may not select a particular state law to control a court’s review of its administrative decisions. In Prudential Ins. Co. of Am. v. Doe, the insurer of a group health plan had terminated hospital benefits, relying upon a policy provision that limited hospital benefits for a “mental illness” to 30 days. The employer was located in Illinois and the policy provided that Illinois law would apply. But Prudential brought its declaratory judgment action in the Eastern District of Missouri where the plan beneficiary resided and had been hospitalized. One of the critical questions was whether the Missouri federal court and the Eighth Circuit should follow the law as stated in the Seventh or the Eighth Circuits.

The Seventh Circuit, relying upon Illinois case law, held that the term “mental illness” was ambiguous and under the doctrine of contra preferentem was to be interpreted against the insurer.[15] Eighth Circuit precedent held that ERISA preempted the doctrine of contra preferentem and thus the term “mental illness” was to be given its ordinary meaning.[16] The court in Doe held that the issue of ERISA plan interpretation presented a federal question and that the parties could not elect to have a federal question decided under state law.[17] The Doe court then proceeded to follow the Eighth Circuit precedent in Brewer and disregarding the Seventh Circuit’s precedent.

In summary, a district court sitting within one circuit cannot by contract be required to apply or interpret the law pursuant to precedent from a circuit other than the one within which it sits. Nor may an ERISA plan designate a particular state’s law as the law controlling a court’s review of its plan administration. Judge Shadur’s suggestion that ERISA plans, in the absence of a forum selection clause, can obtain judicial uniformity simply by including a choice of law provision in the plan is simply wrong.

Rick Pautler is a partner in Thompson Coburn's ERISA Litigation practice.

[1] In re Mathias, 867 F.3d 727 (7th Cir. 2017), cert. denied sub nom. Mathias v. U.S. Dist. Court for Cent. Dist. of Illinois, 138 S. Ct. 756, 199 L. Ed. 2d 617 (2018) and Smith v. Aegon Companies Pension Plan, 769 F.3d 922, (6th Cir. 2014) cert. den. 136 S.Ct. 791 (2016)

[2] Dumont v. PepsiCo, Inc., 192 F. Supp. 3d 209, 212 (D. Me. 2016); Coleman v. Supervalu, Inc. Short Term Disability Program, 920 F. Supp. 2d 901, 903 (N.D. Ill. 2013); Nicolas v. MCI Health & Welfare Plan No. 501, 453 F. Supp. 2d 972, 973 (E.D. Tex. 2006).

[3] Smith v. Aegon Companies Pension Plan, 135 S.Ct. 2394 (June 1, 2015).

[4] Smith v. Aegon Companies Pension Plan, 2015 WL 7625682 (Nov. 25, 2015).

[5] Smith v. Aegon Companies Pension Plan, 136 S.Ct. 791 (Jan. 11, 2016).

[6] Scaglione v. Pepsi-Cola Metro. Bottling Co. Inc., 884 F. Supp. 2d 642, 643 (N.D. Ohio 2012)(“Forum selection clauses in ERISA plans promote ERISA's goal of uniformity of administration and reduce costs, both to the benefit of all participants and beneficiaries.”); Klotz v. Xerox Corp., 519 F. Supp. 2d 430, 436 (S.D.N.Y. 2007)(“The forum selection clause contained in Xerox's LTD Plan allows one federal court to oversee the administration of the LTD Plan and gain special familiarity with the LTD Plan Document, thereby furthering ERISA's goal of establishing a uniform administrative scheme.”)

[7] Cocker v. Terminal R.R. Ass'n of St. Louis Pension Plan for Nonschedule Employees, No. 12-1239-DRH, 2015 WL 3623584 (S.D. Ill. June 10, 2015).

[8] Cocker v. Terminal R.R. Ass'n of St. Louis Pension Plan For Nonschedule Employees, 817 F.3d 337 (7th Cir. 2016).

[9] 920 F. Supp. 2d at 909.

[10] Hart v. Massanari, 266 F.3d 1155, 1175 (9th Cir. 2001)(“A district court bound by circuit authority, for example, has no choice but to follow it, even if convinced that such authority was wrongly decided.”); Various Plaintiffs v. Various Defendants (Oil Field Cases), 673 F. Supp. 2d 358, 362 (E.D. Pa. 2009)(“In matters requiring the interpretation of the Constitution, a federal law or a federal rule of procedure, a transferee court applies the law of the circuit where it sits.”).

[11] Menowitz v. Brown, 991 F.2d 36, 40 (2nd Cir. 1993) (per curiam) (quoting H.L. Green Co. v. MacMahon, 312 F.2d 650, 652 (2nd Cir. 1962))”)

[12] Id. (“Although federal courts sometimes arrive at different constructions of federal law, federal law (unlike state law) is supposed to be unitary.”)

[13] Rare exceptions have occurred when courts have interpreted a statute to direct it to apply the law of the court from which the case was transferred. See, e.g., Eckstein v. Balcor Film Investors, 8 F.3d 1121 (7th Cir. 1993), cert. denied, 510 U.S. 1073 (1994) and Olcott v. Delaware Flood Co., 76 F.3d 1538 (10th Cir. 1996), cases involving Congress’ amendment of Rule 10b–5, 15 U.S.C. § 78j(b). Cf., AER Advisors, Inc.

[14] See, e.g., AER Advisors, Inc. v. Fid. Brokerage Servs., LLC, 921 F.3d 282, 288 (1st Cir. 2019)(“While we have yet to consider the subject, every Circuit to do so has concluded that when one district court transfers a case to another, the norm is that the transferee court applies its own Circuit's cases on the meaning of federal law.”)

[15] Phillips v. Lincoln Nat. Life Ins. Co., 978 F.2d 302, 308 (7th Cir. 1992).

[16] Brewer v. Lincoln Nat. Life Ins. Co., 921 F.2d 150, 154 (8th Cir. 1990).

[17] Id. at 791 (“The choice of law provision in the contract does not alter the outcome here, for parties may not contract to choose state law as the governing law of an ERISA-governed benefit plan. Although choice of law provisions may be relevant in a diversity action, we are required to apply federal common law when deciding federal questions.”)