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A lawyer who rose from secretary to “partner” at a Long Island, N.Y., law firm will get a second chance to show that she is entitled to benefits under the firm’s profit-sharing and cash-balance pension plans. Attorney Karen Strom said she was denied the benefits when she left the tax certiorari specialist firm of Siegel Fenchel & Peddy because she was not considered a “profit-sharing partner” or “shareholder” of the firm. However, the 2nd U.S. Circuit Court of Appeals has now revived her claim by reversing a district court grant of partial summary judgment in favor of Siegel Fenchel in Oyster Bay. The circuit, in Strom v. Siegel Fenchel & Peddy Profit-Sharing Plan, said a magistrate judge erred in deferring to a “non-existent decision” by pension plan administrators (the firm’s name partners) rejecting her “partner” status and erred a second time in finding that Strom had waived any claim she had to a cash plan because she failed to exhaust her administrative remedies. Judges Joseph McLaughlin, Guido Calabresi and Sonia Sotomayor decided the appeal. Sotomayor wrote for the panel. “The real issue here is whether she was a partner or not,” said Leslie Corwin of Greenberg Traurig, who represents Strom and will now pursue damages that could, with interest and penalties, exceed $1 million. He said the decision recognized that “law firms have to afford partners the same notice under ERISA that corporate America must give under its pension and profit-sharing plans,” and that the court highlighted “the importance of the designation of partner, regardless” of the corporate form the firm assumes to conduct its business. Strom, who began as a secretary at the firm in 1980, graduated from Hofstra Law School, passed the bar exam in 1988 and then joined the firm as an attorney. She was elevated to the position of “partner” on Jan. 1, 1995, and then “profit-sharing partner” on Jan. 1, 1997. Sotomayor explained that the “partner” title was given to senior attorneys at the firm and that, as of 1995, defendants William Siegel, Saul Fenchel and Tracie Peddy were “shareholders” of the firm and two other attorneys, Michael Schroder and Andrew Cangemi, were considered “profit-sharing partners.” Siegel declined comment on the ruling Thursday. Schroder was dismissed from the firm in 2000 and Strom left shortly after to join him in setting up their own firm, Schroder & Strom, which competes directly with Siegel Fenchel & Peddy. Strom applied for benefits under the firm’s profit-sharing plan and cash-balance pension plans. All employees of the firm were entitled to pension benefits, but the plans reserved an “increased contribution” for a subset of employees. Strom’s problem was that the firm made several amendments that excluded employees from the increased contribution. A Jan. 1, 1995, amendment excluded all “salaried associates,” a Jan. 1, 1996, amendment excluded all “non-profit-sharing attorneys,” and a Jan. 1, 1997, amendment excluded all “non-equity profit-sharing attorneys with a 13 percent or less profit share.” “Notably,” Sotomayor said, “SFP [Siegel Fenchel & Peddy] claims that Strom was a member of each of the three excluded groups of employees and candidly admits that the firm amended the language of the plans expressly ‘to maintain the existing rate of benefit accrual for Strom and to allocate the increased contribution only to the officers and shareholders.’” In her action under the Employee Retirement Income Security Act of 1974 (ERISA), Strom sought a declaration of her rights under four of the firm’s pension plans, including the cash plan and the profit plan. But Eastern District Magistrate Judge James Orenstein found that Strom’s claim she was a “partner” was “foreclosed by an administrative decision that was neither arbitrary nor capricious,” and she had “waived her claim” under the cash plan by failing to exhaust her administrative remedies. The circuit vacated and remanded the decision. Sotomayor said the lower court erred because “it should have reviewed the administrators’ decision de novo.” Instead, the lower court deferred to the administrators’ interpretation of the terms “salaried associate” and “non-profit-sharing associate” to mean attorneys who were neither shareholders nor officers of the firm. Sotomayor said “the district court could not have deferred to an interpretation that the decision never in fact made nor explained.” The administrators had claimed that Strom had refused to cooperate at a January 2002 hearing aside from providing only minimal evidence to support her claim that she was a partner and, because of this lack of cooperation, declined to reach a final determination. “We express no opinion concerning SFP’s claim that Strom refused to cooperate, but rather observe that the text of the decision itself makes clear that no actual decision was made,” Sotomayor said, adding later, “because a non-existent interpretation cannot be a reasonable one, the district court erred in deferring to the profit plan administrators’ decision.” Furthermore, none of the letters the firm sent to Strom ever offered an interpretation of the profit plan’s language, Sotomayor said, and the letters it sent her on the cash plan, while noting she was not eligible for cash plan benefits because she was neither a shareholder nor an officer, never “explained why this was so.” The firm’s letters to Strom on the cash plan also failed to satisfy the notice provisions of ERISA – a point that was conceded by the parties. The firm, however, argued that Strom had actual notice of her right to seek review. She countered that she lacked actual notice, that her requests for information on her status went unheeded, and that the firm only apprised her of her right to seek review too late in the process. “Simply put, Strom cannot have waived her rights to administrative review procedures of which she was not given notice by SFP,” Sotomayor said. “SFP represented that she was ineligible to receive any information concerning her eligibility under the cash plan.” There was “nothing in the record to support SFP’s assertion that Strom, as a putative nonparticipant in the cash plan, could not have access to plan documents, on the basis of which she might have made an argument for her participation under the plan, or, more specifically, sought administrative review of SFP’s ostensible determination that she was nonparticipant,” the judge said, adding that “Strom cannot be held to have waived any rights of which she was never apprised.” On remand, Sotomayor said, the firm is precluded from raising a failure-to-exhaust defense. In addition to Corwin, Neil Capobianco and Simon Miller of Greenberg Traurig represented Strom. Stephen Latham and Philip Nykamp of Twomey Latham Shea Kelley Dubin & Quartararo in Riverhead represented Siegel Fenchel & Peddy. This article originally appeared in the New York Law Journal, a publication of ALM.

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