The 2 nd U.S. Circuit Court of Appeals threw out a lower court ruling in favor of law firmSiegel Fenchel & Peddy and breathed new life into the lawsuit by attorney Karen Strom who did not receive the benefits because she was not considered a “profit-sharing partner” or “shareholder.”
Circuit JudgeSonia Sotomayor, in writing for the appellate court, said a magistrate judge erred in deferring to a “non-existent decision” by the firm’s name partners rejecting Strom’s “partner” status and made a second mistake by ruling that Strom had waived any claim she had to a cash plan because she failed to exhaust her administrative remedies.
According to the court, Strom began as a firm secretary but later graduated from Hofstra Law School, passed the bar exam in 1988 and then joined the firm as an attorney. She received the position of “partner” on January 1, 1995, and then “profit-sharing partner” on January 1, 1997.
Sotomayor explained that the “partner” title was given to senior attorneys and that, as of 1995, defendants William Siegel, Saul Fenchel and Tracie Peddy were “shareholders” and two other attorneys, Michael Schroder and Andrew Cangemi, were considered “profit-sharing partners.” 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.
The ruling said all firm employees 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 January 1, 1995, amendment excluded all “salaried associates,” a January 1, 1996, amendment excluded all “non-profit sharing attorneys,” and a January 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.'”
Further, 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 the Employee Retirement Income Security Act (ERISA) — a point that was conceded by the parties.
The firm, however, argued that Strom had actual notice of her right to seek review. The appellate court disagreed. “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.”
The 2nd Circuit ruling in Strom v. Siegel Fenchel & Peddy P.C. Profit Sharing Plan, 06-3107 is here .