January 24, 2012 7:19 PM

Former Stroock Partner Must Take Retirement Claim to Arbitration

Posted by Sara Randazzo

A former Stroock & Stroock & Lavan partner who claims he was wrongly denied pension benefits because he took his practice to another firm must settle his dispute in arbitration, a New York state court judge has ruled.

Michael Perlis sued Stroock in Los Angeles state court on August 5, just two weeks after he jumped to Locke Lord in Los Angeles with five other attorneys. Perlis's initial bare-bones complaint offered little to support the claim, contending simply that he was entitled to certain retirement benefits the firm had denied him and seeking declaratory relief and a jury trial.

Stroock responded in September with a petition in its hometown of New York, asking a judge to compel arbitration in the dispute based on a clause in the firm's partnership agreement.

New York state supreme court justice Melvin Schweitzer accepted Stroock's argument in a January 17 decision, granting the firm's request and directing the parties to resolve the matter in arbitration. The Los Angeles suit has been stayed pending the outcome of the arbitration question.

Schweitzer did not rule, however, on what is shaping up to be a crucial question—where the arbitration will take place. According to court filings, the American Arbitration Assocation will take on the case and determine the jurisdiction in which it will be decided.

Supplemental papers filed by Perlis's camp in the New York action reveal that the crux of his argument against the firm rests on a section of California's business and professions code that restricts the ways in which a company can prevent someone from working, which Perlis argues "nullifies the noncompetition provision on which [Stroock] bases its refusal to remit to Perlis his hard-earned pension benefits."

Perlis, now 64, joined Stroock in 1989, became an equity partner in 1993, and at one point served on the firm's executive committee. According to his court filings, he held an equity stake of no more than 1 percent during his time at the firm and left "after experiencing systematic age-related compensation reductions."

If the California law is applied, Perlis maintains, Stroock must pay him his pension even though a section of its partnership agreement specifies that those deemed pension partners "shall not otherwise be entitled to practice law except on behalf of the firm." In Perlis's view, according to his court filings, Stroock "sought to avoid California law and California's public policy against restraint of trade" by filing its petition in New York rather than where he brought his complaint.

Robert Hillman, a professor at UC Davis School of Law and an expert on partnership law, tells The Am Law Daily that while restrictive covenants prohibiting lawyer movement are broadly banned around the nation, there is an exception in most states, including California, that says retirement benefits can be restricted if a lawyer jumps between firms. Hillman has said that that exception is not widely known but that a growing number of firms have become interested in adding such provisions into their partnership agreements.

In a series of filings submitted to the court since September, Stroock focuses its argument largely on why Perlis's complaint should go to arbitration. In one filing, Stroock says that the agreement Perlis signed when he became an equity partner in the 1990s contains a clause requiring arbitration in New York City of "[a]ny difference or dispute among the parties hereto or any of them concerning or arising under or out of this agreement or the Partners Retirement Plan."

The firm, represented by Proskauer Rose labor and employment partner Bettina Plevan, also contends that Perlis seeks to create a double standard by trying to ignore the arbitration clause in the same partnership agreement he says gives him the basis for his retirement benefits. In Stroock's view, according to one filing, Perlis "cannot have it both ways by arguing that he never agreed to be bound by the very agreement pursuant to which he seeks relief."

Though not obligated to address the question of where the matter should be arbitrated, Schweitzer does touch on the venue issue in his ruling.  He writes that a party cannot "simply 'race to file'" a lawsuit, as Perlis appears to have done, to avoid his contractual obligation to arbitrate, and then insist that "any subsequent action must be held in the forum the party selected," in this case, Los Angeles. Schweitzer also notes that by the time he issued his decision, the parties appeared to have agreed that arbitration was the correct course of action.

Perlis amended (PDF) his Los Angeles lawsuit in mid-September, adding claims that the firm retaliated against him for, among other things, speaking out about how it handled sexual harassment and hostile work environment claims. In one case, according to the amended complaint, a Stroock lawyer who was the subject of a harrasment claim later became a co–managing partner of the firm against Perlis's objections. The firm then began cutting his pay and benefits and created intolerable work conditions, Perlis claims, spurring his eventual departure from the firm. Stroock has not responded in court on the merits to Perlis's claims, and now that the case is headed to arbitration, such a response is unlikely to be made in public.

Reached Tuesday, Plevan said the firm has no comment on the case. Perlis's New York cousel, Brooklyn lawyer Kenneth Gerver, did not respond to a request for comment. Barry Langberg, a shareholder at Brownstein Hyatt Farber Schreck in Los Angeles who filed the initial California complaint, was in court for a trial and could not be reached for comment.

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