State's Case Against Grasso Made More Difficult To Prove

The attorney general's effort to force a former New York Stock Exchange chief, Richard Grasso, to return the bulk of his $187.5 million pay package is faltering.

Today, more than four years after the attorney general at the time, Eliot Spitzer, sued Mr. Grasso, claiming that the amount he was paid was excessive, the state's highest court decided to throw out half of the attorney general's case.

The decision does not prevent the current attorney general, Andrew Cuomo, from pressing forward with the suit, but it does require his lawyers to prove a more difficult case. Lawyers for the attorney general had argued that Mr. Grasso must return most of the money if they could convince a jury or judge that the amount was objectively unreasonable. In the wake of yesterday's unanimous ruling by the state's Court of Appeals, the attorney general's office will now have to prove either of two more difficult points: that Mr. Grasso himself believed his pay was excessive or that he got it improperly.

The development could put pressure on Mr. Cuomo to try to settle the suit.

The unanimous decision, written by the chief judge, Judith Kaye, said the suit sought to sidestep limitations that the Legislature had imposed on the attorney general's power to police nonprofit corporations. The NYSE was a nonprofit institution until 2006.

"The Attorney General may not circumvent that scheme, however unreasonable that compensation may seem on its face," Chief Judge Kaye wrote.

The attorney general's suit goes beyond arguing that Mr. Grasso's compensation was unreasonable. The complaint filed by Mr. Spitzer also alleged that Mr. Grasso kept the exchange's board members in the dark about how much the exchange would owe him upon his retirement. Mr. Grasso, who rose from a position as a clerk at the stock exchange to became its chairman in 1995, has said the exchange's board members were aware of his pay.

Mr. Grasso's lawyers had argued that the attorney general's office should not be using public funds to try to regain Mr. Grasso's pay on behalf of the stock exchange. The decision yesterday did not address that issue.

The decision tossed out four of the six claims Mr. Spitzer had filed against Mr. Grasso. The suit is currently before Judge Charles Ramos in Manhattan. Numerous other elements of the case remain on appeal.

One of Mr. Grasso's lawyers, Mark Zauderer, declined to comment, as did a spokesman for the attorney general's office.