Spitzer’s Cold Feet

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The New York Sun

Is there any length to which Attorney General Elliot Spitzer will not go to avoid having to present a case to a jury? It appears not, to judge by the legal maneuvering in which Mr. Spitzer has engaged to remove key elements of the Grasso pay case from the astute consideration of a jury of Richard Grasso’s peers.This hasn’t gained the attention of the press, but as much as any issue in this case so far it illuminates the flaw that so many find in Mr. Spitzer’s approach to these kinds of confrontations.

The central question in the case is whether Mr. Grasso’s compensation for his tenure as head of the New York Stock Exchange was “reasonable.” In legal jargon, Mr. Spitzer has now convinced the judge, Charles Ramos, that this is a matter of “equity” instead of “law,” and thus that a bench trial is appropriate. In layman’s terms, Mr. Spitzer is hoping to dispense with inconvenient questions of fact like whether the NYSE board understood the pay package — it did — or whether Mr. Grasso violated his fiduciary duty to the NYSE — he arguably didn’t. Instead, Mr. Spitzer wants to rest his hat on whether a judge thinks Mr. Grasso’s nearly $140 million compensation is “fair.”

Mr. Spitzer has tradition on his side, sort of. Several states with legal systems based on the English common law separate so-called equitable claims from legal claims. While legal claims generally hinge on particular statutes and lead to monetary damages, equitable claims center on a vaguer notion of “fairness”as determined by a judge and result in an injunction regarding a particular act by one of the parties or a piece of property or pot of money. Mr. Spitzer is correct that when a case raises both law and equity issues, the courts generally tackle the equity issues first in a bench trial.

But this is no ordinary case. As one of Mr. Grasso’s lawyers, Mark Zauderer, suggested to us yesterday, in this case the equitable issue of the fairness of Mr. Grasso’s compensation is inextricably linked to the legal issue of whether the NYSE board agreed to the pay package in the right way. That’s because when it comes to executive compensation, “fairness” is in the eye of the beholder and the beholders who are supposedly responsible are the members of a duly constituted corporate board. At best, this bench trial dodge means that all the witnesses in the case will have to testify twice, first in the equity trial in front of the judge and then in the law trial in front of a jury.At worst, it means a state court judge will just go in and substitute his own judgment for that of a duly constituted corporate board and its compensation committee, not to mention a jury.

It’s doubtful that Mr. Spitzer cares much about any troubling implications such a precedent might harbor. Rather, he has just succeeded in finagling an opportunity to avoid a nettlesome jury trial. His desire to do so is understandable, given the humiliating loss he suffered at the hands of a jury in the Theodore Siphol case, the only of Mr. Spitzer’s Wall Street escapades to go to trial thus far. If the judge rules in Mr. Spitzer’s favor on the equitable claim, it may also spare the attorney general the trouble of putting his Democratic Party crony, former state comptroller and NYSE board member Carl McCall, on the hot seat in a jury trial for Mr. McCall’s role in setting Mr. Grasso’s pay. Mr. Spitzer apparently is hoping that Judge Ramos will be easier to convince than a jury of Mr. Grasso’s peers.

The New York Sun

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