The state’s highest court is gearing up to decide whether Eliot Spitzer overreached four years ago when, as attorney general, he sought to force a former New York Stock Exchange chief, Richard Grasso, to relinquish his $187.5 million pay package.

On June 3, the Court of Appeals, which sits in Albany, will hear arguments on a sticking point in People v. Grasso that will set the ground rules for any eventual trial. The state, whose case is now pressed by Attorney General Cuomo, is seeking a trial after which Mr. Grasso must surrender his pay if it’s proved that the amount was unreasonable for a not-for-profit corporation, which the NYSE was until recently. The law provides little guidance for determining what is reasonable.

A mid-level appeals court last May effectively said the state would have to prove much more than that at trial. The ruling, which is the subject of Mr. Cuomo’s appeal, would require lawyers for the attorney general to prove either of two more difficult points: that Mr. Grasso himself believed his pay was excessive or that he got it improperly.

For Mr. Cuomo, the case has taken on an added dimension. The decision from last May also struck at the authority of his office to bring suits against other not-for-profit corporations.

A professor at Columbia Law School, Jeffrey Gordon, said the case will help decide “the extent to which the attorney general will assert his superintendent powers over the practices of not-for-profits, particularly in the compensation area.”

That area of authority is of special concern to Mr. Cuomo given the scrutiny his office has paid of late to pork-barrel spending by the Legislature, some of which goes to not-for-profit corporations.

Mr. Cuomo’s solicitor general, Barbara Underwood, will argue the state’s case. Mr. Grasso’s case will be argued by Gerson Zweifach of Williams & Connolly LLP, the Washington firm.

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, becoming its chairman in 1995, has said that the exchange’s board members were aware of his pay.

One issue that will prove central to the upcoming oral argument is what business an attorney general has in devoting state resources to try to recover money on behalf of a private stock exchange, whose board members are considered to rank among the country’s savviest businessman.

In a brief filed by Mr. Cuomo’s lawyers, the attorney general argues that New York State “has a concrete interest in the economic well-being of its investors” from which derives the attorney general’s standing to pursue Mr. Grasso.

Mr. Grasso’s lawyers argue, in a brief to the court, that the people of New York State have no “concrete nor visible” direct interest in Mr. Grasso’s money.

“The Attorney General has no business expending public resources to recover money for the New York Stock Exchange,” Mr. Grasso’s brief states.

Mr. Grasso’s lawyers also warned the court of what might follow if the attorney general was recognized to have the authority to police the executive compensation at institutions based on their importance to New York’s economy. They argued that such a ruling would give the attorney general’s office an unprecedented authority to sue corporate executives, even of for-profit institutions.

That authority, Mr. Grasso’s brief states, “would entitle the Attorney General to challenge the compensation paid by any major bank that he selects.”