Thursday, June 26, 2008
The New York Times reports that Richard A. Grasso, the former chairman and chief executive of the then not-for-profit New York Stock Exchange, has convinced New York's highest court to uphold the dismissal of four counts originally brought against him by the Attorney General's office relating to his compensation. The court upheld the dismissal on the grounds that the Attorney General did not have the statutory authority to bring the claims. Two other counts remain against Mr. Grasso relating to whether he violated his fiduciary duties to the NYSE by accepting compensation that he knew was excessive, as well as a separate lower court decision that he breached his fiduciary duty to keep the board informed about his pay, a decision that Mr. Grasso is also appealing.
The New York Court of Appeals' opinion provides further details. The NYSE employed Mr. Gross as its chairman and chief executive officer from 1995 until his resignation in 2003 (caused by the public outrage over his compensation). That compensation grew to approximately $12 million by 2002, and then leaped to $139.5 million in 2003 plus an additional $48 million payable over four years. The court characterized the four counts brought by the AG that the lower appellate court had dismissed as "nonstatutory claims . . . premised on provisions of [New York's not-for-profit corporation law] but clothed in the common law." The counts involved constructive trust and unjust enrichment claims based on the statutory reasonable compensation provisions, a restitution claim based on the assertion that a majority of the Board had failed to approve the compensation at issue as required by statute, and a claim based on the assertion that certain advance payments from a retirement plan violated the statutory prohibition against loan to officers. The Court of Appeals found, however, that these nonstatutory counts exceeded the AG's authority because they would have required a lower burden of proof than that specified by the legislature in its fault-based enforcement scheme that explicitly gave the AG authority to enforce certain provisions of the New York not-for-profit corporation law. The two surviving counts, in contrast, are for statutory violations - unlawful transfer of corporate assets and breach of fiduciary duty - that the AG has express authority to pursue in court, although Mr. Grasso is challenging the AG's current standing to bring those claims in a separate pending appeal.