updated 7/22/2004 1:24:21 PM ET 2004-07-22T17:24:21

Lawyers for the New York Stock Exchange say former chairman and chief executive Richard A. Grasso is not entitled to have the lawsuit over his $187.5 million pay package heard in federal court, according to a filing made Thursday to have the case sent back to state court.

While Grasso claimed to have been acting under federal authority in heading the NYSE — since it is governed by the U.S. Securities and Exchange Commission — the exchange said the actions leading to his pay package were not part of his role in ensuring the NYSE's compliance with federal laws.

The exchange asked the U.S. District Court in New York to have the lawsuit remanded to state court, where it was originally filed, adding that as a defendant in the case, the NYSE did not agree to have the case transferred. Grasso moved the suit to federal court June 17.

State Attorney General Eliot Spitzer filed suit against Grasso, former NYSE compensation committee chairman Kenneth G. Langone and the exchange itself on May 24. Spitzer is seeking the return of at least $100 million from Grasso and another $18 million from Langone, which the state claims was the amount of Grasso's pay Langone helped hide from the rest of the exchange's board of directors.

While the exchange is named in the suit as a defendant, Spitzer is not seeking damages against the exchange and has said the money recovered would be returned to the exchange. The NYSE has been working closely with Spitzer's office on the case, and has handed over a number of confidential documents to help bolster the case against Grasso and Langone.

On Tuesday, Grasso responded to Spitzer's lawsuit by filing a countersuit against the NYSE for at least $50 million, claiming that the exchange owed him additional compensation and that current chairman John Reed violated a "nondisparagement" clause in Grasso's employment agreement by speaking out against him after he resigned in September. Grasso sued Reed for defamation as well, and said any damages awarded to him in the countersuit would go to charity.

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