Former New York Stock Exchange Chairman Richard Grasso lost his bid Thursday to have the lawsuit over his controversial $187.5 million pay package tried in federal court.
District Court Judge Gerard Lynch ruled the case was best suited for state court, since New York Attorney General Eliot Spitzer filed the lawsuit claiming violations of state law. Spitzer is seeking to take back at least $100 million from Grasso and another $18 million in damages from former NYSE board member Kenneth Langone.
Grasso had asserted that because the NYSE was regulated by the federal Securities and Exchange Commission, he could only be sued in federal court. However, Lynch wrote in his ruling that there were no federal statutes in question in Spitzer's suit, which claims Grasso and the NYSE violated the state's not-for-profit law by allowing Grasso "excessive compensation."
"Permitting a state government to enforce the corporate governance norms under which an exchange or self-regulating organization is established violates no policy embodied in the federal securities laws," Lynch wrote.
Spitzer spokesman Marc Violette said the case would be returned to state court, where a judge would schedule further proceedings.
"It's back where it started and from our perspective, it's back where it rightfully belongs," Violette said. "Since we're alleging violations of state laws against an entity with the state, it always seemed appropriate and logical that it should be heard in state court."
A spokesman for Grasso said in a statement: "Mr. Grasso believes firmly in the merit of his position and looks forward to his day in court." The spokesman was unavailable for further comment.
Langone spokesman Jim McCarthy said the decision does not alter Langone's position, and that the former board member was looking forward to his day in court, too.
Spitzer sued Grasso and former NYSE board member Kenneth G. Langone on May 24 in state court, claiming the two hid information from the board's compensation committee in approving Grasso's pay package. Grasso resigned as chairman and chief executive of the NYSE in September 2004, one month after the pay package was approved.
The exchange itself was also named as a defendant in Spitzer's case, but the attorney general said he would not seek damages from it, and offered assurances that any money he did win back would be returned to the exchange. NYSE lawyers are working closely with Spitzer's office on the case.
Grasso countersued the NYSE in July, seeking damages for breach of contract and defamation. He said he plans to donate any damages he receives to charity.