It didn't take long for the case of New York state Attorney General Eliot L. Spitzer vs. former New York Stock Exchange chairman Dick Grasso to devolve into the legal equivalent of a professional wrestling smackdown.
Day Two of the Spitzer-Grasso extravaganza began with a blistering newspaper opinion piece in which Grasso blasted Spitzer as a politically motivated opportunist and declared he would wipe the floor with the attorney general in court. Through a spokesman, Grasso also said he would invoke a clause in his contract and demand that the NYSE cover his legal bills in the evolving brawl.
Then Spitzer, who filed suit Monday demanding that Grasso return more than $100 million of $139.5 million paid to him by the exchange last year, jumped into the fray with a series of media interviews. He described his case in an interview with The Washington Post as "overwhelming" and promised to argue at least some of it himself.
Spitzer even took a shot at Brendan V. Sullivan Jr., Grasso's lawyer. Sullivan is known as a fierce courtroom advocate who, among other things, helped retired Lt. Col. Oliver L. North stay out of jail in the Iran-contra affair.
"I respect Mr. Sullivan enormously, he's a superb litigant, I look forward to doing battle with him," Spitzer said. "But let's remember, for all the bluster, Ollie North was convicted. The reversal was an aberrant circuit court opinion that was wrong on the law."
Sullivan, through a spokesman, declined to comment. But Grasso's side pointed out that of 16 counts against North, four were dismissed before trial. At his trial, North was acquitted on nine counts and convicted on three. The three convictions were overturned on appeal.
The sniping, meanwhile, did not stop with Spitzer and Grasso.
A source close to Kenneth G. Langone, the former chairman of the exchange compensation committee whom Spitzer also sued, made it known that Langone was considering a countersuit of his own. (Grasso has threatened to countersue for an additional $50 million he believes he is owed, promising to give any of his winnings to charity.)
On what basis would Langone countersue?
The source, who would not agree to be quoted by name because of the ongoing nature of the dispute, said he did not know. But Langone would certainly find something. The source also promised that Langone would conduct extensive and excruciating discovery, seeking to depose every former NYSE board member who voted on Grasso's pay to determine what information and documents the directors had when they cast their votes.
Spitzer argued in his complaint that Grasso's contracts should be rescinded because directors were kept in the dark about the ballooning nature of Grasso's retirement accounts. He said Langone should be held liable for $18 million in payments to Grasso that Langone allegedly hid from other directors. And he said he would fight any attempt by Grasso to have the NYSE cover his legal fees.
The source close to Langone, meanwhile, said "a handful" of former NYSE directors had been calling to pledge their support, saying they were aware of every penny awarded to Grasso. Just which directors? The source would not say.
Grasso, for his part, pulled no punches in his 1,500-word op-ed piece, which appeared in the Wall Street Journal opposite an editorial generally favorable to the former NYSE chairman.
Of his promise to give countersuit proceeds to charity Grasso said, "I will derive considerable pleasure knowing that some public good ultimately resulted because of the immoral and dishonest behavior of those who forced my departure and besmirched my name."
He continued, "Those who thought they could break me with their repeated media leaks badly underestimated my character and resolve. I look forward to addressing them in court where they can no longer hide behind Spitzer's cloak."
Grasso addressed the broad points of Spitzer's lawsuit, saying directors who voted on his pay "knew exactly what they were doing."
New York state not-for-profit law, under which Spitzer filed suit, requires that executive pay be "reasonable" and "commensurate with services performed," a vague formulation that Grasso sought to attack.
Spitzer fired back, saying the assertion that directors acted with full knowledge was nonsense and that, in any case, they had no business paying the head of a quasi-regulatory, not-for-profit organization anything close to what the head of giant investment bank is paid.
"What makes this case overwhelming at this point is the acknowledgement by Frank Ashen [the former NYSE human resource director] and Bill Mischell [a former compensation consultant to the exchange] that evidence that flowed from the compensation committee to the board was flawed, misleading and incomplete," Spitzer said.
As the crossfire blazed, legal analysts continued to sift through the voluminous complaint.
Norman I. Silber, a law professor at Hofstra University and a leading expert in not-for-profit law, said he was struck by the level of detail the complaint goes into describing the alphabet soup of retirement plans (SERP, SESP, CAP, ICP) that led to the $139.5 million payout.
"I think [Spitzer] is trying to show that the pay was very complex and capable of being misrepresented to the compensation committee and the board," he said.
Silber said Spitzer's conflict of interest argument could be among his strongest. "It frequently happens that boards are composed of people well known to the chief executive," he said. "What is not routine is to have a board or a compensation committee that is composed of people, all of whom have career interests in organizations directly affected by the activities of the executive they supervise. That will make this case significantly easier" for Spitzer.
Silber also cited the last segment of the complaint, in which Spitzer describes the Aug. 7, 2003, board meeting at which directors voted to approve the $139.5 million payout. Spitzer says that the payment was not on the agenda for the meeting, that several directors who opposed the payment were not in attendance and that those who were there were not adequately prepared.
"New York has specific laws about notification" of board members about meeting agendas, Silber said.
Silber declined to speculate who would prevail but he said the case was certainly strong enough to survive a motion for dismissal. The case was assigned on Monday to State Supreme Court Judge Charles E. Ramos, Spitzer's office said.
Grasso has 30 days to respond to Spitzer's complaint. After that, discovery could drag on for months. Ramos will decide whether he will hear the case himself or empanel a jury. But both sides can request a jury trial and Spitzer is expected to do so, counting on public revulsion at Grasso's pay.