Former New York Stock Exchange chairman Dick Grasso on Thursday requested that the lawsuit over his $139.5 million compensation package be moved from state to federal court, a tactic that brought swift opposition from New York Attorney General Eliot L. Spitzer, who filed the suit against Grasso last month.
In a 15-page filing, Grasso's attorney, Brendan V. Sullivan Jr., argued that the case should be heard in federal court because Grasso served as head of an organization overseen by a federal agency, the Securities and Exchange Commission.
Spitzer based his lawsuit on the allegation that Grasso's compensation violated New York state law requiring that pay for executives at not-for-profit organizations be "reasonable" and "commensurate with services performed."
But Sullivan argued in his filing that Spitzer also alleged that Grasso's compensation called into question his performance as a regulator of the securities industry. The NYSE is a self-regulatory organization charged by the SEC with monitoring the brokerage industry.
Norman I. Silber, an expert in not-for-profit law at Hofstra University, said the filing was an attempt by Grasso's side to frame the case around the process that led to the former exchange chairman's pay rather than the question of whether the pay was reasonable under New York law.
"My reaction is if the court grants this, it's going to give the defendant a big boost," he said. Silber added that other attempts by attorneys general in New York to prosecute cases based on violations of state not-for-profit law have been successful -- another reason for Grasso to try to move the case into federal court.
But Arthur R. Miller, an expert in civil procedure at Harvard Law School, said he was dubious that Grasso's move would succeed.
"Brendan Sullivan is one of the greatest lawyers in the United States," he said. "It's an interesting move, and I can see why he would do it. But instinctively, I don't see it. . . . Eliot Spitzer is also a great lawyer, and there is an old cliche that the plaintiff is the master of his complaint, which argues against removal."
Grasso's pay was approved by NYSE directors who also served as executives at brokerage firms regulated by the exchange, a fact Spitzer described as a clear conflict of interest. Grasso resigned from the exchange in September after his pay generated outrage among investors.
"Grasso, as the Chairman and Chief Executive Officer of the Exchange -- and the senior Exchange official responsible for ensuring that practices at the Exchange complied with the securities laws and associated rules and regulations -- was a person 'acting under' a federal officer," Sullivan wrote in his filing.
Spitzer spokesman Darren Dopp said the attorney general would vigorously oppose the move to federal court. "This case is based on civil violation of state law and should be adjudicated by a state judge in state court," he said. "The action [by Grasso] is a distraction from the issue of unreasonable pay in violation of the state's not-for-profit corporation law."
Eric Starkman, a spokesman for Grasso, called the filing a "technical legal matter." He said Grasso would soon file a countersuit seeking $48 million more he believes the exchange owes him. A preliminary hearing in the case that had been scheduled for Friday before New York State Supreme Court Judge Charles E. Ramos was canceled after Sullivan submitted the motion.
Also on Thursday, former SEC chairman Harvey L. Pitt strongly defended Grasso in an interview with Bloomberg News. "Dick Grasso is probably the best chairman the New York Stock Exchange ever had, and he was probably worth whatever he was paid," he said.
Pitt said Spitzer's suit "is clearly something that has political motivations." Spitzer is widely seen as a future candidate for governor in New York. While in private law practice before joining the SEC, Pitt represented the NYSE while Grasso was chairman.