People v. Grasso
New York Supreme Court, Appellate Division
836 N.Y.S.2d 40 (2007)
Richard Grasso (defendant) served as chairman and CEO of the New York Stock Exchange (NYSE), a New York not-for-profit corporation, from 1995 to September 2003. In August 2003, the NYSE announced it had entered a new employment contract with Grasso and paid him $139.5 million in accumulated benefits. This amount, which was more than four times the NYSE’s net income for 2002, did not include an additional $48 million in benefits payable to Grasso in the future. Amid widespread negative publicity over the size of his compensation package, Grasso resigned in September 2003, eventually agreeing to forego the additional $48 million in benefits. New York’s attorney general (AG) (plaintiff) sued Grasso, contending Grasso was paid an unlawful amount of compensation under New York’s Not-for-Profit-Corporation Law (N-PCL) and seeking to compel Grasso to return that money to the NYSE. The AG alleged the members of the NYSE’s compensation committee were Grasso’s cronies who received favorable treatment from Grasso in their business dealings with the NYSE if they approved Grasso’s pay hikes. Among the causes of action asserted by the AG were (1) alleged violations of N-PCL §§ 202(a)(12) and 515(b), which required the compensation of officers of a not-for-profit corporation to be both reasonable and commensurate with the services the officers performed; (2) a claim for payment had and received; (3) an alleged violation of N-PCL § 715(f), which required that salaries of a not-for-profit corporation’s officers be approved by a majority of the corporation’s board of directors; and (4) an alleged violation of N-PCL § 716, which generally prohibited a not-for-profit corporation from making loans to its officers and directors. The claim for payment had and received was grounded in the notion that Grasso would be unjustly enriched if he was permitted to keep compensation that was unreasonable or not commensurate with the services he performed. The AG contended that N-PCL § 715(f) was not complied with because the NYSE’s board of directors was not fully and accurately informed when it approved Grasso’s compensation. The AG claimed N-PCL § 716 was violated because Grasso received two large loans from the NYSE while he was an NYSE officer and director. Grasso argued that as a board of trade, the NYSE was exempt from N-PCL § 716 and was permitted to make loans to its directors and officers pursuant to N-PCL § 1410(c)(2). Grasso moved to dismiss the four causes of action, contending they were invalid because the AG lacked specific statutory authority to bring them. The motion was denied, and Grasso appealed.
Rule of Law
Holding and Reasoning (McGuire, J.)
Dissent (Mazzarelli, J.)
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