"The attorney general may not circumvent that scheme, however unreasonable that compensation may seem on its face," Kaye wrote.
Two claims alleging unlawful transfer of NYSE assets and breach of fiduciary duty remain against Grasso. He is separately challenging those, which have been upheld so far by a lower court.
Kaye noted that the four claims crafted by Spitzer, once dubbed the "sheriff of Wall Street," carried a lower burden of proof than the remaining claims. They were based on common law doctrine that the state can sue to protect the public interest. She described that as "overriding the fault-based scheme codified by the Legislature and thus reaching beyond the bounds of the attorney general's authority."
Calls to Attorney General Andrew Cuomo, whose office is now handling the case, and to Grasso attorney Gerson Zweifach were not immediately returned Wednesday.
Zweifach had argued Spitzer's office could "prove (Grasso) got a lot of money, but that is not enough. It's not how much he got. It's whether under all the circumstances he acted in good faith and with reasonable prudence."
According to the court, Grasso's base salary from 1995 through 2002 was roughly $1.4 million, with bonuses that escalated from $900,000 in 1995 to $10.6 million in 2002. His 2003 agreement provided a lump sum of $139.5 million, with an additional $48 million payable over four years.
The NYSE was organized at the time as a not-for-profit corporation, governed by state law. State attorneys argued that the NYSE compensation committee was hand-picked by Grasso and ignored a benchmark system in calculating his pay. They also noted several NYSE board members expressed disapproval of the 2003 package, which was left off a meeting agenda, then brought up and approved at the last minute when opponents were missing and others had no chance to review the details in advance.
The negative reaction to the compensation forced Grasso to resign, prompting an internal investigation and a request from the NYSE board for Spitzer and the federal Securities and Exchange Commission to investigate.
"This case demonstrates everything that can go wrong in setting executive compensation," Spitzer said in filing the 2004 lawsuit. "The lack of proper information, the stifling of internal debate, the failure of board members to conduct proper inquiry and the unabashed pursuit of personal gain resulted in a wholly inappropriate and illegal compensation package."
Joining Kaye in the ruling were judges Carmen Beauchamp Ciparick, Victoria Graffeo, Susan Read, Robert Smith, Eugene Pigott Jr. and Theodore Jones Jr.
