June 25 (Bloomberg) -- Richard Grasso, the former New York Stock Exchange chairman whose $190 million pay package is under legal attack by the state, won an appeal at New York's highest court that may make it easier for him to keep the money.

The state Court of Appeals in Albany today threw out four of six claims against Grasso, 61, in ex-Attorney General Eliot Spitzer's lawsuit. The decision means the state must prove Grasso knew his pay was excessive or breached his duty to the NYSE. The attorney general isn't authorized by state laws to sue under the easier-to-prove rejected claims, the court said in a 7-0 ruling.

``The plain language of these provisions reveals a legislative policy decision to provide officers and directors of not-for-profit corporations with the `business judgment' protections afforded their for-profit counterparts,'' it said.

The ones tossed out would have required the state to prove only that the pay was unreasonable and not that Grasso was at fault, the court said.

Barbara Underwood, New York solicitor general, declined to comment on today's ruling, which upheld a Manhattan appeals court's decision that the state appealed.

``Mr. Grasso is gratified about the court's decision,'' said Gerson Zweifach, one of Grasso's lawyers. ``He always had faith in the court system.''

Grasso is appealing a ruling based on the remaining claims, in which a Manhattan trial judge said the ex-chairman must return part of his compensation. State lawyers calculated the ex-chairman owed as much as $112.2 million.

Sued in 2004

Spitzer sued in 2004, the year after Grasso was ousted from the NYSE, saying the chairman's pay was unreasonably high for a not-for-profit corporation. Lawyer Dan K. Webb said in a report for the exchange that Grasso's pay was about $150 million ``beyond reasonable.''

Webb, of the Chicago law firm Winston & Strawn, made his report in 2005, after Grasso left.

Andrew Cuomo, Spitzer's successor as attorney general, continued to pursue the case after the 2006 elections. Spitzer became governor, then resigned in March of this year amid a federal investigation of a call-girl ring.

Spitzer argued that while he lacked specific legislative authority to sue under the four claims, as the top state lawyer he could go to court to protect the public.

Today's decision may reduce the ability of the attorney general to pursue claims by relying on its broad authority to safeguard New Yorkers' interests, said Richard Schulman, a lawyer at New York-based Bryan Cave who isn't involved in the case.

Impact on Nonprofits

``It will certainly have a negative impact in terms of nonprofits, and the question is whether it goes beyond that,'' Schulman said of today's decision. ``This might have a ripple effect, which is why I think the attorney general felt compelled to bring this appeal, because in the end it was a restriction on the power of the attorney general.''

The six parts of the suit offered different theories on why Grasso's compensation was illegally high.

Those thrown out today were accusations that Grasso unjustly enriched himself, that NYSE board approval of his compensation was improper and that advance payments from a retirement plan violated the prohibition against loans to nonprofits' officers.

The surviving accusations are that Grasso knowingly transferred NYSE assets and that he breached his fiduciary duty.

The lawsuit over the $190 million in compensation during Grasso's years in the top job was part of a Spitzer campaign challenging Wall Street firms and practices during eight years as attorney general.

35-Year Career

Grasso spent 35 years at the exchange, rising from clerk to chairman. After he was forced out over his compensation, new Chief Executive Officer John Thain led the move that turned NYSE into a publicly traded company.

Underwood said in June 3 appeals court arguments that the four claims dismissed today were within the scope of the attorney general's ``historic and broad'' powers.

``We're not suing on behalf of the corporation,'' she said. ``We're suing to vindicate the interest of the investing public.''

Grasso's attorney Zweifach, a partner at Williams and Connolly, argued that the state was acting like a ``knight errant'' for the exchange, using legal arguments normally deployed on behalf of ``those who cannot help themselves.''

The NYSE could have sued Grasso and didn't, Zweifach argued. It was owned by 1,366 millionaires who ``had the wherewithal to hire a national law firm, develop this case and threaten to bring suit -- had the ability to pursue a recovery,'' he said.

Settlement Foreseen

Cuomo may now be more open to reach a settlement with Grasso, Schulman said.

``Now the attorney general, like any litigant, has to evaluate his evidence and see whether it's in the best interest of the people to reach a settlement,'' the lawyer said.

Grasso, after setbacks at the trial court level, has appealed to the intermediate appellate court in Manhattan. Those appeals are pending.

The trial judge, state Supreme Court Justice Charles Ramos, in Manhattan, granted the state a partial summary judgment, or a decision without a trial, and ordered Grasso to return some of the money.

The $112.2 million estimate came later from state lawyers who argued that Grasso should disgorge an $81.5 million payment to his pension plan, $12.3 million in interest on two loans and $18.3 million he was paid from an executive savings plan.

Ramos also decided to hold a nonjury trial on the claim that Grasso had unjustly enriched himself and dismissed Grasso's countersuit against H. Carl McCall, the former state comptroller who headed the exchange's compensation committee. Grasso claimed McCall mishandled his pay.

The case is New York v. Grasso, 04-401620, New York Supreme Court, New York County (Manhattan).

To contact the reporters on this story: Patricia Hurtado in New York at pathurtado@bloomberg.net; Edgar Ortega in New York at ebarrales@bloomberg.net.

Last Updated: June 25, 2008 22:47 EDT