## Facts

- The New York Stock Exchange (NYSE) was a New York not-for-profit corporation governed by the Not-for-Profit Corporation Law (N-PCL).
- Richard A. Grasso served as NYSE Chairman and CEO (1995–2003); his compensation was governed by agreements executed in 1995, 1999, and 2003.
- Grasso’s base salary was about $1.4 million annually, while bonuses grew substantially (reaching $10.6 million in 2002).
- A 2003 compensation arrangement provided an immediate lump-sum payment of $139.5 million plus an additional $48 million payable over four years.
- The Attorney General alleged NYSE governance failures and breaches of fiduciary duty in setting Grasso’s compensation, including that Grasso influenced compensation committee composition, benchmarking was disregarded, and information provided to the committee and board was inaccurate or incomplete.
- The Attorney General alleged the NYSE board approved the 2003 package under a rushed process without meaningful advance notice or review by directors and without participation of independent counsel or dissenting viewpoints.
- The Attorney General challenged two NYSE loans to Grasso as prohibited officer loans under N-PCL § 716; Grasso argued an exemption applied because the NYSE was a “board of trade” under N-PCL § 1410(c)(2).
- Grasso moved to dismiss four causes of action: (1) unreasonable compensation under N-PCL §§ 202(a)(12) and 515(b); (2) unjust enrichment/money had and received; (3) defective board approval under N-PCL § 715(f); and (4) unlawful loans under N-PCL § 716.

## Issues

1. Whether the New York Attorney General had authority to bring enforcement and restitutionary claims concerning a not-for-profit corporation’s officer compensation and loans.
2. Whether the complaint stated viable claims under N-PCL §§ 202(a)(12) and 515(b) (reasonable, commensurate compensation) and under a restitution theory (money had and received/unjust enrichment).
3. Whether allegations of uninformed or procedurally defective approval stated a claim under N-PCL § 715(f).
4. Whether the officer-loan claim under N-PCL § 716 could be dismissed at the pleading stage based on the asserted “board of trade” exemption in N-PCL § 1410(c)(2).

## Decision

- The Appellate Division affirmed denial of Grasso’s motion to dismiss, allowing the challenged claims to proceed.
- The court held the Attorney General could sue to enforce N-PCL governance and compensation requirements and to seek equitable relief, including restitution, for allegedly unlawful or unreasonable compensation.
- The court held the allegations were sufficient to plead violations of N-PCL §§ 202(a)(12) and 515(b) and to support a related restitution claim for money had and received/unjust enrichment.
- The court held the allegations regarding the board’s approval process were sufficient to plead a violation of N-PCL § 715(f).
- The court declined to dismiss the N-PCL § 716 loan claim on the asserted exemption, holding that the exemption’s applicability could not be resolved as a matter of law on the pleadings.

## Legal Principles

- The New York Attorney General may bring actions to enforce the N-PCL’s governance constraints on not-for-profit corporations, including challenges to officer compensation and transactions affecting corporate assets.
- Under N-PCL §§ 202(a)(12) and 515(b), officer compensation must be reasonable and commensurate with services performed; pleaded facts suggesting excessive compensation and tainted decisionmaking can state a claim.
- If compensation is alleged to be unlawful under the N-PCL, restitutionary theories (including money had and received/unjust enrichment) may be available to seek return of improperly paid funds.
- N-PCL § 715(f) requires board approval of officer salaries; allegations that approval was not informed or was procured through inadequate disclosure and process can support a statutory claim.
- N-PCL § 716 generally bars loans to officers of not-for-profit corporations; an asserted statutory exemption (such as the “board of trade” exception) will not warrant dismissal where its applicability depends on unresolved factual or legal questions.

## Conclusion

The court permitted the Attorney General’s suit to proceed, holding that the Attorney General could enforce N-PCL limits on not-for-profit executive compensation and loans, and that the pleaded allegations sufficiently supported statutory and restitutionary claims challenging Grasso’s compensation, the board’s approval process, and officer loans.


People v. Grasso, 42 A.D.3d 126, 836 N.Y.S.2d 40 (App. Div. 1st Dep’t 2007)