Will Courts' Reluctance to Address Executive Compensation Push Congress to Act?

ATTORNEY GENERAL’S STANDING

Apart from the facts and alleged facts in this case, the attorney general appeared to have standing to bring this action. The bases for this conclusion were as follows:

1. The principle of parens patriae appeared to apply. Parens patriae is the authority of the sovereign to protect the well-being of its citizens, including the interest of important segments of the public, such as the investing public, that are not able to take action in a case like this. As stated by the New York Supreme Court (Justice Charles E. Ramos) in this case:

[T]he Attorney General represents the investing community that lacks the legal capacity to sue here, in order to redress the NYSE’s failure to act within the realm of its internal corporate governance or regulatory frameworks. By granting Grasso’s allegedly unreasonable compensation, the NYSE Board failed to insure the integrity and validity of the NYSE as an institution which, in turn, affects the interests of the New York investing public. Accordingly, the Attorney General has the authority to bring the challenged claims. People v. Grasso, 816 NYS2d 863, 874 (N.Y. Sup. Ct. 2006)

2. The attorney general was authorized to bring such an action under specific sections of the N-PCL. For example, N-PCL §720(b) (Actions on Behalf of the Corporation) provides that the attorney general may bring certain actions such as one to set aside unlawful transfer of corporate assets as well as relief in cases of breach of fiduciary duties by officers and directors (which should include any wrongful payment by the NYSE of unreasonable compensation of which an officer or director was or should have been aware).

3. N-PCL §112 authorizes the attorney general to restrain persons from exercising corporate rights “not granted to them by the law of the state.” (One example would seem to be an ultra vires act in a violation of the N-PCL itself.) This implies the authority to recover a payment that was beyond the authority of the corporation to make.

4. The attorney general does not appear to have lost standing following the merger of the NYSE into a for-profit entity on March 7, 2006. See N-PCL §§905(b) and 908(i). Supreme Court Justice Ramos in reaching this same conclusion stated:

The integrity of the market mattered before the action was initiated and it matters now. That interest has not changed with the merger of the NYSE and Archipelago.

[T]he N-PCL clearly provides that where a New York not-for-profit corporation merges with a foreign or domestic for-profit corporation, any actions against the corporation or its directors or officers continue ‘as if the merger or consolidation had not occurred.’ N-PCL §905(b)(3). … People v. Grasso, No. 401620/04, 2006 NYMisc. LEXIS 3023 at *11, *12 (N.Y. Sup. Ct. Oct. 18, 2006)