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New York’s Appellate Division, 1st Department, has reinstated a libel claim initiated by deposed head of the New York Stock Exchange Richard A. Grasso against the stock exchange and John S. Reed, the executive who replaced Grasso as chairman. In March, Manhattan Supreme Court Justice Charles E. Ramos dismissed the claim, one of five cross-claims Grasso made in the ongoing litigation over his compensation. Thursday, an appellate panel unanimously reversed Ramos’ decision. “The challenged statements, although expressing opinions, are actionable because an average reader rationally could have construed them … to imply that the opinions being expressed were based on detrimental facts that were known to the speaker … but which facts were not disclosed to the audience,” the panel held in its unsigned opinion. Justices Angela M. Mazzarelli, David Friedman, Eugene L. Nardelli and John W. Sweeny Jr. sat on the panel. At issue are two statements attributed to Reed, the former chairman of Citigroup who took over for Grasso in September 2003. The first allegedly defamatory remark appeared in The New York Times in December 2003. The newspaper quoted Reed as saying that if a person “trained in the law” were to read an internal report the NYSE had commissioned, that person “would say that there is information in that report that would support a potential legal action.” The second statement appeared in a NYSE press release the following month. The release stated that Reed had informed the SEC and the New York attorney general that the stock exchange had reviewed the internal report and concluded that “serious damage has been inflicted on the Exchange by unreasonable compensation of the previous Chairman and CEO, and by failure of governance and fiduciary responsibility that led to the compensation excesses.” Thursday, the appellate panel held that those statements may constitute libel. “Since the statements are reasonably susceptible of a defamatory connotation, it is the function of the trier of fact to say whether ‘the ordinary and average reader’ was likely to have understood the statements in a defamatory sense,” the panel ruled, quoting James v. Gannett Co., Inc., 40 NY2d 415. In the underlying suit, Attorney General Eliot Spitzer is suing Grasso and the NYSE, alleging that the stock exchange paid Grasso excessive compensation under New York’s nonprofit law. Grasso reportedly received nearly $200 million in compensation and benefits during his eight years as the NYSE’s chief executive. Grasso made numerous cross-claims against his co-defendant, in addition to the libel claim. He is suing the exchange for, among other things, breaching his 2003 contract. He contends the contract awards him $50 million more in unpaid compensation. Gerson A. Zweifach of Williams & Connolly in Washington, D.C., represented Grasso. Linda T. Coberly of the Chicago office of Winston & Strawn represented Reed and the stock exchange. Zweifach did not return a call seeking comment; Coberly declined to comment.

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