A judge ruled in favor of Gravity Payments CEO Dan Price on all counts today in a suit filed against him last year by his brother and business partner, Lucas Price — capping, at least for now, a hard-fought legal dispute between the owners of a Seattle-based company known for raising its minimum salaries to $70,000 a year.
The ruling by King County Superior Court Judge Theresa B. Doyle declares Dan Price “the substantially prevailing party on all of Lucas Price’s claims,” rejecting allegations that Dan Price awarded himself excessive compensation and worked against his brother’s interests as minority shareholder. The ruling includes an award of attorneys’ fees and other expenses to Dan Price from his brother.
The ruling follows a trial that spanned three weeks in May and June in downtown Seattle, exploring the complicated relationship between the brothers, and delving into the inner workings of the credit-card processing company, which has been valued at more than $80 million.
If Lucas Price had prevailed on his claims, Dan Price could have been required to pay his brother tens of millions of dollars for his share of the privately held company. Dan Price had said such a ruling would have put the future of the 130-person company in jeopardy — an assertion that Lucas Price disputed.
In denying Lucas Price’s claims, Doyle found that Dan Price’s decisions about his own compensation “were a reasonable business judgment made in good faith.” She wrote that Lucas Price didn’t prove, by a preponderance of the evidence, his claim that Dan Price improperly charged Gravity Payments for personal expenses. Nor did Lucas Price prove, by that standard, his claim that Dan Price systematically excluded him from board-level decision-making, the judge ruled.
The judge wrote that Dan Price’s decisions not to raise the privately held company’s dividends to shareholders were “well within the bounds of good faith exercise of his business judgment” — also rejecting Lucas Price’s claims in that regard.
“I’m shocked and disappointed by the result, and I’ll be looking into what options I have,” said Lucas Price, reached via phone this evening by GeekWire. He acknowledged that those options could include an appeal.
Dan Price said in a post on his Facebook page this evening, “My love for my brother is unconditional. I will never take for granted the incredibly valuable role Lucas played in creating our company.”
He added, “I’m thankful for the opportunity to put this challenging time behind us. I’m excited to once again get back to investing all of my time and energy into supporting our clients, communities, and our team’s mission to change the way we think about the purpose of business.”
Gravity Payments made international headlines over the past year due to Dan Price’s decision, announced in April 2015, to raise the company’s minimum salary to $70,000 over three years and immediately drop his compensation — previously more than $1 million — to $70,000 to help fund the raises.
Lucas Price served the suit on his brother prior to the $70,000 announcement, and the core allegations related to the preceding years. The suit alleged that Dan Price used his majority control of the company to pay himself excessive compensation, manipulate valuations of the company to his financial benefit, and charge hundreds of thousands of dollars in personal expenses to the company.
Alleging minority shareholder oppression and other claims, Lucas Price’s lawyers had asked Judge Doyle to require Dan Price to buy out his brothers’ stake in the company.
However, lawyers for Dan Price pointed out that the shareholders’ agreement between the brothers didn’t include a buyout provision — arguing that Lucas Price hadn’t met the resulting legal requirement to show that Dan Price acted in bad faith. They said Lucas Price has received significant financial benefit from his ownership stake —including a $400,000 payout from a 2008 renegotiation of their agreement — as a result of Dan Price’s hard work and leadership, despite Lucas Price’s minimal involvement as the company grew larger and more profitable in recent years.
Dan Price has been celebrated and criticized for the company’s move to $70,000 minimum salaries, but the resulting publicity appears to have been a boon for Gravity so far. The company recently said annual profits have nearly doubled over the past year, to more than $6 million, following the announcement.
Lawyers for Lucas Price played video of a public appearance in which Dan Price referenced the suit as if it was in response to the $70,000 decision, even though it was served on him prior to the announcement.
“All of a sudden, I have this crazy moment and all this excitement, and two weeks later I’m getting sued for it,” said Dan Price in the video, as played in court. Under questioning in the case, Dan Price acknowledged making some “overstatements” to the media and public figures.
Dan Price testified that the cost of buying out his brother, potentially as much as $26 million (at a company valuation of more than $80 million), would have forced him to give up control of the company to his brother. Lucas Price, who started the Seattle-based credit card processing company with his brother in 2004, was originally the majority owner but currently owns about one-third of the company.
Lawyers for Lucas Price cited expert testimony saying that the buyout could be accomplished over the course of seven to 10 years, with a down payment and “modest” interest. They had asked for the appointment of a special master to work out the details based on a ruling by the judge.
Although the original complaint didn’t cite the $70,000 salaries, Lucas Price’s attorneys later pointed to the decision as an example of Dan Price cutting his brother out of key decisions at the company. Lucas Price testified that he didn’t learn about the salary decision until after Dan Price and Gravity informed media outlets and celebrities —including NBC News, the New York Times and Tyra Banks — about the plan.
“It’s a large expense that’s been taken on. It might be a wise expense to take on. It’s hard to say at this point in time,” Lucas Price testified in June, saying he should have been involved in the decision as a board member. “What we’ve seen so far are a lot of PR benefits for costs that are going to be incurred in the future. We’ve seen a lot of benefits for the employees, which I think are good.”
However, Judge Doyle wrote in her ruling Friday that “salary decisions are a management level decision, not a Board decision.” She noted that the company had “a long history of implementing substantial raises as a management level decision,” boosting average pay by 26 percent in 2012, 19 percent in 2013, and 16 percent in 2014, compared with 27 percent in 2015, the year of the big announcement.
“Lucas had full access to monthly, quarterly and year-end financial data, which showed these increasing employment costs, and yet he never expressed any interest or dissatisfaction with the raises,” the judge wrote.
Here is a copy of the judge’s full ruling.
Price v Price Ruling by Todd Bishop on Scribd
