Gravity Payments' Dan Price--who made headlines around the world last year when he instituted a $70,000 minimum wage at the company he founded--won a resounding victory in a lawsuit brought last year by his brother and co-founder, Lucas Price.

In that lawsuit, Lucas accused Dan of paying himself "excessive compensation" and violating his rights as a minority shareholder, and asked for a forced sale or dissolution of the company.

In a ruling handed down at the end of business Friday, King County Superior Court Judge Theresa B. Doyle wrote, "Lucas Price has failed to prove his claims in this matter; Judgment shall be entered in favor of Daniel Price; and Daniel Price is entitled to an award of his reasonable attorneys and paralegal fees and expenses of litigation incurred in defense of this action."

Last year, Dan estimated to Inc. that his legal fees would be at least $1 million. Lucas's attorney, Greg Hollon, did not reply to an email late Friday requesting comment about the ruling and asking whether Lucas would appeal.

In a Facebook post this evening, Dan said, "My love for my brother is unconditional. I'll never take for granted the incredibly valuable role Lucas played in creating our company. I'm thankful for the opportunity to put this challenging time behind us, and 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." Through his spokesperson, Dan declined to make any additional comment on the ruling.

Lucas--who owns 33 percent of Gravity to Dan's 67 percent--claimed in his lawsuit that after Dan became CEO in 2006 and gained a majority stake in the company two years later, he "engaged in a campaign designed to enrich himself...to the detriment of Lucas and his minority interest" and had overpaid himself before cutting his salary last year from $1.1 million to $70,000 to help pay for the raises for his staff. Dan has denied the claims.

According to court filings, Dan earned $1.1 million in 2014 and 2013, $2.04 million in 2012, $909,000 in 2011, and $958,000 in 2010. The brothers are the only two members of Gravity's board, and Lucas acknowledged in depositions that he approved Dan's $800,000 cash bonus in 2012, based on the company's high performance, a bonus Dan continued to receive in subsequent years.

"In hindsight, I probably should not have [approved the bonus]," Lucas said during a pre-trial deposition.

Given a long-simmering dispute between the brothers over how the company was operated, Dan told Inc. that, at one point, he offered his brother $4 million to $5 million for his shares. In his court filing Lucas described that as a "pittance." (Judge Doyle found that Lucas's one-third share of the company is now worth more than $26 million--though it may only be worth that much if the entire company is sold.)

Compensation disputes

When he announced Gravity's new $70,000 policy in April of last year, Dan acknowledged that his compensation was high--but contended it was based on market rates and what it would take to replace him. A study by Towers Watson that Gravity commissioned in 2014 recommended that the company's CEO receive between $675,000 and $2.8 million per year in salary, bonus, and stock, depending on company performance.

Judge Doyle wrote in her ruling that "[t]he court finds that Daniel's compensation decisions in 2013 and 2014 were a reasonable business judgment made in good faith," and "[t]he Towers Watson report corroborated the reasonableness of Daniel Price's compensation."

After Dan became CEO, the judge said in her ruling's "Finding of Fact" section, "Daniel Price's sales efforts and leadership worked. Daniel Price's focus on top-line revenue growth led to dramatic increases in company value. However, by 2012, Daniel was unhappy with his compensation, given the substantial growth of the company."

During the trial, which began in late May and lasted for three weeks, Lucas also criticized Dan's decision to not inform him of the company's new $70,000 minimum wage until shortly before it was announced. But the judge noted that salary decisions are up to management, not the board on which Lucas serves, and ruled that that move "does not rise to the level of violation of good faith and fair dealing."

Some media reports have speculated that Dan's $70,000 policy of 2015 was motivated not by altruism but in an attempt to fend off Lucas's lawsuit, which was served to Dan shortly before he made the announcement--but not officially filed with the court until shortly afterward.

While not directly addressing that charge, Judge Doyle referred to Gravity's "long history of implementing substantial raises as a management level decision," and pointed out that the average companywide pay rose 26 percent in 2012, 19 percent in 2013,  and 16 percent in 2014. 

Additionally, the judge found, "[t]he 2015 pay raises [towards the $70,000 minimum] resulted in average companywide raises of 27 percent--nearly identical to 2012 and consistent with the company's general approach of high pay raises in the preceding years. Lucas had full access  to monthly, quarterly, and year-end financial data, which showed these increasing  employment costs, and he never expressed any interest or dissatisfaction with the raises."

In court filings, Lucas also alleged that Dan has used his position as majority shareholder to "use company funds to pay for personal expenses with no legitimate purpose." In those documents, he contended that Dan "has threatened to take the maximum possible amount of money out of the company unless Lucas agrees to exorbitant and inappropriate compensation for Daniel."

In her ruling, Judge Doyle said, "There was evidence that Daniel Price used the company credit card for expenses that were not subsequently reimbursed. However, Lucas Price has not proven this claim"--along with many others he made in his lawsuit, judging from her decision.

 

Published on: Jul 8, 2016