Trial begins in Gravity Payments case as Price brothers dispute CEO pay and company control
Updated below with initial details from Dan Price’s testimony.
Opening arguments began Tuesday in a civil trial between brothers Dan and Lucas Price, the owners of Seattle-based credit card processing company Gravity Payments, over Lucas Price’s allegations that Dan Price awarded himself excessive compensation as CEO and worked against the interests of his brother, the company’s minority shareholder.
The case could determine the fate of a company that has made international headlines for vowing to raise its minimum salary to $ 70,000 over the course of three years. As CEO of Gravity Payments, Dan Price reduced his own salary to $ 70,000 to help fund the raises when he made the announcement last year. He previously made more than $ 1 million a year.
Lucas Price, Gravity’s minority shareholder and board member, alleges in the suit that Dan Price “improperly used his majority control of the company to pay himself excessive compensation and to deprive Lucas of the benefits of ownership in Gravity Payments.”
Dan Price denies the allegations, and his lawyers characterize the suit as an effort by Lucas to “cash out” his interest in a business that his brother has been responsible for building. “Dan has scrupulously complied with the terms of the agreement,” said Anne-Marie Sargent, a lawyer for Dan Price, in her opening statement this morning.
Lucas Price originally served his brother with the lawsuit in March 2015, prior to Dan Price’s $ 70,000 salary announcement. The suit was formally filed with the court after the announcement of the $ 70,000 minimum salary, in April 2015.
Although the original complaint didn’t reference the $ 70,000 salary decision, lawyers for Lucas Price have since cited it as an example of Dan Price making major decisions about the company without the involvement of Lucas Price as shareholder and board member.
“As [Dan Price] came to see the company as his and his alone, he made major and sometimes risky business decisions without even consulting Lucas,” said Gregory Hollon, a lawyer for Lucas Price, in his opening statement in court on Tuesday.
Hollon presented a timeline in court that portrayed Dan Price as making the decision to raise employee salaries and reduce his own salary toward the end of March 2015, after he was served with the lawsuit. However, Hollon said Dan Price made efforts to portray the lawsuit in the media as a case of Lucas suing over the minimum wage.
“Dan without question is charismatic, media savvy,” Hollon said. “The problem is that he … really used the media to try to present a misleading picture of this lawsuit and to disadvantage Lucas publicly.”
In a USA Today story last week, Dan Price pointed to his longtime interest in pay equity, and said the $ 70,000 minimum salary announcement wasn’t an effort to deflect the lawsuit. “I think the facts and sworn testimony flatly contradict that,” he told the newspaper.
Update, 12:05 p.m.: With Dan Price on the stand, Hollon pressed the Gravity CEO on the timeline of his $ 70,000 salary decision. Dan Price said he didn’t know whether he was technically being sued when he was served with the complaint in mid-March. Dan Price indicated that he had subsequently been told he wasn’t going to be sued.
Asked by Hollon about a transcript of a conversation he had with literary agent Tina Bennett, Dan Price acknowledged that he misspoke when he said he got a “knock at the door” with the lawsuit two weeks after the announcement of the $ 70,000 minimum salaries.
As part of an attempt to demonstrate a pattern of “overstatement” by Dan Price, Hollon played videos of public appearances by Dan Price and cited emails with reporters. One was a message from Dan Price to model and TV host Tyra Banks. Testifying in court, Dan Price acknowledged overstating the company’s profits in that email to Banks.
Update, 2:45 p.m.: Hollon also questioned Dan Price about Inc. magazine’s report last year that he had mortgaged his house and sold his stocks, and poured the money into the company. At the time, as reported by GeekWire, Dan Price hadn’t actually mortgaged his homes, and he acknowledged in a deposition played in court that he hadn’t sold his stocks. Dan Price said later that the loans had been delayed by the original lender’s concern about the lawsuit, and Gravity also cited an internal miscommunication. Two deeds of trust were subsequently recorded on his home.
Update, 3:37 p.m. Hollon presented email evidence to show that Gravity Payments had lined up the New York Times and NBC News to cover the $ 70,000 salary announcement before Dan Price had informed Lucas Price of the plan.
“It was more important for NBC News and the New York Times to know about it than your brother, the board member, right?” Hollon said.
“I wouldn’t say that,” Dan Price replied.
The civil lawsuit is being tried in Seattle before King County Superior Court Judge Theresa B. Doyle, without a jury, after the judge granted Dan Price’s motion to proceed without one.
Lucas Price alleges that Dan Price used his majority control of the company to pay himself excessive compensation, manipulate valuations of the company to trigger stock grants to himself, and charge hundreds of thousands dollars in personal expenses to the company.
However, lawyers for Dan Price point to Gravity’s growth under the CEO’s leadership — from profits of $ 316,000 in 2008 to more than $ 6 million in 2015. They cite a valuation from Lucas Price’s expert witness putting the value of the company at more than $ 80 million.
Lucas Price’s interest in the company has risen from $ 800,000 to $ 26 million, and he has also been able to earn income from another job, said Sargent in her opening statement. “Lucas knew that Dan would make him money, and he was right,” she said.
Lawyers for Dan Price say the expenses at issue in the case were incurred from the CEO’s efforts to entertain clients and build the business, including patronizing restaurants and other Gravity customers, and team-building outings. Any personal charges that weren’t repaid to the company were inadvertent, they say.
“Dan is a natural salesman,” said Sargent, the lawyer for Dan Price, in her opening statement. “Business entertainment is a natural part of that process.”
Sargent noted, “What’s remarkable about Lucas’ position in this case is that Dan has earned less as the company has done better,” even before the voluntary reduction to $ 70,000/year.
Amid the high-profile nature of the case, Judge Doyle quickly made it clear that she wants the lawyers to stick to the facts of the business dispute. During his opening statement, Hollon showed personal diary entries from Dan Price, obtained during discovery, that referenced a trip with a female friend, which Hollon said was charged to the company.
“The court is really not interested in any of that personal stuff. It’s not relevant. Focus on the money,” she said.
The brothers, who grew up in rural Idaho, founded their credit card processing company in 2004 as Price & Price LLC. Lucas Price was originally majority owner, according to one of his court filings, but agreed to give Dan Price a 50 percent interest. After disagreements over their roles and compensation, they agreed in 2008 to reorganize into a new company, Gravity Payments, with Dan Price as CEO and majority shareholder.
Dan Price’s lawyers say in a filing that the 2008 renegotiation of the ownership structure “worked out spectacularly well,” giving Dan Price “broad authority to run the business,” leading to a rapid increase in its valuation, while giving Lucas Price “an income stream, benefits for his family, and the opportunity to stop working and travel.”
“While Daniel Price managed the company through the great recession, and grew it to the much larger company it is today, Lucas Price went scuba diving around the world,” they say, asserting that the suit “was filed because Lucas Price now wants to cash out.”
One piece of evidence in the case Lucas Price’s “BATNA” notes — “Best Alternative to a Negotiated Agreement — in which he listed possible tactics including increasing his involvement in company, increase corporate governance, and “negatively effect Dan’s reputation.” Lawyers for Lucas Price say he was merely “brainstorming” and didn’t follow through on that plan.
Dan Price was paid $ 1.1 million in total compensation in 2014, the last full year before the company announced its move to $ 70,000 minimum wage, according to financial records made public as part of the case. He received more than $ 2 million in compensation in 2012, with a bonus and stock award that are under dispute in the case.
Lawyers for Lucas Price call the compensation “unreasonable and excessive.” According to court filings, his compensation expert says a company of Gravity Payments’ size would typically pay its CEO about $ 300,000 to $ 400,000 in cash compensation, without stock awards. Dan Price says his past compensation was appropriate, citing his own experts.
Dan Price’s lawyers say Lucas Price’s efforts to make his brother repurchase his shares, through the lawsuit, would result in the forced sale of the company. Even if financial damages were warranted, they argue in court filings, Dan Price should pay any judgment to Gravity Payments, not to his brother as the minority shareholder.
Lawyers for Lucas Price say that he is not seeking the dissolution of the company, and wants to see the company continue and thrive. However, they assert that Lucas Price has made “an extremely strong case for a buyout” of his shares at fair value. His lawyer, Hollon, said in court that Lucas Price would be asking for financial damages and “equitable relief that allows Lucas to separate from the company on terms that are fair and reasonable.”
Gravity Payments is a privately held company. Dan Price owns about 67.5 percent, and Lucas Price about 32.5 percent, according to filings in the case. The trial is expected to last through mid-June.
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