The court battle over Gravity Payments draws to a curious close

Dan Price, the CEO who gave all of his employees at Gravity Payments a minimum wage of $70K, has reached the end of the latest phase of his court adventure with his brother. Price is already under scrutiny for gaming the way his company charges restaurants for processing credit card transactions, but that’s not what this is about. This particular legal battle is part of the original fight he had with his brother Lucas, who owns more than 30% of the firm.

As we discussed last December, Lucas raised questions over Dan’s widely lionized decision to pay all the workers so much money. There were accusations made which implied that the CEO’s “generosity” didn’t have quite so much to do with a dedication to ending income inequality, but rather a way to drive down the company’s value to avoid paying off his brother and business partner for his share of the firm’s worth. Lucas is seeking redress through the courts, and the final hearing between the brothers has gone to the judge, but with an interesting wrinkle arising at the last moment. As soon as the proceedings drew to a close, the two sides went back into mediation. (Biz Journals)

Lucas Price wants a King County Superior Court judge to mandate a buyout, compelling Dan Price to purchase his brothers’ 32.5 percent stake in the company.

Initially, the judge was expected to rule on the final day of the trial. Instead, the brothers went immediately into mediation after closing arguments around 1 p.m. Thursday. The judge said mediation was “highly unusual” after a trial is completed.

If the brothers don’t reach a settlement, the judge will decide in a hearing scheduled July 7.

“The right result is a buyout,” Gregory Hollon, Lucas Price’s attorney, said in his closing argument. “This is not flushing money down the drain. It is a very good investment.”

Lucas wants $26M and his famous brother claims that he simply doesn’t have anywhere near that kind of cash and no bank would give him a loan. That’s an assertion which Lucas is challenging, with his attorney claiming that the company is still in good shape and a bank should be happy to give Dan a loan for this purpose. But would they? And why would Dan Price go back into mediation unless his attorney thought they were on the verge of losing the case?

As far as a bank loan goes, his labor costs are obviously well above normal, and while they’ve maintained a fairly steady flow of work, there was no explosion of growth in revenue after he made all of those headlines. In fact, some of their established clients backed out of deals with Gravity citing concerns over their long term viability. At the same time, Dan Price cut his own pay drastically and wound up lowering his own net worth and cash on hand to a precarious point. Social Justice Warriors applauded him for his selflessness, but that also seems to coincidentally line up with the actions of somebody who was setting up a defense against having to make a big payout to a shareholder.

If mediation fails, the judge will render a decision on July 7th. If he sides with Lucas, Dan Price is going to need to either explore that bank loan option or find himself in some sort of bankruptcy filing. Either way, the viability of this CEO’s massive “generosity” remains in question for now.