wie wD Sc w aa n 12 13 14, 15 16 7 19. 20 21 22 23 24 IN THE SUPERIOR COURT OF THE STATE OF WASHINGTON IN AND FOR THE COUNTY OF KING LUCAS PRICE, an individual , Plaintiff, NO. 15-2-10178-1 SEA y, COURT’S FINDINGS OF FACT AND CONCLUSIONS OF LAW DANIEL PRICE, an individual , Defendant. This case arises out of Lucas and Daniel Price's relationship as shareholders in Gravity Payments, Inc. (Gravity) Lucas Price has brought claims alleging minority shareholder oppression, breach of fiduciary duty, and breach of contract against Daniel Price. Daniel Price denies these claims and asserts that he has complied with the parti agreements and his fiduciary duties, and that his actions were reasonable good faith exercises of his business judgment. He also alleges affirmative defenses of estoppel, waiver and adherence to the business judgment rule. A bench trial was held from May 31, 2016 to June 16, 2016. The court now makes the following findings of fact and conclusions of law. King County Superior Court ‘516 Third Avenue COURT'S FINDINGS OF FACT AND Seattle WA 98104 CONCLUSIONS OF LAW - 1 (206) 477-1405FINDINGS OF FACT A. Lucas and Daniel Form Price & Price, LLC, the Predecessor to Gravity Payments 1 In 2004, at the ages of 19 and 25, Daniel and Lucas decided to form their own credit card processing services company to be known as Price & Price, LLC. Ownership was divided 50/50. Starting with nothing, with their father’s help they built it into a functioning business. 2, Daniel covered sales; Lucas focused on operations. By 2007 the brothers were having disagreements. B. The 2008 Reorganization Involved Carefully Negotiated Documents Setting out Shareholder Expectations for Corporate Governance. 3. In 2008, after negotiating more than a year, Daniel and Lucas, with the aid of independent counsel, agreed on key issues concerning the ongoing operation of Gravity Payments. 4, They executed a series of interconnected agreements, including a Shareholders Agreement, a Redemption Agreement, Employment Agreements for each, and Commission Agreements for each, Through these agreements, Price & Price was ‘merged into a new closely-held corporation, Gravity Payments, Inc. 5. As part of this 2008 restructuring, and under these agreements, Lucas agreed () to accept a 40% minority ownership interest in Gravity Payments and (ii) that he would not be involved in the day-to-day management of Gravity Payments, In return, Lucas received (i) $400,000 for his redeemed shares, (ii) a nominal employment agreement salary, (iii) a fixed dividend, and (iv) certain corporate protections. Daniel and Lucas knew and expected that Lucas would step away and travel; Daniel would work full-time as Chief Executive Officer (CEO). King County Superior Court 516 Third Avenue COURT'S FINDINGS OF FACT AND Seattle WA 98104 CONCLUSIONS OF LAW - 2 (206) 477-1405ew aw 10 M1 12 1B 14 15 16 7 18 19 20 21 22 24 6. As part of this 2008 restructuring, and under these agreements, Daniel as CEO received (i) a majority 60% ownership interest in Gravity Payments, (ii) a tie- breaking vote on the board of directors on a wide range of issues including his own annual bonus compensation (in circumstances where consensus could not be achieved), (iii) a guaranteed $300,000 salary, and (iv) the opportunity for stock grants giving him additional ownership interests in Gravity Payments in the event of substantial year-over- year growth (more than 50%). 7. ‘The Shareholders Agreement: a. Authorized the Board to pay Daniel salary and bonuses subject only to the duty of good faith and fair dealing and not to the Washington Business Corporation Act; b. Provided a fixed dividend payment to shareholders; ¢. Required the completion of a valuation of Gravity Payments to “determine fair market value of Corporation” “as of the close of each business year” (and, as a corollary, requires the hiring of an appraiser to “determine fair market value”) before awarding additional stock compensation to Daniel; 4. Limited stock awards to Daniel to truly exceptional growth circumstances (awarded only on a fraction of marginal growth above 50% year-over- year, less the dividend payments to Daniel); €. Required that the board of directors is to be managed through “consensus” where possible 8. The Shareholders Agreement expressly incorporated Daniel’s Employment Agreement, Daniel’s Employment Agreement set a salary of $300,000 annually. The Employment Agreement also provided for payment of expenses tie ittted Keene COURT'S FINDINGS OF FACT AND Seattle WA 98104 CONCLUSIONS OF LAW - 3 (206) 477-1405Seow a awe iT 13 14 15 16 7 18 19 20 21 22 23 24 authorized by Gravity or incurred in connection with work and based on documentation or other substantial evidence, 9. The 2008 agreements did not contain a buy/sell provision. Lucas did not want such a provision included. Lucas was concerned that Daniel could leverage his superior financial resources to make a buy-sell offer Lucas at an unfairly low price that Lucas nonetheless could not match to be the buyer. Lucas did not want to be forced into a sale of is ownership of Gravity. Both brothers wanted Gravity as a long term investment 10. Lucas Price stopped working at the company and took time to travel, He was sometimes out of the country for long periods. Daniel was the CEO. 11. Lucas Price has asserted that Daniel Price improperly sought the Company's payment of personal expenses. It was undisputed that Lucas Price had established a process and trained employees like Rosita Barlow in its use. Gravity’s Rule 30(b)(6) witness, Karl Erickson, testified that it was followed and that personal expenses were reimbursed by Daniel Price. 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, and damages therefor, by a preponderance of the evidence. 12, Plaintiff's expert, William Partin, testified that Daniel Price's documentation of expenses did not meet IRS standards. The relevant provision of Daniel Price's Employment Agreement which authorizes payment of business expenses does not refer to IRS documentation standards. There is no evidence that the company conditioned reimbursement on presentation of such IRS documentation. As Partin did not analyze whether Daniel Price's expenses were business related or personal, he did not provide a basis for any conclusion that Daniel Price's practices resulted in payment We Seco COURT'S FINDINGS OF FACT AND Seattle WA 98104 CONCLUSIONS OF LAW - 4 (206) 477-140510 u 12 1B 14 15 16 17; 18 19 20 2 2 23 24 of personal expenses. Daniel Price's expert, Ms. Barrick, testified that she had reviewed contemporaneous documentation like Daniel's calendar and was able to determine that many of the disputed expenses were related to a business purpose. Recovery of alleged personal expenses, 13, Daniel Price's sales efforts and leadership worked. Daniel Price's focus on top line revenue growth led to dramatic increases in company value. 14, However, by 2012, Daniel was unhappy with his compensation, given the substantial growth of the company, C. Until 2013, Board Actions Including Compensation Are By Consensus, 15. Lucas Price continued to serve as a member of the board of Gravity Payments. Through 2012, the board was able to address all compensation, dividend and other significant issues by consensus. This included bonus compensation and stock grants issued to Daniel Price. His base compensation was set in his Employment Agreement, but the board decided his bonus compensation on a yearly basis. It also authorized stock grants and dividends provided for in the Shareholders Agreement. 16. For 2011, Daniel Price's agreed bonus was $400,000. He also received his $300,000 salary as provided in his Employment Agreement and a stock grant based on an agreed valuation, 17. In 2012, Lucas Price and Daniel Price agreed to increase the yearly dividend provided for in the Shareholders Agreement, Gravity Payments has paid the increased amount since then. All board actions through 2012 were approved by unanimous consent. D. Board sets Daniel Pri 's Bonus compensation for 2012, 18. The company grew rapidly from 2008 through 2012. Both revenue and income grew year over year. As of year-end 2010, for the purpose of agreed stock grants King County Superior Court 516 Third Avenue COURT'S FINDINGS OF FACT AND Seattle WA 98104 CONCLUSIONS OF LAW - 5 (206) 477-1405,aus the brothers valued the company at $11,294,980. Lucas valued the company for year 2011 at $15,808,487. By 2012, the company's value was more than ten times what it was in 2008, when the brothers negotiated the stock grant provision in the Shareholders Agreement, 19. Growth of the company had been extraordinary, but it had made it much ‘more difficult to meet the 50% growth in valuation hurdle for stock awards under the Shareholders Agreement, so in August, 2012, Daniel Price emailed Lucas about negotiating a new "more standard stock compensation package that would be comparable to the other similarly situated companies out there." Lucas Price refused, stating that “there is a stock plan in place.” ‘This exchange was a reasonable exchange of views and ‘was not an oppressive act by either brother. 20. ‘Thereafter, Daniel Price accepted Lucas's view that his stock grant formula was set in the Shareholders Agreement and focused instead on an area where he thought "we both agree and that is my salary." Jd. The email exchange then shifted to potential agreement on a bonus. Lucas proposed a formula based on percentages of gross Profit, changes in net income, changes in stockholder's equity and changes in distributions. This formula would have yielded bonuses higher than the amounts paid to Daniel Price in 2014 and 2015, 21, In the midst of these discussions, a board meeting was convened to consider a decrease in dividends and a cash call. Daniel voted for it and Lucas voted against it, Lucas strongly objected and suggested that Daniel talk to counsel. Daniel called Jonathan Michaels. Heeding Mr. Michaels' advice, Daniel rescinded both actions and dividends remained unchanged. The court finds that this event is representative of the volatility in the brothers’ business relationship. Because the cash call was rescinded Kee eco COURT'S FINDINGS OF FACT AND Seattle WA 98104 CONCLUSIONS OF LAW - 6 (206) 477-1405,ew aw Seo i 13 4 15 16. 7 18 19 20 21 2 23 24 and dividends have remained unchanged, there was no oppression of reasonable shareholder expectations. 22. In the second half of 2012 and early 2013, Daniel and Lucas Price exchanged many emails with varying approaches, including examples of comparable compensation at other firms and formulas for determining the amount. Lucas Price did research and conducted interviews as a part of this process. The brothers also had information on reasonable compensation from with Mark Mitchell, then at Clothier & Head, who provided a formula used in evaluating executive compensation which indicated that total compensation of $1.1 million would be reasonable. These exchanges between the brothers were not oppressive acts. 23. In early 2013, the brothers held a board meeting to discuss potential agreement on Dan's 2012 bonus as well as other matters. In addition to Danieland Lucas, Tad Lewis (Lucas's lawyer) and Jonathan Michaels (Gravity Payments’ lawyer) were also present. After discussion, no agreement was reached and Danieland Lucas agreed to give the matter further thought and reconvene. 24. In advance of a follow up board meeting on the subject of Dan's bonus compensation, Lucas's counsel, Mr. Tad Lewis, indicated in writing that a bonus of $800,000 was acceptable. On behalf of Lucas, Mr. Lewis also confirmed that Dan's cash bonus "would be included as expenses for the purposes of 2012 performance and for use in the 2012 appraisal." Michaels, acting for Gravity Payments, agreed. 25. Thereafter, in a March 20, 2013 board meeting, Lucas and Daniel, with ‘Tad Lewis and Jonathan Michaels present, agreed on a.2012 cash bonus for Daniel Price ‘of $800,000. As discussed further below, Daniel and Lucas also agreed that the amount of the bonus would be conveyed to the appraiser and once a final appraisal report was complete a conforming stock award would issue. According to Michaels, the discussions Kine ead Kyae COURT’S FINDINGS OF FACT AND Seattle WA 98104 CONCLUSIONS OF LAW -7 (206) 477-140510 u 12, 13 14 15 16 7 18 19 20) 21 2 4 were civil and cordial and there were no threats, These agreements were not the product of oppressive acts by Daniel E, In 2013, Daniel Price Was Awarded a Stock Grant For the Company's 2012 Performance, Pursuant to the Shareholders Agreement. They Consider Modifications to Shareholders Agreement, but Do Not Reach Agreement. 26. The Shareholders Agreement provided for an annual stock award to Daniel Price based on growth of the company. If the fair market value of the company increased by more than 50%, Daniel Price was entitled to a stock award valued at 25% of the amount in excess of 50%, less dividends paid to him during the preceding year. The brothers had agreed on stock grants to Daniel in 2009, 2010 and 2011. Based on the company's growth in 2012, Daniel Price asked the company's accounting firm, Clothier & Head’, to perform "look back" appraisals for 2011 and 2012 and determine whether a stock award was due. 27. The appraisals were performed by Mark Mitchell, whom Clothier & Head described as the company's "in house valuation specialist" and “arguably the best in the city." Daniel Price did not know Mark Mitchell and he did not meet with him as part of the appraisal work. He intended that Mitchell would do the work independently and without manipulation from shareholders and told Mitchell that. Because Clothier & Head prepared financial statements for Gravity Payments, it had most of the necessary financial information. In his limited telephone interactions with Mitchell, Daniel Price emphasized that the report is to be as accurate as possible and not influenced by anyone's desired outcome. Mitchell requested growth projections but Daniel Price refused to provide them, insisting that the appraisal must be independent. Daniel later told his lawyer that he did not provide such projections. ' Clothier & Head was later acquired by Peterson/Sullivan, King County Superior Court 516 Third Avenue COURT’S FINDINGS OF FACT AND Seattle WA 98104 CONCLUSIONS OF LAW - 8 (206) 477-1405sow eon 10 nt 12 13 14. 15 16 17, 18 19 20 21 22, 23 24 28. Mitchell had two telephone calls with Daniel Price in which he discussed the appraisal work. His notes show historical information about Gravity Payments' performance, but no identification of growth rates in general and not for cither 2011 or 2012. Mitchell's notes from a second call—when Daniel Price was conducting sales training on the streets of Silicon Valley—contain no growth projections. There is reference in these notes to future performance in 2013, These comments appear to refer to goals, but, in any event, they do not provide projected growth rates for 2011 or 2012. Lucas elicited testimony from Mitchell indicating that he received financial information from Daniel But, Mitchell, himself, stated that he had little recollection of his communications with Daniel rating his memory at 3 out of 10. Mitchell TT, June 6, at 59:7-18. Combined with the absence of any reference in Mitchell's report or notes to 2011 or 2012 growth projections or other estimates from Daniel Price, the court finds that Mitchell's comments do not support a conclusion that he relied on specific growth projections from Daniel 29. There is no evidence that anything Daniel Price said to Mitchell in the ‘two calls was incorrect or intended to manipulate the appraisal. 30. Mitchell testified that he has a professional responsibility to conduct fair and independent appraisals and that his valuation work in this case was fair and independent. 31. Mitchell prepared draft 2011 and 2012 appraisals and they were provided to Lucas for review and comment. Lucas and his lawyer, Tad Lewis, met with Mitchell and asked many questions on Mitchell's work. Mr. Lewis is an experienced business lawyer and had worked with Mark Mitchell in the past and testified to uniformly positive experiences. King County Superior Court ‘516 Third Avenue COURT'S FINDINGS OF FACT AND Seattle WA 98104 CONCLUSIONS OF LAW - 9 (206) 477-1405ce ao 10 u 12 13 14 15 16 17. 18 19 20 22 23 24 32. Daniel and the company lawyer participated by telephone. After this ‘meeting, Lucas insisted that Mitchell be informed of Dan's 2012 bonus, Daniel agreed. This information led to adjustment reducing the 2012. valuation in the final report. 33. _ In the meeting with Mitchell, the variation between the 2011 and 2012 growth rates was also discussed. Thus, the issue that Lucas now complains about was discussed and understood at the time. Lucas, through counsel, proposed that Mitchell be required to adopt a higher growth rate for 2011 (with the effect of lowering the change in value and consequently any stock award for 2012). Michaels, company counsel, responded and advised that the shareholders had potential bias and should not direct the work of the appraiser. Thus, it was left to Mitchell to issue fair and independent appraisals and for the board to determine whether to issue a stock grant based on the appraisals. 34. In March, 2013, the board unanimously approved a 2012 stock award to Daniel Price based on the Mitchell appraisals, on the condition that Mitchell would be informed of Daniel Price's 2012 bonuses and the expectation that Dan's compensation would grow with the business. Based on this agreement, after the final appraisals issued, Gravity Payments issued a stock award to Daniel Price. Based on the growth of the company, that grant has increased in value over time, 35. Lucas claimed that he voted for Daniel's bonus because Daniel told him that without agreement on the bonus, the amount would not be provided to the appraiser. Michaels, however, testified to a civil and orderly meeting without threats. The court finds that Lucas has not proven by a preponderance that he agreed to the stock award under duress. The events leading to this agreed stock award were not oppressive acts, vine sete Ave COURTS FINDINGS OF FACT AND Seattle WA 98104 CONCLUSIONS OF LAW - 10 (206) 477-1405,awron 10 n 12. 14 15 16 7 18 19 20 21 22 2B 4 36. After the stock award was approved, Clothier & Head elected to change Janguage in the draft reports and inserted "calculation" for "valuation" in certain places, ‘This change resulted from internal "independence" concerns voiced by Clothier & ‘Head accountants working on Gravity Payments financial statements and was not disclosed to either Daniel or Lucas and appears to have first come to light during trial of this case. Although Mitchell continued to conclude that his own independence was not impaired, he followed the direction of his firm and changed certain language in the final appraisals to substitute "calculation" for "valuation. 37. The Shareholders Agreement required a "valuation' as a basis for a stock award and Clothier & Head had been engaged to conduct such a valuation analysis. Indeed, as late as March 25, 2013, Mitchell told both Lucas and Daniel that he was conducting a valuation. Clothier & Head's change to the language of the final appraisals was not related to any statements or actions by Daniel or Lucas and does not support any claim of oppressive act. 38. Clothier and Head's appraisals employed two independent methodologies to value the company: a discounted cash flow analysis and a market ‘comparable analysis. Lucas Price's claim that Daniel Price manipulated the valuation reports by influencing the growth rates used in those reports relates only to the discounted cash flow analysis. Lucas Price did not contest the market comparable analysis, 39. In the period before the stock grant and bonus were approved, Daniel Price and Lucas Price each proposed changes to the Shareholders Agreement. Daniel wanted to modify the formula for stock awards to recognize the company's larger size ‘and Lucas Price wanted to provide for increasing dividends based on company growth. The parties could not agree on either change. Together with the clear language on nie eBid Avene COURT’S FINDINGS OF FACT AND Seattle WA 98104 CONCLUSIONS OF LAW - 11 (206) 477-1405wena 10 12 13 14 15 16 17) 18 19 20 21 2 23 24 dividends in the Shareholders Agreement, this demonstrates that there was no agreed shareholder expectation of increasing dividends based on dividend growth. F. Company grows in 2013, but Bonuses to Daniel are Not Agreed. 40. In 2013, Lucas Price decided that he wanted to sell his remaining shares in Gravity Payments. There was no “buy-out” provision in the Shareholders Agreement and he made notes regarding a BATNA (Best Alternative to Negotiated Agreement), identifying actions he could take to persuade Daniel ice to buy his shares. Thes« included reducing Daniel's compensation, increase his own involvement in the company, and increasing corporate governance. 41. Lucas ceased agreeing to bonus compensation proposed by Daniel Price, even at the same level as in prior years. He proposed a 75% reduction. He also increased contact with the company employees. Daniel regarded this action as harassment, and told Lucas he was barred from the company site. ‘This was an overreaction; there was no inappropriate behavior by Lucas. ‘The incident is another example of the volatility and downward spiraling of their relationship. G. _ In The Aftermath of the Decision on 2012 Bonus, Before Determining Daniel Price's 2013 Bonus, Gravity Payments Retains Towers Watson to Provide Report on Executive Compensation. 42. Following the extended discussions regarding bonus for 2012, Daniel and Lucas decided to obtain input from an executive compensation consultant. They jointly interviewed three firms. Towers Watson, a nati nal, well-respected firm was selected. Towers Watson gathered financial information from Gravity Payments and generated a draft report. Daniel Price intended that Towers Watson's report would be independent and he had very little involvement in their work. King County Superior Court 516 Third Avenue COURT'S FINDINGS OF FACT AND Seattle WA 98104 CONCLUSIONS OF LAW - 12 (206) 477-1405,10 ih 12 13 14, 15 16 7 18 19 20 2 22 23 24 43. Gravity Payments employee Emery Wager took the lead in selecting potential consultants. After Towers Watson was selected, Wager provided Towers ‘Watson all information requested. He was also charged by Daniel to keep Lucas informed and he provided Lucas all documents that were given to Towers Watson. Emery was also the primary contact in a meeting in which Towers Watson requested information on the company. Daniel was present only for a brief introduction. 44. Drafts of the Towers Watson report were provided to Lucas. Lucas Price had input regarding that draft and subsequent drafts, Towers Watson generated two additional drafts before issuing a final report. Lucas Price, with help from counsel, directed multiple questions to Towers Watson. All were answered and Towers Watson confirmed that it was rendering an independent, fair report. 45. Towers Watson's final report provided guidance on competitive pay ranges based "on performance levels at similarly sized organizations." Gravity Payments had set Dan's salary and his bonus was discretionary, so Towers Watson set out considerations in getting to competitive compensation. This included a stock grant in addition to that required by the Shareholders Agreement. Noting that performance goals had not been articulated in 2013, Tower Watson suggested that the board consider three factors in making a grant decision in 2013: (1) the equity grant value as determined by the Shareholders’ Agreement; (2) competitive market levels at similarly sized organizations, and (3) overall financial and operational performance of the organization. Towers Watson then set out a range of compensation based on performance level. As Towers Watson included a potential stock award above the Shareholders Agreement formula, all three categories of compensation must be considered in judging the total value of a 2013 compensation package. With this in wines eittta Keene COURT’S FINDINGS OF FACT AND. Seattle WA 98104 CONCLUSIONS OF LAW - 13 (206) 477-1405wee anew 10 i 12 14 15 16 7 18 19 20 21 22 23 24 mind, Daniel Price's compensation for 2013 and 2014 is within Towers Watson’s range of reasonable compensation for the CEO of Gravity Payments. 46. Lucas Price was frustrated by the Towers Watson process. In interviews he was emotional. He felt Daniel talked “circles around him" and he was not effective in getting his points across, By the end, using profanity, he exclaimed to Daniel "just buy me out.” 47. After the Towers Watson process was completed, the brothers exchanged proposals regarding Dan's 2013 bonus. The performance of the company had improved from the prior year, with increases in both revenue and income. Lucas Price proposed $200,000, a 75% reduction from the prior year. A board meeting was convened to discuss a bonus for Daniel in 2013. Company counsel attempted to help the brothers get to consensus on an amount. But, no agreement was reached. 48. Daniel Price had the authority under the Shareholders Agreement to set his bonus compensation without board consensus. The Company had grown even more in 2013 and 2014 than in 2012 and the formulas discussed in connection with the 2012 bonus decision indicated a higher bonus in 2013. Preferring to maintain reasonable relations with Lucas, Daniel Price made no modification to his prior compensation and accepted the same bonu: 2013 as he had received in 2012 (to which Lucas agreed), and the same was true in 2014. In making this decision, Danielfollowed advice from counsel who assured him that his decision to leave his bonus as is was reasonable and could not be challenged, 49, Lucas Price refused to agree to the 2014 bonus. The Court finds that Daniel's compensation decisions in 2013 and 2014 were a reasonable business judgment made in good faith. King County Superior Court 316 Third Avenue COURT'S FINDINGS OF FACT AND Seattle WA 98104 CONCLUSIONS OF LAW - 14 (206) 477-140550. Plaintiff's expert Fred Whittlesey testified that Daniel’s compensation was inconsistent with the market. He testified the compensation range was $300,000 to $400,000. He did not consider the growth of the company over time. Mr. Whittlesey's testimony did not provide a basis to challenge the good faith of Daniel Pri ‘s compensation d isions. The Towers Watson report corroborated the reasonableness of Daniel Price's compensation, H. Dividend Practices. 51. As stated above, the Shareholders Agreement specified two forms of dividends. The non-tax dividend was increased by agreement in 2012, All dividends due under the Shareholders Agreement have been paid. Such payments met the expectations of the shareholders. 52. Daniel testified to his business judgments on dividends. From 2008, the company has been managed for top-line growth, Daniel preserved capital for growth by /idends due under the Shareholders keeping debt to a minimum. The company paid di Agreement and evaluated occasions for additional dividends. The result was very substantial growth both for the company and the value of Lucas's shares. This is a reasonable business judgment and the court finds that no oppression in Daniel's approach to payment of dividends, 53. Lucas testified to a conversation with Daniel at a coffee shop in December, 2013 at which Lucas claims that Daniel said he would never increase dividends and never sell the company. Given the volatility of the brothers' relationship, it is likely that whatever was said was offered in the heat of the moment and faded after the moment passed. 54, Daniel Price has stated in various places and testified that he is open to future dividend increases and he will not foreclose sale of the company. He testified to King County Superior Court ‘516 Third Avenue COURT’S FINDINGS OF FACT AND Seattle WA 98104 CONCLUSIONS OF LAW - 15 (206) 477-1405exercising his business judgment in determining when dividends should increase and by how much. To date, he has opted for a strategy of top line growth in which the company's profits are reinvested in growth opportunities. This strategy has proved highly successful and has increased the value of Li shares from $800,000 in 2008 to more than $26 million today. 1. Lucas Price Attempts to Sell his Shares to Investors; Daniel Price Assists by Providing Requested Information. Lucas Price Receives No Offers. 55, The Shareholders Agreement permitted the sale of shares to third parties. In 2013, continuing into 2015, Lucas Price made contact with investors about possible sale. Knowing that Lucas Price wanted to sell out, Daniel Price also reached ut to potential purchasers. Lucas Price also contacted an investment banker about potentially marketing his shares, J. In April, 2015, Gravity Payments Implements $70,000 Minimum Salary. Year end, 2015, Gravity Payments Has Best Year in History. 56. Inspired by work place issues and larger income inequality concerns, as well as a desire for positive favorable publication, in April, 2015, Gravity Payments implemented a minimum salary of $70,000, to become fully efivetive year end 2017. Daniel contacted media including the New York Times and NBC News. This outreach was successful and the announcement was covered nationally. For some time, Gravity Payments’ announcement was one of the most read stories on the New York Times website, 57. Lucas Price has crit ed the process. He was not informed of the decision until shortly before it was announced. This business decision does not rise to the level of violation of good faith and fair dealing, King County Superior Court 316 Third Avenue COURT'S FINDINGS OF FACT AND Seattle WA 98104 CONCLUSIONS OF LAW - 16 (206) 477-1405,woo 10 12 13 14 15 16 7 18 19 20 2 22 23 24 58. Moreover, salary decisions are a management level decision, not a Board decision. The company had a long history of implementing substantial raises as a management level decision. Average company-wide pay rose 26% in 2012, 19% in 2013, and 16% in 2014. The 2015 pay raises resulted in average company-wide raises of 27%—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 yet he never expressed any interest or dissatisfaction with the raises K. Daniel Price appropriately involved Lucas Price in Board Level Actions, 59. Lucas also alleged that Daniel carved him out of Board decision-making, However, the brothers planned that Daniel would run the company. The Shareholders Agreement gave him that authority and that is what he did. Lucas claimed that Daniel failed to adequately inform him of acquisitions but the evidence shows that Lucas was informed of both large and small acquisitions pursued by the company, including the company's process for pursuing acquisition targets, funding acquisition deals, and anticipated revenue that would be generated by particular deals. 60. Lucas did not prove by a preponderance of the evidence that Daniel is to systematically excluded Lucas from Board-level decision making as he was well informed about acquisitions and similar matters, Daniel's management actions were consistent with the allocation of authority in the Shareholders Agreement. L. Attorney Fees and Costs, 61. The parties’ Shareholder Agreement contains an attorneys’ fees and costs provision, which provides: "In the event of any litigation concerning or arising from this Agreement, the substantially prevailing Party shall be entitled to recover from the sre id Recs COURT'S FINDINGS OF FACT AND Seattle WA 98104 CONCLUSIONS OF LAW - 17 (206) 477-1405,Ron n 12 13 14) 15 16 7 18 19 20 21 22 2B 24 losing Party or Parties his reasonable attorneys’ and paralegals fees and expenses of litigation incurred at trial and appellate levels." 62. The court finds that Daniel Price is a substantially prevailing party on all of Lucas Price's claims. CONCLUSIONS OF LAW A. Jurisdiction and Venue 1. Jurisdiction and venue are proper in this Court because the actions ‘complained of occurred in King County, Washington, where both parties reside. B. Plaintiff's Claims 2. Lucas Price has brought claims for (a) dissolution due to oppressive conduct pursuant to RCW 23B. 14.300; (b) breach of fiduciary duty; and (c) breach of contract, The alleged misconduct underlying these claims is as follows: @) failure to increase the non-tax dividend paid by the Company to its shareholders; (b) Company payment or reimbursement of expenses that Lucas Price alleges were personal; (c) setting an excessive cash bonus in 2013 and 2014; (d) interference with a Clothier and Head's third party appraisal of the Company for purposes of determining Daniel Price's stock grant for 2012. ‘The statutory and breach of fiduciary duty claims are based upon items (a) through (4); the breach of contract claim is limited to items (c) and (d). 4. Lucas Price seeks the following relief in this case: (a) Court-ordered buyout of his stock at a price to be determined by the cour; (b) an accounting; (c) equitable relief; (d) damages; (e) costs, attorneys” fees, pre-and post-judgment interest. 5. Daniel Price has denied all of these claims, denied any wrongdoing and denies that Lucas Price is entitled to relief. King County Sy rior Court COURT'S FINDINGS OF FACT AND Seattle WA 98104 CONCLUSIONS OF LAW - 18 (206) 477-1405,weon so 10 uN 12 13 14 15 16 7 18 19 20 21 2 23 24 C. Claim Under RCW 23B.14,300 6. Washington's dissolution statute, RCW 23B,14,300 permits equitable relief if "[t}he directors or those in control of the corporation have acted, are acting, or will act in a manner that is illegal, oppressive, or fraudulent." RCW 23B.14.300(b). However, courts must be "cautious in the application of these grounds so as to limit them to genuine abuse rather than instances of acceptable tactics in a power struggle for control of a corporation." Washington Business Corporation Act (23B RCW) Sourcebook (2d Ed., 2007) Sourcebook at p. 14,300-3. 7. While the statute's language speaks of "dissolution," it provides broad Aiscretion to the court to craft appropriate equitable remedies, with or without actual dissolution: the court "may make such other orders and decrees and issue such injunctions in the case as justice and equity require." RCW 23B.14.330(1). The court must exercise "extreme caution” before imposing the "drastic remedy" of dissolution, and must consider "whether that solution will be beneficial or detrimental to all shareholders or injurious to the public." Seott v. Trans-System, 148 Wn.2d 701, 718, 64 P.3D 1 (2003); McCormick v. Dunn & Black, PS, 140 Wn, App. 873, 887, 167 P.3d 610 (2007). The court has broad discretion to order a wide variety of equitable relief short of dissolution, including appointing a receiver or special fiscal agent, retaining Jurisdiction, ordering an accounting, issuing injunctive relief, ordering the declaration of a dividend, ordering a buyout, or assessing damages. Baker v. Commercial Body Builders, Inc. 264 Ore. 614, 633, 507 P.2d 387 (1973) (cited by Scott, 148 Wn.2d at 717). 8. Whether a majority shareholder's conduct is "oppres under one of two tests. Where, as here, the dispute is between corporate founders, the “reasonable expectations" test applies: whether the majority has violated the King County Superior Court 516 Third Avenue COURT’S FINDINGS OF FACT AND Seattle WA 98104 CONCLUSIONS OF LAW - 19 (206) 477-1405reasonable expectations of the minority. Scott v. Trans-System, 148 Wn.2d 701, 711, 64 P.3d 1 (2003), quoting Robbiee v. Robblee, 68 Wn. App. 69, 76, 841 P.2d 1289 (1992). 9. Here, the parties have entered into contracts in connection with the 2008 restructuring of the Company that establish their reasonable expectations. These agreements include: (a) the Shareholders Agreement, (b) the Stock Redemption Agreement, (¢) the Articles of Incorporation, (4) the Employment Agreements of Daniel Price and Lucas Price and (e) the ISO Agreements of Daniel Price and Lucas Price. Courts cannot "interfere with the freedom of contract or substitute their Judgment for that of the parties to rewrite the contract or to interfere with the internal affaits of corporate management." McCormick v. Dunn & Black, 140 Wn. App. 873, 891-2, 167 P.3d 610 (2007), 10. Lucas Price has the burden of proof to establish overreaching through the "reasonable expectations" test. If he meets this burden, the burden then shifts to Daniel Price to prove that the acts were reasonable exercises of business judgment, must be considered "against the backdrop of established deference to corporate ‘governance" pursuant to the business judgment rule, McCormick, 140 Wn. App. at 887. 11. The parties had no reasonable expectation that the non-tax dividend would be increased other than in the ordinary exercise of business judgment based on current financial performance. Section 6.5 of the Shareholders Agreement expressly sets the dividend at a specific rate: "The Corporation will use commercially reasonable efforts to pay annual dividends after the close of each tax year of the Corporation equal to (i) $1.20 per share." ‘The agreement contains no provision for increasing the dividend. The parties considered such a clause in negotiating the Shareholders King County Superior Court 516 Third Avenue COURTS FINDINGS OF FACT AND Seattle WA 98104 CONCLUSIONS OF LAW - 20 (206) 477-1405aon 10 i 12 13, 14, 15 16 7 18 19 20 21 22 23 24 Agreement and rejected it indicating that they elected a fixed amount. The parties? ‘subsequent modification of this amount shows shareholder expectation that dividend adjustment would respond to business judgment and not any pre-ordained formula. The parties® inability to agree on any modification to allow increase with company profits demonstrates the absence of agreed shareholder expectations on this point. 12. The Company has paid this dividend at the prescribed amount or higher every year since the 2008 restructuring. This is consistent with the reasonable expectation of the parties. ‘The court in an oppression case cannot "rewrite contracts the parties have deliberately made for themselves." McCormick 140 Wn. App. at 891 Lucas Price has not met his burden to show that the failure to raise the dividend ‘constitutes "oppression" under the RCW 23B.14.300. Nakata v. Blue Bird, Inc., 146 Wn. App. 267, 274, 191 P.3d 900 (2008) ("No showing of wrongful conduct" in cooperative's failure to return member's equity as quickly as she desired, where plaintiff showed no legal obligation to repay equity within a specific timeframe orto create a redemption plan). 13, Even if Daniel had violated Lucas’ reasonable expectations, Daniel Price has established that the Company's dividend policy was a reasonable exercise of business judgment. Management decisions whether or not to distribute corporate profits are classic exercises of business judgment. See, e.g. McCormick 140 Wn. App. at 895 (practice of distributing all profits only to current employees was reasonable exercise of business judgment); W. Fletcher, Cyclopedia of the Law of Private Corporations (perm. ed. 2003) { 5325 at p. 578 ("The declaration and payment of dividends is a matter of internal management solely within the discretion of directors and . . . a court will not interfere with their business judgment{.]") The Company has Jong had a corporate policy of re-investing its profits in future growth, both before and sin. sccm COURT'S FINDINGS OF FACT AND. Seattle WA 98104 CONCLUSIONS OF LAW - 21 (206) 477-1405So es a aw a ul 12 1B 14 15 16 7 18, 19 20 2 22 23 24 after the 2008 restructuring. In setting the amount of the non-tax related dividend in the Shareholders Agreement, the parties allowed for a distribution of some Company profits, but chose to continue the Company's historical policy of reinvestment of the remaining profits, ‘The Company has continued to grow since the 2008 restructuring, increasing the value held by the shareholders. Lucas Price recognized the success of this emphasis on top line growth. Daniel Price is well within the bounds of good faith exercise of his business judgment in continuing to adhere to this policy. 14. Lucas Price has not met his burden to establish that the company’s payment of Daniel Price's expenses was wrongful. Pursuant to /nterlake Porsche + Audi v. Blackburn, 45 Wn. App. 502, 512-13, 728 P.2d 597 (1986), a plaintiff does not meet his burden of proof by merely identifying expenditures for which backup documentation is insufficient; a fiduciary is "liable for only those expenditures of corporate funds that were shown to have been for his personal benefit." This is consistent with the applicable provision of Daniel Price's Employment Agreement which provides for reimbursement of authorized business expenses and makes no reference to other standards such as IRS documentation provisions. The expert report of William Partin, submitted by Lucas Price, was insufficient to meet this burden. First, its assertion that "many of the expenses appear personal” is inadequate to meet plaintiffs burden. Second, the report's reliance on the failure to keep records sufficient to meet IRS standards for the deductibility of such expenses cannot make up this gap; these records were also lacking in Interlake, 45 Wn. App. at 508, but that was not sufficient to meet the plaintifi’s burden, 15. Even if there were some errors in the expense payments, they are not sufficient to reach the level required to establish oppression. "A single act in breach of such a fiduciary duty may not constitute such ‘oppressive’ conduct as to authorize the wine Sitti Rvenue COURT'S FINDINGS OF FACT AND Seattle WA 98104 CONCLUSIONS OF LAW - 22 (206) 477-1405wee ran 10 ih 12 13 14 15 16 7 18 19 20 2 2 23 24 dissolution of a corporation unless extremely serious in nature{.J" Scot, 148 Wn.2d at 716 (quoting Baker v. Commercial Body Builders, Inc. 264 Ore. 614, 630, 507 P.2d 387 (1973)). "Mistakes, inadvertence, or bad policy, if honestly pursued, will not warrant" relief under the dissolution statute. Scott, 148 Wn.2d at 716, Plaintiffs expert has only identified the total amount of all expenses paid by the Company and failed to specify how much was personal; he has also failed to account for offsets and other transactions that would reduce the amount of any improperly paid amounts, including ‘Company expenses Daniel Price absorbed without reimbursement, Daniel Price's expert, Lorraine Barrick, has credibly opined that any mistakenly charged expenses are "immaterial." This does not meet the standard required by Scott 16, Even had Lucas met his burden of demonstrating oppressive overreaching in the first instance, Daniel has demonstrated that he adhered to well established expense reimbursement policies, which were well known to Lucas Price, and that the very substantial majority of all reimbursed expenses were business related. Even if isolated personal expenses were not reimbursed, Daniel's practices satisfy the good faith business judgment standard of Scott, See Nursing Home Bldg. Corp. v. DeHart, 13 Wn. App. 489, 499-500, 535 P.2d 137 (1975). 17. Daniel Price's 2012 stock grant was consistent with the reasonable expectations of the parties. ‘The grant was properly made in accordance with the formula prescribed by 6.4.1 of the Shareholders Agreement, ‘The stock grant was based, as required by that provision, on an appraisal by third party expert Clothier and Head. The Court has found that Daniel Price did not improperly influence that appraisal. 18. The Court finds that Clothier and Head's appraisal was based on two independent grounds only one of which was challenged by Lucas Price. Even if the Kap ec Com COURT'S FINDINGS OF FACT AND Seattle WA 98104 CONCLUSIONS OF LAW - 23 (206) 477-1405was So & iW 13 14 15 16 17 18 19 20 21 22 23 24 appraiser incorporated management information which understated actual growth, Lucas Price has not established that the value reached by the appraisal was incorrect, or that it led to the grant of an incorrect number of shares of stock. It was a proper exercise of business judgment to rely on the appraisal. There was evidence that Clothier and Head's final appraisal reframed its opinion as a calculation and as framed, it may not have met the requirements of the Shareholders Agreement. This change was unknown to Daniel Price (and apparently Lucas Price—until the middle of trial) and does not support bad faith or other improper action by Daniel Price. If the "calculation" was insufficient to meet the requirements of the Shareholders Agreement for a stock ‘grant, the error, if'any, was made by Gravity Payments in issuing the award and that is ‘a matter for Gravity Payments to address with its sharcholders. 19. Section 6.1.1 of the Shareholders Agreement provides Daniel Price the authority to set his compensation if the directors cannot reach consensus. The parties had agreed on a cash bonus in 2012, but could not agree in 2013 and 2014. The Company's performance in both 2013 and 2014 exceeded 2012 levels. However, Daniel Price set his bonus at the 2012 level, which was the last amount agreed upon by the Parties. In addition to being consistent with the parties' prior agreements and supported by the improved financial results in 2013 and 2014, formulae offered by Lucas Price and Clot and Head, the cash bonuses fall within the range recommended by Towers Watson, a third-party executive compensation expert retained by the Company in 2014 to advise on Daniel Price's compensation. 20. Daniel Price's conduct as described in the immediately preceding Paragraph was also a reasonable exercise of his business judgment. These facts demonstrate an even stronger case for the reasonable application of business judgment COURT’S FINDINGS OF FACT AND Seattle WA 98104 CONCLUSIONS OF LAW - 24 (206) 477-1405,10 i 12 13 14, 15 16 17 18 19 20 21 22 23 24 corporation's distribution of all of its profits as bonuses to current employees and distributing none to plaintiff minority sharcholder after his employment ceased. See also Nursing Home Bldg. Corp. v. De Hart, 13 Wn. App. 489, 535 P.2d 137 (1975) (paying management fees and fringe benefits when corporation was unable to pay withholding and social security taxes was, "even if not necessary or wise in retrospect... a reasonable expenditure] for proper bu D. Breach of Fiduciary Duty 21. Plaintiffs breach of fiduciary duty claims must be considered in light of the business judgment rule. Courts in Washington recognize that management in entitled to deference in its exercise of business judgment. The rule immunizes management from liability in a corporate transaction undertaken within both the power of the corporation and the authority of management where there is a reasonable basis to indicate that the transaction was made in good fait ‘Nursing Home Bldg. Corp., 13 Wn. App. at 498. The business judgment rule recognizes that "courts are reluctant to interfere with the internal management of corporations and generally refuse to substitute their judgment for that of the directors." 1d. "Such immunity from liability is absent where a corporate director or officer is shown to have acted in bad faith and with a corrupt motive." Interlake Porsche & Audi ¥. Blackburn, 45 Wn. App. 502, 509, 728 P-2d 597 (1986) (citing Nursing Home Bldg. Corp, 13 Wn. App. at 500, 728 P.2d 597 (courts will not interfere with exercise of business judgment in "absence of bad faith or fraud”)). For each action complained of by Lucas Price, he has sd to show Daniel Price acted fraudulently, in bad faith, or with corrupt motive. To the contrary, Daniel Price has proved that he consistently adhered to the terms of the Shareholders Agreement and other relevant agreements. In dealing with third parties such as Clothier & Head and Towers Watson, he requested King County Superior Court 85 16 Third Rvenue COURT'S FINDINGS OF FACT AND Seattle WA 98104 CONCLUSIONS OF LAW - 25 (206) 477-1405Aen 10 u 12 13 14 15 16 17 18 19 20 22 23 24 that they act independently and without preference for either shareholder and ensured that Lucas Price had disclosure of and involvement in review of their work. The business judgment rule therefore applies to his conduct. 22. With respect to the breach of fiduciary duty claims regarding the dividend and expenses, Daniel Price owed a duty to act (a) in good faith; (b) with the care an ordinarily prudent person in a like position would exercise under similar circumstances; and (c) in a manner he reasonably believed to be in the best interests of the corporation. RCW 23B.08.300; RCW 23B.08.420. 23. However, with respect to the bonus and stock grant issues, the parties have altered by contract the nature of the duty owed and the burdens applicable to it The parties gave Daniel Price the authority to make decisions regarding his compensation in 96.1.1 of the Shareholder Agreement. Ordinarily, this would be a related party transaction subject to increased scrutiny and enhanced voting requirements in order to remain valid, See, e.g. RCW 23B.08,710. However, recognizing the difficulty of applying the usual standard in this closely held setting (where a majority of disinterested directors or shareholders is not available), the parties exercised their ability under RCW 23B.07.320 to alter the usual rule, They agreed that compensation decisions are "subject only to the obligation of good faith and fair dealing and not to any other obligation imposed by law, including the Washington Business Corporation Act." Shareholders Agreement 6.4.3. Thus, Daniel Price's only duty with respect to his compensation decisions is to exercise the contractual obligation of good faith and fair dealing, This standard is less stringent than that of fiduciary duty. State ex rel. Hayes Oyster Co. v. Keypoint Oyster Co., 64 Wn.2d 375, 381, 391 P.2d 979 (1964) (corporate fiduciary duty is "a standard of behavior above that of the workaday world."). COURT'S FINDINGS OF FACT AND Seattle WA 98104 CONCLUSIONS OF LAW - 26 (206) 477-1405woven 10 ul 12 13 14 15 16 7 18 19 20 21 2 23 24 24. Claims for breaches of fiduciary duty that allege wrongs to the corporation, such as the expense, bonus and stock grant claims here, are ordinarily required to be brought derivatively on the corporation's behalf. Interlake. The court has ruled on summary judgment that those claims need not be brought through the derivative process in this case. 25. A breach of fiduciary duty claim regarding dividends seeks to enforce aan individual right of a shareholder, such as his or her right to a dividend, is owned by the shareholder and is properly brought directly. Hunter v. Knight, Vale Gregory, 18 Wn. App. 640, 646, $71 P.2d 212 (1977) (shareholder may maintain action for direct damages for violation of a "special duty"). 26. As discussed supra, Daniel Price's actions regarding the non-tax dividend were a reasonable application of business judgment. Accordingly, he is not liable for breach of fiduciary duty for declining to further increase the dividend. Moreover, Lucas Price offered no evidence of any claim for increased dividends or any Quantification of the amount that should have been awarded, Thus, damages have not been proved. 27. As discussed supra, Lucas Price has failed to meet his burden of proof to establish that the expenses were wrongfully paid, If there were any errors in their documentation or payment, they do not rise to the level of breach of fiduciary duty, because the law will not hold directors liable for honest errors, for mistakes of Judgment, when they act without corrupt motive and in good faith ‘And that is true even though the errors may be so gross that they may demonstrate the unfitness of the directors to manage the corporate affairs, Nursing Home Bldg. Corp., 13 Wn. App. at 498-99, quoting W. Fletcher, Private Corporations, §1039 at pp. 621-25, (perm. ed. 1974). Monee Rd Recs COURT'S FINDINGS OF FACT AND. Seattle WA 98104 CONCLUSIONS OF LAW - 27 (206) 477-1405,28. As discussed supra, Daniel Price's reliance upon Clothier and Head's appraisal in following the Shareholder Agreement's formula for his stock grant was a reasonable exercise of his business judgment. As discussed infra, Daniel Price exercised good faith and fair dealing in setting his 2012 stock grant. For both of these reasons, he is not liable for breach of fiduciary duty for the stock grant. 29, As discussed supra, Daniel Price exercised reasonable business judgment in setting his cash bonus for 2013 and 2014 at the previously agreed 2012 rate. As discussed infra, Daniel Price exercised good faith and fair dealing in making this decision, For both reasons, he is not liable for breach of fiduciary duty in connection with the cash bonuses, E. Breach of Contract Claim 30. The elements of a breach of contract claim are: (1) duty, (2) breach, (3) causation, and (4) damages. Baldwin v. Silver, 165 Wn, App. 463, 473, 269 P.3d 284 (2011). 31. A duty of good faith and fair dealing is implied into every contract. Badgett v. Sec. State Bank, 116 Wn.2d 563, 569, 807 P. 2d 356 (1991). The duty obligates the parties to cooperate with each other so that each may obtain the full benefit of performance. Jd, However, it "does not extend to obligate a party to accept a material change in the terms of its contract," and does not "inject substantive terms into the parties’ contract." Jd,, quoting Barrett v. Weyerhaeuser Co. Severance Pay Plan, 40 Wn. App. 630, 635 n.6, 700 P.2d 338 (1985). The duty arises only in connection with the terms agreed to by the parties. Badgett, 116 Wn. 2d at 569. In particular, the duty cannot create obligations in addition to those in the contract; it does not impose "a free-floating duty of good faith unattached to the underlying legal document." 116 Wn,2d at 570, Furthermore, "[a]s a matter of law, there cannot be a King County Superior Court 516 Third Avenue COURT’S FINDINGS OF FACT AND Seattle WA 98104 CONCLUSIONS OF LAW - 28 (206) 477-1405ween M1 12 13 14 15 16 17) 18 19 20 21 22 23 24 breach of the duty of good faith when a party simply stands on its rights to require performance of a contract according to its terms." Jd. Where a contract provides a arty with "discretionary authority to determine a future contract term," the duty applies to the exercise of such discretion. Rehkier v. Dep't of Soc. Health Servs., 180 Wn.2d 102,112, 323 P.3d 1036 (2014). 32, Lucas Price's breach of contract claim is limited to the issue of whether Daniel Price breached his duty of good faith and fair dealing in setting his 2013 and 2014 cash bonuses and in the issuance of his 2012 stock grant. Thus, the breach of contract claim does not include the dividend and reimbursement issues. The dividend amount is expressly set forth in the agreement with no obligation that it be increased, and the duty of good faith and fair dealing cannot be applied to alter it. Johnson v Yousoofian, 84 Wn. App. 755, 762, 930 P. 2d 921 (1996). The agreement does not address reimbursement, and the duty cannot be used to create any obligation. Id 33. While the parties agree that the contract claim is limited to the application of the duty of good faith and fair dealing, they disagree as to the source of the obligation. Daniel Price asserts that the source is the duty implied in every contract, which requires him to exercise good faith and fair dealing in exercising his rights and obligations under § 6.1.1 of the Shareholders Agreement (which gives him authority, absent agreement among the directors, to make decisions regarding his compensation). ‘The court agrees with this analysis. 34. Lucas Price asserts that | 6.4.3 of the Shareholders Agreement imposes an express obligation to exercise good faith and fair dealing in compensation decisions. This misapprehends the nature and purpose of that provision. As discussed supra, the function of this section is to change the standard of review applicable to the ‘compensation decisions, adopting the contractual obligation of good faith and fair King County Superior Court 516 Third Avenue COURT'S FINDINGS OF FACT AND Seattle WA 98104 CONCLUSIONS OF LAW - 29 (206) 477-1405,ces an nh ewe WL 12 13 14 15 16. 17 18 19 20 21 23 24 dealing instead of the ordinary standards applied by statutory and common law to related party transactions. It is not intended to impose a separate duty. The provision would be mere surplusage if construed to impose an obligation, because the duty to exercise good faith and fair dealing is inherent in every contract and thus already applies to Daniel Price's compensation decisions under 4 6.1.1. See Wagner v. Wagner, 95 Wn.2d 94, 101, 621 P.2d 1279, 1283 (1980) (an interpretation of a writing which gives effect to all of its provisions is favored over one which renders some of the language meaningless or ineffective). Instead, the clause's standard-shifting purpose is evident on its face: "[a compensation] determination shall only be subject to the obligation of good faith and fair dealing and not to any other obligation imposed by Jaw, including the Washington Business Corporation Act." 35. Until 2012, the directors were able to agree on Daniel Price's cash bonus compensation. After 2013, when unanimity could not be obtained, Daniel Price exercised his right under § 6.1.1 of the Shareholders Agreement to "decide and control the management decision of the Board." But he did not exercise this authority without restraint, Instead, despite improved performance and results over 2012, he kept the bonus at the amount agreed upon for 2012, which was also within the range recommended by an independent third party consultant retained by the Company. Nothing in this decision deprived Lucas Price of "the full benefit of performance" of the Sharcholders Agreement. Badgett, 116 Wn. 2d at 569. It is fully consistent with their expectations and prior agreements, was a reasonable exercise of Daniel Price's authority under 6.1.1 of the Shareholders Agreement, and complied with Daniel Price's duty of good faith and fair dealing, 36. In contrast to the cash bonus, Daniel Price's stock grant did not involve an exercise of discretion. Its amount is firmly established in a formula in the King County Superior: Court COURT'S FINDINGS OF FACT AND Seattle WA 98104 CONCLUSIONS OF LAW - 30 (206) 477-1405,sane wn Sic & 12 13 14 15 16 7 18 19 20 21 22 23 24 Shareholders Agreement, based upon an appraisal conducted by an independent third Party. 37. Lucas Price's challenge to the stock grant is based solely on his claim that Daniel Price exercised improper influence on the appraisal upon which the grant is premised. I have found that there was no such undue influence. Furthermore, even if Daniel Price had engaged in such conduct, Lucas Price has failed to establish what the valuation should have been, nor how many shares should have been issued. Thus, Lucas Price has failed to prove causation and damages, two of the essential elements of acontract claim. Baldwin, 165 Wn. App. 463 at 473, F. Attorney Fees and Costs. 38. The Shareholders Agreement contains a broad attomeys fees provision: In the event of any litigation concerning or arising from this Agreement, the substantially prevailing Party shall be entitled to recover from the losing Party or Parties his reasonable attorneys’ and paralegals fees and expenses of litigation incurred at trial and appellate levels. Shareholders Agreement ¥ 7.14. Contractual attomeys fees clauses are enforceable by prevailing parties in Washington, RCW 4,84.330. 39. Every claim in this case either arises out of* or "concerns" the Shareholders Agreement. The breach of contract claim arises directly out of the Shareholders Agreement, The breach of fiduciary duty claim arises out of the Agreement, which establishes the dividend, sets the standard of conduct for Daniel Price’s compensation decisions, and establishes the formula for stock grants to Daniel Price. The oppression claim directly concerns the Shareholders Agreement, because it establishes the "reasonable expectations" of the parties against which oppression is determined. Scott, 148 Wn.2d at 711. King County Superior Court 516 Third Avenue COURT'S FINDINGS OF FACT AND Seattle WA 98104 CONCLUSIONS OF LAW - 31 (206) 477-1405,40. Daniel Price has substantially prevailed in this matter. Accordingly, he is entitled to his reasonable attomeys and paralegals fees and expenses of litigation Sic ew aan a ul 12 13 4 1s 16 7 18 19 20 21 22 23 24 under the Shareholder Agreement, ORDER Based on the foregoing Findings of Fact and Conclusions of Law, IT Is NOW ORDERED ADJUDGED AND DECREED that: 1, Lucas Price has failed to prove his claims in this matter; and 2, Judgment shall be entered in favor of Daniel Price; and 3. Daniel Price is entitled to an award of his reasonable attomeys and paralegals fees and expenses of litigation incurred in defense of this action. DONE IN opts COURT this COURT'S FINDINGS OF FACT AND CONCLUSIONS OF LAW - 32 day of. _, 2016, fheresa B. Doyle King County Superior Court Jud King County Superior Court 516 Third Avenue Seattle WA 98104 (206) 477-1405