Lawsuit over control of family-owned MICO ends with $21.8M award

  • Article by: DAVID PHELPS , Star Tribune
  • Updated: March 31, 2013 - 7:17 PM

A longtime rivalry that pitted two brothers against a third at brake manufacturer MICO ends with a $21.8 million court award.

 

An episode of “My Three Sons” it wasn’t.

The transition of power from the first to the second generation at family-owned MICO Inc. was more like a corporate version of Mortal Kombat, pitting two brothers against a third.

The infighting included humiliation, recrimination and intimidation in an interfamilial battle that spanned nine years, spawned one lawsuit, a three-phase trial and a $21.8 million court award to the brother who was pushed out of the business by the other two.

The story involves Brent and Dan McGrath and half-brother Larry McGrath. They are the surviving sons of Gordon McGrath, an entrepreneur who bought North Mankato-based MICO in 1960, made it a global player in the hydraulic brake business, and left the company to Brent and Dan when he died in 2004.

The dispute, detailed in court documents, offers a textbook example of what can go wrong when a business patriarch transfers the company he grew and nurtured to his adult children.

“This is a tragedy that could have been avoided from a business perspective,” said family business consultant Tom Hubler, who was retained by MICO early on to try and smooth the brothers’ ruffled feathers. “It’s also a tragedy from the family’s point of view.”

Through their attorneys, the three brothers and Glenn Gabriel, a former company executive, declined to comment for this story. But a District Court judge’s opinion awarding damages to Dan McGrath — and a December decision by the Minnesota Court of Appeals — provide an inside account of how the family relationship deteriorated. The lower-court decisions, which included the $21.8 million, were upheld by the state Supreme Court on Feb. 19.

“In the last decade, there’s been a renewed call for honesty, civility and professionalism on Wall Street. The same rules apply to Main Street,” said Douglas Peterson, one of Dan McGrath’s attorneys. “The courts are saying no one’s above the law. They’re saying if you did what these defendants did, you need to be held accountable.”

Transition of power

Brent and Dan followed different career paths on their journey to ultimately owning the family company.

Brent, the older of the two, started working for MICO in 1976. Along the way he earned a bachelor’s degree in business administration and later a law degree.

Dan’s route to company executive was more circuitous. He earned a college degree in psychology and religion history and planned on going to graduate school. But at the urging of his dad, Dan decided to join the company full time and in 1982 began working in MICO’s marketing department.

In 2002, while Gordon McGrath and his wife, Phyllis, were still alive, Brent McGrath, now 60, was elected president by the company’s closely held board of directors. Dan, now 53, was elected executive vice president.

It was clear that Gordon McGrath, also known as Mac, wanted Brent and Dan to run the company together, according to the findings of Nicollet District Judge Todd Westphal, who presided over the 2010 MICO trial.

“Mac and Dan had a number of discussions which conveyed the understanding that if Dan remained at MICO and dedicated himself to the job that he would have a position with MICO with growing responsibilities and duties including being part of top management,” Westphal wrote.

North Mankato-based MICO is an industry leader in the design and manufacture of hydraulic components and brake systems for heavy-duty vehicles such as large farm tractors and construction equipment. MICO was once called Mankato Industrial Co. and made machine parts during World War II.

Its headquarters is a one-story stone building on the North Mankato hill above the Minnesota River valley. The building, on Lee Boulevard, is not far from the printing empire of Minnesota Timberwolves owner Glen Taylor and the home of Angie’s Kettle Corn. MICO employs about 280 people.

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