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

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

Although the privately held company doesn’t disclose sales or profits, evidence and testimony provided in the lawsuit and trial indicated that MICO is a healthy company that weathered the recession with sales of $44.4 million in 2010, compared to a record $53.3 million in 2007. Projected sales for 2011 were $52 million.

After their parents died, Brent and Dan each owned 50 percent of MICO’s voting shares. Brother Mark, who died in 2007, and Larry, Gordon’s son from an earlier relationship, composed the company board of directors along with Brent and Dan.

Larry, a California resident, was the oldest of the siblings. He ran his own business, a consulting firm called McGrath & Associates, which provided information service products to the medical diagnostic industry. Judge Westphal described Larry as “a sophisticated businessperson.”

Dan was almost immediately on the outs with Brent, Larry and Gabriel, the former director of public safety for the city of Mankato who was hired to be Brent’s right-hand man at MICO.

First, Brent and Gabriel fired one of Dan’s key lieutenants over Dan’s objections “to force Dan to leave MICO and/or to sell his shares cheaply,” the District Court found. But when Dan offered to sell his shares for $3.9 million in 2004 — they had a market value of nearly $8 million — his brothers did not respond.

But they were talking among themselves.

In August, 2004 Brent sent an e-mail to Larry saying, “The situation at MICO is untenable. It is inevitable that either Dan or I will have to leave.”

By November, Brent was more adamant, telling Larry he no longer wanted to see Dan in the office. “The primary condition is that Dan works from anywhere that is not 1911 Lee Blvd. [MICO’s address].”

Dan’s demotion

Rivalry among siblings is not uncommon in family-owned businesses, said Ritch Sorenson, academic director of the Family Business Center at the University of St. Thomas.

“Two-thirds of family businesses don’t make it to the second generation,” Sorenson said. “The greatest amount of conflict occurs when the second generation of a family business is run by siblings. Men tend to be more competitive and less willing to cooperate.”

About a year after his father died, Dan was demoted in May 2005 and put on a performance-improvement plan. He was stripped of his direct reports and put under Gabriel’s supervision.

Dan wrote a September 2005 e-mail saying “the demotion is the latest event in what I perceive to be an effort to drive me out of the company.”

But Dan’s circumstances would get worse.

He was placed on an involuntary leave of absence in December 2005. Later, in trial, Brent testified that the board voted to place Dan on leave because of poor performance. But Westphal was not swayed. He called the testimony “evasive and deceptive.”

Dan returned to work in February 2006, with the assignment of setting up a European distribution network. But he was not allowed to work out of the MICO headquarters.

Westphal later determined that “Gabriel hindered Dan from communicating with other employees, removed him from e-mail groups, kicked him out of meetings that he was invited to attend, prevented him from attending regular sales meetings, and reprimanded employees who did communicate with him, and publicly humiliated and insulted him,” the judge wrote.

Dan’s efforts to convene a board meeting to discuss his relationship with Gabriel and the sale of his stock were rebuffed. After one of those attempts, in August of 2006, Dan received an e-mail from Brent saying, “I have been trying to think of a good reason to attend. I couldn’t think of one. I won’t be attending.”

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