The business ethics of publicly held corporations are typically subject to heightened scrutiny by regulators and the public. But, as the painful, protracted legal battle of McGrath v. MICO made clear, even private companies are increasingly being held more accountable for their actions.
The McGrath v. MICO case involved Dan, Brent, and Larry McGrath, three brothers who co-owned and ran MICO, a closely-held company that manufactures and sells hydraulic braking components. The brothers took control of MICO as shareholders and board members after their father died in 2004.
Trouble among the brothers began almost immediately, and Dan realized he was being pushed out of the family business.
After trying to resolve the on-going disputes with his brothers, Dan filed a lawsuit against them, the company, and a MICO employee, in 2006.
Dan McGrath’s attorneys at Stinson Leonard Street, led by partners Doug Peterson and Dan Oberdorfer, successfully litigated the complex case in three phases over five years.
In a series of judgments, a judge and jury in Nicollet County awarded Dan McGrath nearly $22 million.
The judgments included punitive damages of almost $5 million total against MICO, and brothers Brent and Larry McGrath. It is one of the largest judgments in Minnesota involving a family business shareholder dispute and punitive damages.
The judgments were upheld by the Minnesota Court of Appeals in late 2012, and the Minnesota Supreme Court declined to review the case in February, 2013.
Peterson and Oberdorfer point out that the entire trial team, including attorneys Wade Davis, Andrew Davis and Jenni Ives and staff members Julie O’Reilly and Mary Ann Wessel, were instrumental in putting together the building blocks for trial and successfully fighting the appeal.
The team’s strategy was to present Dan McGrath as a whistleblower, making him eligible for damages under the state’s anti-retaliation statute.
“There are broader themes like corporate responsibility that played out throughout the litigation and trial,” said Oberdorfer. “More was at stake than simple personality differences or disagreements among the family members.”
Indeed, the District Court found that Brent McGrath acted fraudulently, and Larry McGrath was complicit in the fraud, in connection with improper attempts to revise the corporation’s bylaws, operate what Brent admitted was a “suspect” board, and exclude Dan from key meetings.
Peterson, a former federal prosecutor, says the outcome of the MICO lawsuit reveals a public sentiment that is “increasingly fed up with what they perceive to be questionable business practices.”
“The way the outstate jury responded to [the MICO case] reflects a broader trend of courts and juries holding privately held, Main Street businesses more accountable to their public responsibilities,” said Peterson.
Oberdorfer and Peterson add that the MICO case is also a good reminder that businesses can head off this kind of litigation with experienced business law advice. They point to the importance of good succession plans, well-drafted buy-sell agreements, and a working corporate governance structure.
“All of those legal tools can be effective if put in place early on,” said Peterson.