Bitter Grapes

Family-owned businesses can be showcases of executive harmony--or the arena for bitter feuds made all the more painful by the fact that the disputants are of the same blood. For the past 30 years one of the most spectacular such feuds has pitted Robert Mondavi, now 64, against his brother Peter, 63, over the operation of the Charles Krug Winery, the oldest in California's Napa Valley. Their struggle came to a climax this year in a court battle interrupted by their mother's death. Now it is nearing a surprising conclusion: a California judge has ordered the profitable winery--it earned $3.5 million on sales of $16 million in the fiscal year that ended last week--to be sold, taking it out of the family's control altogether.

The saga began in 1922, when Italian Immigrants Cesare and Rose Mondavi settled in Lodi, Calif., to start a grape-shipping business. In 1943, drawing on savings and bank loans, the Mondavis acquired the Charles Krug Winery, a dilapidated structure dating to 1861. To own it, the family formed a limited partnership, C. Mondavi & Sons, and later turned it into a corporation. Cesare, Rose, Robert and Peter each took 20%; Daughters Helen and Mary received 10% each. Cesare put Robert in charge and returned to grape shipping. When Peter got out of the Army Air Corps at the end of World War II, he became production manager.

The two brothers clashed almost from the start. Says Peter: "I'm conservative. Bob is an extravert, a promoter." Robert adds: "Peter's business philosophy and mine are completely opposite."

Cesare usually managed to arbitrate their business disputes, but after he died in 1959 the tensions increased until, in 1965, they exploded into a fistfight. The other family members talked Robert into taking a six-month leave to cool off. He soon concluded they wanted him out and started a rival business, the Robert Mondavi Winery--while still sharing the family's profits from Krug. In a final burst of fraternal affection, Peter helped his brother-competitor by arranging for Krug to crush grapes for the new winery and lending it a badly needed bottling machine.

The detente did not last; the other Mondavis soon asked Robert to stop using the family name as a label (he refused). Meanwhile, Krug prospered under Peter's direction, but an involved tax situation held down the family's share of its earnings. In 1972, for instance, Krug earned $1.9 million pretax, but the family partnership netted only $332,525 of that. Peter proposed forming a new partnership that would ease the tax bite--and, not incidentally, reduce Robert's share to 10%. Robert refused to join, so the other Mondavis went ahead without him. Robert promptly sued, contending that his brother, with support from his mother and sisters, was scheming to cut him off from his share of the family's profits from Krug.

Complete Victory. The trial finally began last spring. Two months into the trial, Rose Mondavi died. Robert and Peter stood close together at her funeral but spoke not a word to each other. Last month Judge Robert D. Carter awarded Robert a complete victory. He found that the old partnership, C. Mondavi & Sons, is "no longer the family corporation originally envisioned" and ordered the assets of the Krug Winery sold.

Appeals could prolong the battle for years. But if control of Krug is finally sold, both brothers will prosper. Estimates are that the sale would bring about $40 million, of which both Robert and Peter would each stand to collect $10 million before taxes.

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