by Vanda Krefft
On the surface, his action made no sense. He was supposed to be trying to save his companies. Fox Theatres could ill afford this financial gouge, while he himself could have withstood it. Perhaps Fox had for the first time admitted to himself that Fox Film and Fox Theatres might actually collapse.
That prospect had definitely occurred to Fox’s principal creditors, John Otterson and Harry Stuart, to whom he owed a total of $27 million. Toward the end of November 1929, on the day they’d learned about his secret negotiations to sell West Coast Theaters to Warner Bros., they arrived together at Fox’s apartment and demanded power of attorney to run Fox Film and Fox Theatres. They considered the companies effectively bankrupt, they said, and had lost all faith in Fox’s leadership. After listening to a ten-minute tirade from Otterson, Fox left the room and went to sleep in an adjoining bedroom.
That night he reconsidered. He had no other ideas. The next day, he sent for Stuart, who now presented a milder version of the proposal. The three of them, Fox, Stuart, and Otterson, would form a voting trust solely for the purpose of arranging long-term financing for the Fox companies’ debts. Fox would continue as the head of Fox Film and Fox Theatres, and once the money was in place, the voting trust would end. Fox thought the plan “really sounded wonderful.”
His elation didn’t last. On November 24 at the University Club, Stuart and Otterson handed Fox a two-page memo specifying very different terms. The voting trustees would be able to make any changes in the Fox companies that they thought advisable, and two votes would carry any decision. New boards of directors would be appointed. Fox would remain in charge at the option of the trustees. And there would be no time limit for the trust. The memo ended, “May ask for more.” Fox was stunned. “I said I would like to take this home and think it over, which I did, and of course there was only one conclusion which I could possibly reach with a memorandum like this, and that was to tell them both to go to hell.”
He had been living in “a fool’s paradise,” Fox realized. “I said, ‘Well, now, boy, wait a minute. You had better get yourself a lawyer.’ ”
About a week before the University Club meeting, Fox had hired Joseph N. Hartfield, a senior partner with the prestigious Wall Street law firm White and Case. A short, rotund Kentuckian who, according to Fox, had a habit of imitating Sarah Bernhardt’s acting poses, Hartfield was considered a genius at corporate reorganization. “Nothing that he doesn’t know,” people said. “A banker’s lawyer.” Fox had given Hartfield a $100,000 retainer and promised him $1 million if he settled the Fox companies’ problems.
Now Fox had second thoughts. “Did a well-known Wall Street lawyer who was subservient to all banks and bankers—was I safe in the hands of that type of man?” No, he decided. He wanted a new lawyer, a “big man.”
One name shone brighter than all others: Charles Evans Hughes. Two-time governor of New York, a former associate justice of the U.S. Supreme Court, the 1916 Republican presidential candidate who lost only narrowly to Woodrow Wilson, and U.S. secretary of state from 1921 to 1925, Hughes had reentered private practice in New York in 1925. With his chiseled features, broad forehead, blue eyes, and silvery white mustache and beard, he radiated authority. U.S. Supreme Court judge Robert H. Jackson would later say that Hughes “looks like God and talks like God.”
On the morning of Monday, November 25, 1929, the day after the University Club meeting, Fox met Hughes at his office. Hughes had good reason to clear time on his schedule. After a career spent mostly in relatively low-paying public service, he had returned to his law practice to make money. At sixty-seven, in declining health after a breakdown two years before, he knew his time was limited. Moreover, although in a good year he had billed straight legal fees of $400,000, his income had declined significantly after June 1, 1929. On that date, his son Charles Evans Hughes Jr. had been sworn in as U.S. solicitor general, the second-highest position in the Department of Justice. A large number of the senior Hughes’s big cases had been against the government, and to avoid the appearance of impropriety, he could no longer accept that type of work. Fox was therefore a highly attractive prospective client: he still had an enormous personal fortune, and his adversaries were other private parties, not the government.
Fox and Hughes talked for more than three hours. Exhausted and confused because he was sleeping an average of only two hours every night, Fox confessed, “I can’t think any more.” Don’t worry, Hughes replied. From now on he would do the thinking for him.
When the conversation ended in the early afternoon, Hughes extended his hand. Fox recalled, “I felt a grip of friendship. He asked me to dismiss the matter from my mind and indicated that he had broad shoulders and that he was willing to have this burden placed on his shoulders.”
Fox hired Hughes that day. Feeling safe, he went home and slept for forty-eight hours.
Two days later, devastating news arrived. On Wednesday, November 27, 1929, U.S. attorney general William D. Mitchell filed an antitrust lawsuit against Fox Film, Fox Theatres, and Fox personally in connection with the Loew’s shares purchase. Charging a violation of the Clayton Act, the lawsuit asked the court to compel the Fox companies to divest themselves of all their Loew’s stock. Allegedly, if the Fox-Loew’s merger were completed, Fox would control 40 percent of U.S. film production, constituting an illegal infringement of competition. Although the lawsuit was filed on November 27, it was dated two days earlier. Fox couldn’t help but wonder: was it merely a coincidence that on November 25 he had confided the details of the Loew’s purchase to Hughes and that Hughes’s son was the U.S. solicitor general? Hughes denied any connection and “seemed mystified.”
Steering the conversation back to the voting trust, Hughes urged Fox to go along with the voting trust idea. This was the easiest way, he counseled, and the objectionable terms could be eliminated. Fox recalled, “He told me he knew the telephone company. He had represented them at various times. He understood their methods and their ways, and . . . he was sure that no harm would come to me under this arrangement.” Weary and anxious, Fox acceded, telling Hughes, “I trust myself entirely in your hands. There was no use in my coming here if I am not going to act as you advise.”
As news of the Fox companies’ crisis spread, Wall Street operators smelled blood. On Friday, November 29, 1929, while Hughes was preparing the voting trust agreement, Fox learned that a bear raid on Loew’s stock was planned for the following Monday, December 2. Major investors were planning to throw their Loew’s shares onto the market in order to drive the price down and wipe out the 35 percent margin Fox had arranged earlier with his thirteen brokers. That would force a margin call on Monday, requiring Fox to provide more money. Because he didn’t have more money, his brokers would sell all his Loew’s shares. He would be ruined.
It was never clear who initiated the plot or how exactly they would benefit, but one person knew about it as soon as Fox did, and tried to exploit the opportunity. That Friday evening, Harley Clarke, who was in Chicago, sent Will H. Hays to see Fox at the Ambassador Hotel. Hays, the founding president of the Motion Picture Producers and Distributors of America, asked Fox how much he wanted for the Fox Film and Fox Theatres voting shares. A month earlier, Fox had quoted a price to Clarke of $100 million. Now he told Hays he would accept $33⅓ million.
On Saturday, when Clarke phoned to accept Fox’s price of $33⅓ million, Fox said he needed at least $6 million by Monday morning. Otherwise, there might be nothing left of the Fox companies for Clarke to buy. Clarke promised to send a Chase Bank representative the next day to give Fox a written commitment for $6.5 million. On Sunday, he changed his mind and said he would take an early train to New York and give Fox a certified check by 9:15 a.m. on Monday—well in time for the New York Stock Exchange’s 10:00 a.m. opening bell.
By now, Fox knew better than to depend on Clarke. At the urging of his friend Albert M. Greenfield, he also asked for a loan from Eastman Kodak, where every year Fox Film bought more than $5 million worth of r
aw film. Over the phone on Friday evening, Fox explained his predicament to George Eastman, the company’s seventy-five-year-old founder. Eastman, who had stepped down as company president in 1925 but remained chairman of the board of directors, agreed to do what he could.
Fraught with anxiety, Fox suffered through the long weekend, and on Monday morning, December 2, 1929, he found himself staring at doom. At 9:50 a.m., Clarke hadn’t appeared, even though his train had arrived on schedule at 8:45 at Grand Central Station and even though it was only a five- to ten-minute walk to the Ambassador Hotel. Neither had Eastman Kodak sent any word. Fox said, “You watch that damn clock go around by the minute—9:51, 52, 53, 55 . . .”
At 9:56 the phone rang. It was Fox Film’s lawyer, Saul Rogers, in Rochester, New York. Eastman Kodak had called a special board meeting that morning and had already deposited $6.3 million in Fox’s account at Bankers Trust. There were no conditions to the loan. Fox saw this as another miracle: “Every proof that an atheist is wrong—that there is a God in heaven and that He protects and looks over us and takes care of us.”
Frantically, half a dozen Fox employees called all thirteen brokers before 10:00 a.m. and told them to deliver their stock to Bankers Trust to be paid in full for it.* Soon afterward, Fox gave Eastman Kodak an exclusive five-year contract to supply all Fox Film’s film needs.
As for the feared bear raid that day on Loew’s stock, it didn’t take place. Fox believed that those who were behind it—his friends pointed to Chase Bank president Albert H. Wiggin and Matthew C. Brush, president of the American International Corporation and a prominent stock market operator—had learned that the gambit would fail and so had called it off.
At 10:30 a.m., Harley Clarke strolled into Fox’s suite at the Ambassador Hotel. Had he been their only hope, the Fox companies would have been ruined. Clarke apologized, but offered no explanation either for his delay or for the fact that he didn’t have the promised $6.5 million certified check. Instead, he pulled out of his pocket a sale memorandum proposing to buy Fox’s voting shares in Fox Film and Fox Theatres for $33⅓ million.
“But, of course, there was just a little bit of crookedness to it—not much, just a teeny weeny little bit,” Fox would recall. He himself would receive the $33⅓ million because the voting shares were his personal property. However, in order to get the money, he would have to direct Fox Theatres to sell to Clarke’s nominee all 660,900 shares of Loew’s stock for another $33 million, stock for which Fox Theatres had paid $73 million within the past year. Essentially, Clarke was offering Fox a $33⅓ million bribe to hand over the Loew’s shares at a fraction of their worth. He and Fox would each reap a huge windfall, while Fox Theatres would get stuck with a $40 million loss.
Fox expected he would wind up in prison if he accepted. “And, by the way, of course the $33 million was to be paid on the installment plan. I probably never would have gotten to the second payment. I think the first payment provided for three or five million dollars, and then over a period of three or four years I would get the rest.” A partner from Charles Evans Hughes’s firm, Richard Dwight, was also present, and after reading Clarke’s memo, he told Fox, “This is ridiculous. You can’t do that.” He didn’t.
Three days and nights of feeling as if the world were ending had worn Fox out. On Tuesday, December 3, he went to Charles Evans Hughes’s office and agreed to sign the voting trust contract. Stuart and Otterson had agreed that the trusteeship would have authority only to arrange long-term debt financing and that the only management change would be to reconstitute the board of directors with four members of their choosing and four of Fox’s. One question yet remained. Did Fox want Hughes to represent him personally or to be the attorney for the trusteeship?
“I said that whichever he thought was the best for me, I wanted him to do,” Fox said. Hughes insisted that Fox had to decide for himself.
Fox chose to have Hughes represent the trusteeship. If Otterson and Stuart “were going to be the kind gentlemen they said they were going to be,” he reasoned, then he wouldn’t need a lawyer to fight them, and Hughes would be most useful as a guiding hand for the group.
Fox signed the voting trust agreement that day. (A few years later, he would say that he thought he signed it on December 5, but the facts are consistent with December 3.) That evening at the Ambassador Hotel, he met with Winfield Sheehan, who had returned around 7:30 p.m. from two months in London. In a conversation that lasted until 4:00 a.m., according to Sheehan, Fox said he was “very happy” with the voting trust and described it as “a master stroke” and “the finest financial achievement of his entire business career.”
Immediately events went askew. The first meeting of the voting trustees took place not as it logically should have, at the Fox offices, but at AT&T headquarters at the corner of Dey Street and Broadway. Instead of Charles Evans Hughes, whom Fox thought he had hired to represent the voting trust, Hughes’s law partner Richard Dwight attended—and Dwight seemed clearly to favor Otterson and Stuart. After shuffling Fox into a chair in the middle of one of the long sides of the conference table, Dwight seated Otterson at the head of the table and began to suggest that Otterson be named chairman of the trusteeship.
“Wait a minute,” Fox interrupted. What did Otterson know about the motion picture business? “It is not a question of how these chairs are set as to who is going to be chairman here . . . If there is going to be a chairman in this darn thing, I want to act as that.”
He won the point, and changed chairs with Otterson. As soon as Fox sat down, he fell fast asleep. When he awoke, he discovered that Otterson and Stuart had appropriated checks totaling $490,000, which Fox had borrowed against his $6.5 million in life insurance policies, and had put the money into a pool to support the margined stocks. Fox had received the checks only that morning and hadn’t told anyone there about them because he considered them his personal property.*
Briefly, Otterson and Stuart did make themselves useful. They arranged for two banks to lend Fox $3 million so he could get some additional margined shares (mostly Fox Theatres and Fox Film stock) out of his brokers’ hands and not have to worry about their fate in a plunging market. They also persuaded Isidore Ostrer, who wanted the last $7 million due on the $20 million British Gaumont theater chain purchase, to accept $1 million in cash now and wait at least six months for the rest of the money. And Otterson and Stuart arranged for eleven banks, where Fox owed several million dollars, not to call in their loans until a refinancing plan was in place.
These efforts weren’t entirely heroic. Fox had to put up $6.5 million worth of collateral in exchange for the $3 million in bank loans, and he had supplied the $1 million payment to Ostrer by cashing in four of the remaining $250,000 Warner Bros. notes from the First National sale. (The Warners redeemed the notes at par to protect their credit reputation.) As Fox saw it, Stuart and Otterson had simply opened a few doors so he could get a square deal.
Had that been the worst of it—procedural squabbles and a sense that Otterson and Stuart weren’t as noble as he would have liked them to be—Fox probably would have gotten along for the sake of his companies. Plausibly, the better he got along with his co-trustees, the sooner he would be rid of them. Within days, though, his disgruntlement turned to horror. Otterson and Stuart, he realized, intended to depose him.
At Charles Evans Hughes’s office on December 3, Stuart and Otterson had verbally pledged that when they reorganized the Fox Film and Fox Theatres boards of directors so their companies could gain representation, Fox could name four of the eight directors. Fox wanted himself, Jack Leo, Winfield Sheehan, and Nathaniel King. Otterson and Stuart had agreed.
On Sunday, December 8, 1929, however, lawyer Joseph Hartfield told Fox that Otterson and Stuart were planning not to nominate Jack Leo to return to the Fox Film board because Leo was too close to Fox, too likely to tell him everything. Fox put the pieces together. If Stuart and Otterson could reconstitute the board without Leo, “what was to prevent them fr
om eliminating me at this next board meeting?” The voting trust agreement didn’t guarantee board membership for Fox. It stated only that he would remain president of both Fox companies.
The realization that he had made “a terrific mistake” in signing the voting trust agreement literally sickened Fox. “I had taken that which I had earned by the sweat of my brow as a result of hard labor for twenty-five years and . . . I had parted with it.”
That night, he left the Ambassador Hotel and returned home to Fox Hall with a temperature of 103.5. Hartfield’s information about Leo was correct. On Monday, December 9, 1929, a front-page item in Film Daily reported that Leo was “understood to be leaving” as vice president of Fox Film, Fox Theatres, and Fox-Case.
Fox remained bedridden and in seclusion at Fox Hall until the end of the week. During that time, he learned from allies within his companies that Otterson, Stuart, and Sheehan were preparing to reorganize the Fox companies’ top management. That was something else they had pledged not to do, but would be able to do once they controlled the boards of directors. Already they had summoned Harold B. Franklin, who earned $50,000 a year as the Los Angeles–based president of West Coast Theaters, to New York. According to Fox’s informants, Franklin was in line to replace Fox as president of Fox Theatres in a deal that would give him $150,000 a year, plus 10 percent of net profits. Fox had never taken any compensation at all—no salary, no profit participation, no reimbursement for personal expenses—and Fox Theatres was now at the height of its prosperity.
The more Fox brooded, the more agitated he became. On Thursday, December 12, 1929, he summoned Sheehan to Fox Hall. Despite rumors that Sheehan had become friendly with Otterson and Stuart, Fox still trusted Sheehan—at least, he still trusted that Sheehan could be won back to his side. Drawing on the presumed warmth of their nearly twenty-year association, Fox asked him to prepare a statement of loyalty to be signed by company executives. Several times in the past, on his own initiative, Sheehan had presented Fox with colorful, embossed resolutions declaring him a peerless leader. Now Fox wanted to know “who is going to stand by and who is going to run out.”