by Vanda Krefft
That wasn’t practical right now, Sheehan replied.
“This is the first time I have asked for any support,” Fox said.
Sheehan refused.
Fox then asked that he at least remain loyal and not let Otterson and Stuart mislead him. Fox recalled, “To this statement he made no reply, pleading illness. He said he had a sore neck and couldn’t stand up, and laid [sic] down at the foot of my bed.”
On Saturday, December 14, Motion Picture News reported that Stuart and Otterson had taken “complete control of the Fox companies” and that Sheehan was “working hand in hand” with them. The next day, lawyer Hartfield told Fox, “It is their intention to depose you.” According to Hartfield, in addition to having Franklin replace Fox as president of Fox Theatres, Otterson and Stuart planned to name Sheehan as the new president of Fox Film, and Stuart thought Fox should leave the country for six months to avoid all the humiliation they intended to heap on him.
Any hope that all the rumors might be false was dispelled the following morning. Reading the front page of the Monday, December 16, 1929, New York Times, Fox learned that his fellow trustees had “definitely decided” that instead of merging Fox Film, Fox Theatres, and Loew’s into one organization, they were going to form a holding company to take over the three businesses. It sounded like an innocuous substitution of terms, but for Fox, the implications were harrowing.
A merger would have raised money by absorbing Fox Theatres and Loew’s into Fox Film and issuing 3 million new shares of nonvoting stock. The creation of a holding company, however, would require the dissolution of Fox’s all-important voting shares because the New York Stock Exchange allowed no new company listings to have two classes of stock. According to Otterson and Stuart’s plan, each voting share was to be exchanged for 1.5 nonvoting shares. Therefore, at current market prices, Otterson and Stuart would be able to gain control of Fox Film and Fox Theatres for only $2.7 million. Fox believed his voting shares were worth $100 million, and just two weeks earlier, Harley Clarke had been willing to pay $33⅓ million for them.
This chain of events, Fox said, “convinced me beyond the shadow of a doubt that I had no moral obligation under the trust agreement.” His lawyers advised him that he had no legal obligation either, because Otterson and Stuart had breached the terms of the contract, which explicitly stated that the purpose was to “maintain and preserve the organization.” After only thirteen days, Fox decided that the voting trust was over.
The next day, on December 17, 1929, Fox told lawyer Richard Dwight that he would not continue with the voting trusteeship. He would arrange the refinancing on his own. “I didn’t know how, but I knew it had to be done.”
Who was in charge at the Fox companies?
Fox claimed he alone was. Stuart and Otterson insisted that they were, that the voting trust was still in effect. It wasn’t clear who was right.
While Stuart and Otterson had the voting trust contract on their side, Fox had actual power. He had not yet submitted the resignations of his companies’ officers and directors so that those positions could be reassigned. Neither had he taken the final steps to transfer authority over the Fox Film and Fox Theatres voting shares, which entirely controlled the appointment of board members. Therefore, only Fox could appoint new board members and officers. Otterson and Stuart were paper tigers.
But paper tigers could still roar. Instead of closing their briefcases and returning to their own companies, Otterson and Stuart courted support among the Fox companies’ top executives.
Perhaps it was a consequence of Fox’s aloof, autocratic management style. Or maybe it would have happened anyway, this hopeful enthusiasm about a new blank page of leadership. On December 17, 1929, six members of the Fox companies’ top management signed a document calling for Fox to return to the voting trust.
This “round robin letter,” as Fox would term it, had been instigated by Sheehan. It condemned Fox’s repudiation of the voting trust as a “highly immoral” act that would entail “nothing short of disaster.” In addition to Sheehan, those who signed were Saul Rogers, vice president and general counsel of both Fox companies; James R. Grainger, head of Fox Film sales; Sheehan’s brother Clayton, Fox Film’s foreign sales manager; John Zanft, vice president and general manager of Fox Theatres; and Courtland Smith, general manager of Fox Movietone News. With the exception of Grainger and Smith, all had been nobodies before Fox hired them.
Fox was angry and hurt, most of all by Sheehan, who had signed the round robin letter first. Fox waited nearly a week to confront him. On December 23, 1929, he called Sheehan to a meeting and accused him of disloyalty. Sheehan protested that he and others were acting simply from a “frank and honest conviction of what was good for the company” and also for Fox himself. Fox allowed himself to be swayed. According to Sheehan, “Mr. Fox thereupon threw up his hands and said, ‘We will leave it go at that. You were misled.’ ”
He also forgave John Zanft, whose convoluted explanation was that if he hadn’t signed the letter, the others would have known he was on Fox’s side and then he couldn’t have continued to be useful to Fox. “That reasoning sounded perfectly all right to me,” said Fox. “So I overlooked it, but made him promise he wouldn’t sign any more papers that were [not] to my best interests.”
Some of it was his own loyalty. Fox had never fired any of his top executives. Some of it was pride. As he later said, “I am not going to cry and weep and whine over a letter that was sent to me by my executives called the round robin letter. If I carefully selected those men and if I had not made an error in my judgment when I first engaged them, there could not have been a round robin letter. I had selected these men for their offices and therefore I must accept the responsibility.”
While officially maintaining “a complete and stony silence,” Otterson and Stuart began a whispering campaign against Fox. Rumors circulated that he had cooked the Fox companies’ books to cover up the fact that both Fox Film and Fox Theatres were nearly broke. Allegedly, he had lied about their earnings, failed to list large liabilities, mismanaged operations, and saddled the companies with colossal debt through reckless stock market speculation.
“Wicked falsehoods,” Fox labeled these claims. Indeed, in a letter to creditor banks drafted on December 12, 1929, Stuart and Otterson had stated that “the trustees thoroughly believe that the companies are entirely solvent” and predicted that, together, Fox Film and Fox Theatres profits for 1929 would total $16 million.
Yet the whispering campaign took a toll. Traders hammered Fox Film stock on the floor of the New York Stock Exchange. On Thursday, December 19, 1929, the share price fell from the previous day’s close of 35 to an all-time low of 23, before crawling back up to 25¼ by the end of trading.
Otterson also put out the word that he was devoting all his time to managing Fox Film and Fox Theatres. Unnamed “outstanding figures”—no doubt solicited by Otterson—popped up in the press with quotes such as “I consider John E. Otterson one of the smartest financial men in New York” and “The AT&T won’t move without Otterson. That’s the kind of fellow he is.” (The latter statement went a bit too far: as president of ERPI, Otterson merely headed a subsidiary of the Western Electric subsidiary of AT&T.)
Was that not sufficient humiliation? No? There was more. On Thursday, December 19, the low point so far for Fox Film’s stock, Sheehan was the guest of honor at a dinner at the Ambassador Hotel for about sixty, including former Fox friends Mayor Jimmy Walker and ex-New York governor Al Smith. Fox had been one of Smith’s most prominent supporters and had served on the committee that sponsored Walker’s reelection campaign. The Sheehan fête was a lighthearted affair, filled with jokes and cigar smoke and “jubilation,” completely oblivious to the raging tempest over control of the Fox enterprises. Surely it was no accident that the event was held at the Ambassador Hotel, where Fox now lived more or less full time. He did not attend.
As others fraternized and celebrated, Fox became increasingly alien
ated and encompassed by gloom. His decision to withdraw from the voting trust caused an argument with Hartfield, and now he hired yet another lawyer, Clarence Shearn, a former New York state appellate court judge who had been William Randolph Hearst’s personal lawyer. Short, slender, and bald, sixty-year-old Shearn impressed Fox not only with his fighting spirit—for years he had successfully opposed the Tammany Hall political machine—but also with his warm, sympathetic manner. At their initial interview at Fox’s apartment at 270 Park Avenue, Shearn listened for nearly five hours as Fox poured out his troubles. Here, Fox thought, just as he had thought when he met Charles Evans Hughes, was “a kind gentleman” who would set aside his own concerns and take up a client’s cause as if it were his own.
Where was Fox’s intended savior, the magisterial Charles Evans Hughes, who had clasped Fox’s hand when they first met on November 25, 1929, and assured him that he would do all the thinking for him? On December 23, 1929, Hughes and his wife, Antoinette, set off for a vacation in Bermuda that would last until January 11, 1930. It was his third vacation of the year. A photo of him and his wife in Bermuda shows the couple looking happy and carefree on a stroll through the tropical greenery. Although it was only because of Hughes that Fox had agreed to have Hughes, Schurman and Dwight serve as counsel for the voting trusteeship in the first place, Hughes had handed the Fox case off to firm partner Richard Dwight, and Fox would never see Hughes again.
Hughes was so little interested in any of his cases that in a two-and-a-half-page chapter called “Practice Again, 1925–1930” in his Autobiographical Notes, he writes mainly about public service activities, and he sums up his work at the firm in two sentences: “My practice was large, varied and lucrative. I shall not attempt to enumerate, much less to describe, the interesting, important and difficult cases in which I appeared.” He made no reference to the Fox case. According to John Lord O’Brian, who knew Hughes “quite intimately,” Hughes “didn’t take things personally to heart.” Theodore Roosevelt had a harsher assessment. “The bearded iceberg,” Roosevelt called Hughes, deeming him as “a fairly good man . . . and an inordinately conceited one” who spent too much time looking out for his own interests.
On Monday, December 23, 1929, news of the trustees’ fight came out into the open. At AT&T headquarters, Otterson had called a meeting of representatives of the eleven banks where Fox had unsecured loans totaling $6.85 million. Some of the loans had been overdue since December 9, but during the fleeting honeymoon phase of the voting trust agreement, Otterson and Stuart had persuaded the banks not to press for payment pending a comprehensive refinancing plan. Fox’s latest new lawyer, Clarence Shearn, told the group of about thirty that Fox had withdrawn from the voting trust. According to Fox, lawyer Richard Dwight, representing Otterson and Stuart, acknowledged that the agreement was defunct. Otterson and Stuart later denied that claim.
Regardless, with Fox dead set against Stuart and Otterson, the bankers were not going to get their money the way they’d expected. To assuage their fears, Fox offered to collateralize their loans with real estate belonging to Fox Film. He had $20 million in properties against which there were no mortgages, he said. The bankers could look over these holdings and choose $2 worth of property for every $1 the Fox companies owed. However, after one banker asked whether Fox hadn’t already pledged those assets as collateral for his $12 million loan from Halsey, Stuart (he hadn’t), the meeting then broke up in confusion and consternation.
Fox went home and immediately wrote to the heads of the eleven banks pleading for loan extensions. “We received no replies whatsoever indicating that anybody wanted to help.”
A few days later, the bankers ran for cover. On December 28, 1929, four banks wrote to Fox demanding immediate payment of a total of $1.7 million. The rest of the banks would soon follow. Fox didn’t have the money.
The news traveled quickly around the world. In London, Isidore Ostrer, who had given Fox a six-month extension to pay the remaining $6 million for the Gaumont theaters, demanded settlement right away. Fox said, “He kept cabling for his money and then shortly thereafter he started a legal proceeding.”
There was more at stake than just the future of Fox Film and Fox Theatres. If they were to go under—as they probably would if an unpaid creditor pushed them into receivership—the event would rank as the largest business failure in U.S. history. The psychological effect on a country already in a state of financial panic was unfathomable.
Yet, it made no sense for Fox companies to be smashed up. Both were ending 1929 at the height of their prosperity, and together they employed twenty-five thousand people in good jobs and financially supported many ancillary businesses. Could they really not be saved?
When Republican National Committee chairman Claudius Huston offered to help, Fox sent him to ask President Hoover to tell the banks to back off and give him a chance to recover. In particular, Fox wanted that message delivered to Chase Bank chairman Albert Wiggin, who he believed was leading the bankers’ blockade against him on instructions from Chase’s largest depositor, AT&T.
It was a fool’s errand. According to Richard Hofstadter, Herbert Hoover had “a vein of arrogance beneath his matter-of-fact exterior . . . Accustomed as he was to successes and popular esteem, to managing men and machines with remarkable effects, it is unlikely that he had ever felt helpless before the bigness and difficulty of the world.” Hoover refused to intervene directly for Fox, but allegedly authorized Huston to speak for him to Wiggin. Huston told Fox he would have the conversation when he went to Wiggin’s home for Christmas dinner.
On December 26, 1929, Huston grimly reported back to Fox. Allegedly, Wiggin resented the president’s “interference” and told Huston to tell Hoover to mind his own business. Wiggin later denied any such conversation, calling the story “absolutely and entirely false,” and said that Huston had never been to his house on Christmas or any other day. Wiggin scoffed, “The incident can exist only in Mr. Fox’s imagination.” Given the characters and motivations involved, it’s more likely that it did than didn’t happen.
As 1929 ended in chaos for the Fox companies, Fox returned to Fox Hall for his thirtieth wedding anniversary on December 31. Every year since their wedding, he and Eva had spent that date together celebrating their anniversary, the coming New Year, and his birthday the following day. This year, too, he went home. But this year was different. “It was a celebration that I would rather forget than remember.”
Although previously Fox had always found Eva to be “a very devoted wife,” since Black Tuesday, October 29, they had grown far apart. While she lived at Fox Hall, Fox had been spending almost all his time in Manhattan. He wouldn’t do business over the phone from Fox Hall because “I instinctively felt that every word I uttered was being listened to” by AT&T. “I not only couldn’t come home, but I couldn’t take the time to write to her. I would occasionally telephone and lied like hell every time I had her on the wire,” he said. “I told her my affairs were getting better each day, and as a matter of fact they were worse. She knew I was lying because [her brother Jack] Leo was telling her about the tragedy I was going through.”
In mid-December, when Fox returned briefly to Fox Hall after being sickened by the news that Otterson and Stuart planned to get rid of him, Eva also became seriously ill and was bedridden. He recovered; she didn’t.
Fox didn’t explain exactly what happened on their anniversary, but evidently Eva was angry and distant and offered none of the uplifting encouragement he expected. Misinterpreting her attitude as a lack of affection, he returned alone to Manhattan the next day. It was the lowest point of his life. Not only had his dream of a motion picture empire become a shambles, but also he had imperiled the warm, stable family life that represented “the thing that I had loved most.”
CHAPTER 42
War
For modern capitalism is absolutely irreligious, without internal union, without much public spirit, often, though not always, a mere congeries of poss
essors and pursuers.
—JOHN MAYNARD KEYNES,
LAISSEZ-FAIRE AND COMMUNISM, 1926
It was Fox’s elder daughter, Mona, twenty-nine and with her scandalous divorce about to be finalized on January 24, 1930, who reconciled Fox and Eva. After witnessing the rift between them on their thirtieth wedding anniversary on New Year’s Eve 1929, she wrote a letter to her father. In the hothouse atmosphere of their home, where few emotional windows ever opened to let in fresh air, the “romantic,” fanciful Mona had never really grown up. “Nice boy, dad dearest,” her letter began. “Listen, dear one—I want to talk to you about Mommy,” she wrote. All “Mommy” wanted was to be included and to help, and it had caused her no end of anguish to feel left out. “Courage—General mine—we love you so—courage—General mine—we need you so. Your own Mona.”
Receiving the letter in Manhattan on New Year’s Day, Fox decided that he had misconstrued Eva’s attitude and that, instead of an angry wife, she was a “poor soul suffering the tortures and agonies of hell” in sympathy with him. The following day, Eva moved from Fox Hall to their apartment at 270 Park Avenue. From then on, she remained at his side. He said, “No conference took place without her standing by the door of the room where it was being held and listening in. No telephone message came without her being on the other end of the wire. She no longer was going to trust me to tell her what was occurring. She was going to know for herself.”