by Vanda Krefft
“I gave her my sacred word that I would do nothing about it without first going to the hospital and talking it over with her,” Fox said. “In the morning she was being wheeled out of her room to the operating room and in the hallway, some friend or relation told her that he had just heard that I was settling my affairs by allowing Otterson and Stuart to revive the trust agreement. That ended that. She insisted upon being wheeled back into her room. No operation was going to take place. She dressed, ordered her car, and came back home. She said, ‘Here I have just turned my back for one night and you are already weakened.’ I tried to assure her that it was not true, but she knew it was true, or this party would not have told her so.”
Eva refused to return to the hospital. According to Fox, “[S]he didn’t care about [the] operation, death, or anything,” just as long as he did not return to the voting trust.
As events turned out, Fox had nothing to regret. The modified voting trust wouldn’t have worked anyway because the star attraction of the proposal, Charles Evans Hughes, got a better offer. On February 3, 1930, Hoover nominated him to succeed Taft as chief justice of the U.S. Supreme Court. On February 24, 1930, Hughes quit his law firm and was sworn in as head of the highest court in the land.
So, Fox rallied and took up the fight again. Imperfect though it was, he resolved to push ahead with the Bancamerica-Blair refinancing plan. Stuart and Otterson, however, were dead set against it. When Samuel Untermyer presented an outline of the Bancamerica-Blair plan to the court, Stuart and Otterson’s lawyer instantly declared, “We would rather have a receivership.”
Fox saw Stuart and Otterson’s hands behind new acts of aggression. Several more banks filed for judgments on Fox Film’s overdue loans, and on January 27, 1930, one of them sent a sheriff’s deputy to take possession of the 850 Tenth Avenue headquarters. If Fox didn’t pay off the $342,158 debt within six days, the studio’s assets could be auctioned off. That threat was averted when the Bancamerica-Blair group loaned Fox the money. On the same day that the sheriff’s deputy arrived, another receivership lawsuit was filed. Whereas the previous three had named Fox Film as the defendant, this one targeted Fox Theatres and was filed by an Allegheny, Pennsylvania, stockholder who owned 100 shares. Now both companies were directly in peril.
Superficially, Stuart and Otterson’s opposition didn’t make sense. The Bancamerica-Blair plan proposed to repay AT&T and Halsey, Stuart in full, with interest, yet they were doing everything possible to quash it. Untermyer emphasized the irony to Judge Coleman: “What are they doing there? What is it they want? They do not want their money.”
Those were awkward questions, and the answers provided were thin. Halsey, Stuart insisted that its fifteen-year preferential financing contract with Fox precluded him from dealing with other bankers. AT&T maintained that its long-term contracts with Fox Film and Fox Theatres for talking pictures equipment would be jeopardized if Fox burdened his companies with the high expenses of the Bancamerica-Blair plan. However, Halsey, Stuart hadn’t yet presented its own refinancing plan, and according to Fox, Harry Stuart had explicitly told him to go elsewhere. As for AT&T’s claim, it was by no means obvious that a contract between two companies entitled the vendor to interfere in the customer’s business. At least, it would have been more logical for the vendor to help the customer rather than vigorously push the customer toward receivership.
What, then, did Fox’s two adversaries really want? The only answer that made sense was that Stuart and Otterson wanted Fox ousted from control at the Fox companies. Neither one of them would get any further business from him, yet there was a lot of money to be had there. Consequently, Otterson and Stuart didn’t want Fox Film and Fox Theatres to recover as long as Fox was in charge. That was the reason that Halsey, Stuart hadn’t submitted a refinancing plan—the firm was equally opposed to rendering help itself to Fox as it was to Bancamerica-Blair’s helping Fox. Instead, the Fox companies should suffer under the threat of receivership to the point where Fox could be pushed out. Then, under friendlier management, rehabilitation could begin.
Fox had correctly assessed Judge Coleman as fair minded. Reluctant to send the Fox companies into receivership before everything possible had been done to save them, on January 28, 1930, Coleman ordered a two-week hiatus so Fox could work out the details of the Bancamerica-Blair refinancing plan. During that time, all the receivership lawsuits would be stayed and no banks could execute any judgments against Fox or take any property away from him.
At that point, the two choices for resolving the Fox companies’ financial crisis were either receivership or implementation of the Bancamerica-Blair plan. Now a third option emerged. The driving force behind the idea was Fox’s real estate partner, Alfred C. Blumenthal: Fox could sell his voting shares to some party acceptable to Otterson and Stuart, and the receivership lawsuits would be dropped.
It mattered little to Blumenthal that he and Fox were fighting because Blumenthal had refused to support Fox Securities. He’d told Fox he considered the plan illegal and bound to fail, and when Fox Securities did fail, Fox blamed Blumenthal’s disloyalty as a contributing factor. By now, Blumenthal said, Fox “was angry at me more or less all the time,” but “never so angry with me that he wouldn’t come to meet me . . . and talk about a deal.”
If not enthusiastically, his fighting spirit again wavering, Fox was willing to listen when Blumenthal put together two different syndicates to buy Fox’s voting shares. The first syndicate consisted of about twelve wealthy parties headed by Halsey, Stuart and ERPI. According to Blumenthal, that group came very close to agreeing with Fox on a price—according to Fox, it was $15 million—but fell apart because of tension between Blumenthal and Fox. A second syndicate collapsed for the same reason.
Blumenthal then devised a more circuitous plan. He contacted Harley Clarke, who was still interested in the voting shares but did not want his name revealed as the prospective buyer until the last possible moment. Clarke hadn’t seen Fox for more than two months, not since December 2, 1929, when he arrived late in New York without his promised $6.5 million check. If Blumenthal could pull off the deal, Clarke would pay him a $500,000 commission. Next, Blumenthal recruited Albert M. Greenfield, who agreed (for a commission) to try to persuade Fox to sell his voting shares.
Was it strange that one of Fox’s closest friends would cooperate with two people Fox didn’t trust, toward a goal Fox was doing his best to resist? Greenfield would always maintain that for a long time he didn’t know the identity of Blumenthal’s prospective buyer. Fox would always believe him. And to his credit, although Greenfield met with Blumenthal almost daily to discuss the matter, he didn’t push very hard. Instead, he would simply mention it to Fox “every once in a while” and remind Blumenthal “that Fox had a sentimental interest in the situation, that it was more than money . . . that all he was after was to continue operating the corporations.”
As tempting as it was to compromise for the sake of peace, Fox couldn’t do it. At heart, he still hoped to put the broken pieces of his companies back together. So, he forgave the six executives who had signed the mutinous December 17, 1929, round-robin letter. Otterson and Stuart had deceived them, he decided, into believing that receivership was the sole alternative to the voting trust. Fox even put Winfield Sheehan on his list for proposed board members under the Bancamerica-Blair plan, even though Sheehan had organized the round-robin letter and had refused to support Fox Securities.
Fox also immersed himself in his religious faith. Reading the Bible, he found stories that seemed to show that divine intervention would save him. He had “a clear vision that my difficulties would come straight in the end” because “there is a Supreme God and . . . when you pray to Him to give you the right thing He helps you.”
When the court-ordered two-week adjournment ended on February 13, 1930, Fox presented the completed Bancamerica-Blair refinancing plan to Judge Coleman. Stuart and Otterson instantly opposed it, claiming that Halsey, Stuart’s preferentia
l contract with the Fox companies prevented any other firm from handling the refinancing. Another obstacle lay in the fact that while two of the plaintiffs who had filed receivership lawsuits in late January (Stanley Lazarus, representing the bewildered Fox Film stockholders protective committee, and the previously duped widow Susie Kuser) supported the Bancamerica-Blair plan, two others (the Berenson brothers’ clients in Massachusetts and the Pennsylvania shareholder who had sued Fox Theatres) didn’t. The Bancamerica-Blair plan required that all the receivership lawsuits be dismissed first.
After listening to three hours of arguments by attorneys, Judge Coleman couldn’t decide whether to set aside all the receivership lawsuits and allow the Bancamerica-Blair plan to proceed. There were too many emotional accusations and too few facts. Ultimately, he thought, only one question mattered: what was the will of the people who had put their money into the Fox enterprises? Coleman ordered a special meeting to be held for all shareholders of both Fox companies. They would vote on only one question: did they want Fox’s Bancamerica-Blair refinancing plan or a receivership? Although the outcome would not be binding, because Class A shareholders didn’t have voting rights, Coleman indicated that he would respect the decision of all the investors.
The meeting date was set for March 5, 1930.
Then began a war of words. On February 14, the day after Judge Coleman ordered the special stockholders meeting, Halsey, Stuart sent menacing letters to the three banking firms comprising the Bancamerica-Blair group: Bancamerica-Blair, Lehman Brothers, and Dillon, Read. Their plan violated Halsey, Stuart’s alleged preferential financing contract with Fox, the letters warned, and if it were put through, Halsey, Stuart would sue for damages. Three days later, Halsey, Stuart presented its own “preliminary” refinancing plan to the Fox companies. It wasn’t a serious effort, but a ploy to stir up greater confusion and fear. Included were many terms to which Halsey, Stuart knew that Fox would never agree. One required the dissolution of the Class B voting shares, which Fox controlled and which controlled the companies. Deeming the plan “impossible,” Fox immediately rejected it.
On February 18, 1930, the day after receiving Halsey, Stuart’s proposal outline, Fox had Fox Film’s board of directors write a letter to stockholders imploring them to send in their proxy votes in favor of the Bancamerica-Blair plan. Otherwise, they faced the disintegration of the company and the complete destruction of their investment. It was a relatively calm communication that mainly touted the advantages of the Bancamerica-Blair plan.
Two days later, Fox thought better of such restraint. On stationery bearing his Manhattan home address of 270 Park Avenue, with a copy sent to the press, he wrote a long letter to the stockholders of both Fox companies detailing his outrage against Halsey, Stuart. The firm, he charged, had battered him with “malicious falsehoods” and a stream of poisonous propaganda “in the effort to destroy my lifework and reputation that have been built up as the result of thirty years of unremitting labor and fair dealing.” According to Fox, Halsey, Stuart was entirely responsible for the Fox companies’ present troubles. After “abetting and encouraging” the Fox companies to buy the Loew’s and Gaumont chains, these bankers had failed to provide long-term financing and then had had “the temerity” to “swoop down upon us” and press for a receivership.
“Could anything be more insincere?” Fox fulminated. “I am unwilling to desert my stockholders by turning over the companies to the tender mercies of these gentlemen at any price.” He concluded, “Above all things, do not let anyone cajole your stock away from you on the pretext that this great, prosperous enterprise is a fit subject for the Bankruptcy Court.”
In mid-February 1930, AT&T moved for a separate peace with Fox. All it had ever wanted from Fox, in addition to repayment of its $15 million loan, was clearance under the Tri-Ergon sound-on-film patents so its ERPI subdivision could sell motion picture sound equipment unchallenged. As recently as the end of January, Fox had confirmed to AT&T’s legal department that he considered ERPI equipment to be infringing on his Tri-Ergon patent rights. His position stood to decimate ERPI’s profits, if not its viability, because more than 80 percent of ERPI’s revenues came from the motion picture industry.
AT&T offered Fox a deal. If he cross-licensed ERPI to use his Tri-Ergon patents, AT&T would support the Bancamerica-Blair plan. It would direct John Otterson, as Fox’s co-trustee, to abandon his alliance with Harry Stuart and join with Fox in directing Bankers Trust to deliver the Fox companies’ voting shares to the new trustees proposed by the Bancamerica-Blair plan. Upon refinancing by Bancamerica-Blair, Fox would get the money to pay his debts. He would remain in control of Fox Film and Fox Theatres. He would simply have to stick to his business while the phone company stuck to its.
Fox refused. Instead, he submitted a counterproposal for a new contract that expressly excluded a cross-license for the Tri-Ergon patent rights. If AT&T wanted to buy those rights, it could do so. Fox’s most recent price had been $25 million. On February 27, 1930, AT&T lawyer George C. Pratt penciled a note on the proposed letter agreement: “Draft submitted by Untermyer and rejected by us.”
It was a terrible mistake for Fox not to accept, or at least try reasonably to negotiate, AT&T’s offer. By now, though, he was so angry and suspicious and so thoroughly exhausted that he couldn’t remember the vital lesson learned from the movie business—in every conflict, step over into the other person’s place and consider whether he himself might be wrong.
That was the final breaking point for AT&T. There was no point to further discussion. AT&T would remain allied with Halsey, Stuart.
The March 5 stockholders meeting was shaping up to be a bloody event. Four days beforehand, Halsey, Stuart mailed its own letter to the Fox stockholders, with a copy to the press, accusing Fox of being wholly responsible for his companies’ perilous condition. “Do not be frightened by talk of receivership,” the Halsey, Stuart letter advised, before going on to list many reasons that stockholders ought to be terrified of the Bancamerica-Blair plan, which represented “Mr. Fox’s own selfish desires.”
With so much invective hurtling in both directions, the stockholders’ vote was sure to turn largely on personal trust. David A. Brown, the former president of Fox Securities, wrote to Fox urging him to promote himself more aggressively, to step forward and show the public “the many William Foxes in William Fox, which I have told you, and now tell you again that the people of this country must know if they are to appreciate the fullness, the fineness and the greatness of the man that I know.” Brown suspected that Fox would reject the idea—“Please, Will, don’t throw this thought in the ash can”—and he did. That was probably for the better. Fox rarely handled encounters with reporters well. Brown took on the task himself, giving an interview to the New York Morning World that portrayed Fox as a great business visionary, social leader, and philanthropist. He also arranged with the World’s managing editor for the story to be told “affirmatively and humanly” and syndicated nationwide to a potential audience of three to five million.
Fox believed that his achievements should speak for themselves. March 5, 1930, would tell whether they did.
CHAPTER 43
“We Want You, Mr. Fox”
I think most people want you, Mr. Fox. You are the man that created this thing and without you I don’t see how it is going to stand.
—FOX FILM STOCKHOLDER, MARCH 5, 1930
In past years, ever since the first one in 1916, Fox Film stockholders meetings had been sedate, courteous affairs held in a small room that accommodated at most about twenty-five people. The meetings were attended by one, and always only one, outside stockholder. This was a Newark, New Jersey, doctor, “a most charming little man” no more than five feet tall who was one of the original investors and whom Fox had come to regard as the company’s mascot stockholder. Even in 1929, when Fox Film’s stockholders had increased to more than seventy-five hundred, still only “our little doctor friend” showed up. They let him ac
t as a teller to count the proxy votes, and they “usually had a very fine meeting and occasionally had lunch together before the meeting.”
On March 5, 1930, everything was different. Instead of one pleasant, familiar face, some four hundred to five hundred anxious strangers descended on Fox Film’s Manhattan headquarters, the three-story, block-long redbrick building at 850 Tenth Avenue. So did forty-six lawyers, each one loaded down with “a pile of briefs and legal documents a foot high.” Throughout the building, twenty police officers stood guard, on the lookout for “ringers,” professional agitators hired to masquerade as legitimate stockholders in order to disrupt the meeting.
Instead of a cozy, comfortable room, this year’s meeting took place in a huge whitewashed room on the top floor, a former silent movie studio. Workers had spent the previous day removing props and old equipment and setting up plain hard chairs. The only splash of color came from large red No Smoking signs on the walls.
Moments before 11:00 a.m., nearly an hour after the meeting’s scheduled start time, Fox appeared. Wearing a wrinkled, gray three-piece suit with a white wool sweater underneath the vest, he looked pale and worn out. He had lost thirty-five pounds since the market crash and hadn’t had time to order a new wardrobe. To one journalist, he seemed “more like one of his lowly proxy holders than chief of one of the biggest film outfits in the business.”
The day before had not gone well. On the morning of March 4, Halsey, Stuart had held a press conference and handed out copies of its completed financing plan, the outline of which the firm had given Fox in mid-February. Like the Bancamerica-Blair plan, it proposed the sale of new debentures and stock—but according to Halsey, Stuart, its plan would yield, after expenses, $68.2 million for the Fox companies, compared to Bancamerica-Blair’s $59.15 million. Additionally, because the Halsey, Stuart plan would require issuance of 100,000 fewer new shares of stock, valued at $2 million, it would result in immediate savings to the Fox companies of $11.05 million.* Halsey, Stuart had never consulted Fox about the terms and didn’t send the final plan to him until much later in the day on March 4.