The Man Who Made the Movies

by Vanda Krefft

  Halsey, Stuart’s plan was a fraud, Fox believed, and it would lead to ruin in one of two ways. Either Halsey, Stuart would not be able to pull off the financing, and possibly had no intention of doing so, and the Fox companies would fall into receivership. The job was too big for one banking firm to handle alone, yet Halsey, Stuart listed no marketing partners. That was the main reason that the Bancamerica-Blair plan cost so much more. Bancamerica-Blair proposed to bring in hundreds of other underwriters nationwide, and they would all need to be compensated. Alternately, if by some chance Halsey, Stuart did manage to sell more than $74 million in new securities all by itself, Fox was certain that Otterson and Stuart would not only fatally mismanage Fox Film and Fox Theatres, but also plunder the two companies’ treasuries for the benefit of their own firms. The Halsey, Stuart refinancing plan intended to depose Fox. It required that his voting shares be turned over to a new voting trust that would last at least five years and consist of five trustees, four of whom would be named by Otterson and Stuart.

  In the evening of March 4, the threat intensified. A newspaper employee phoned Fox to alert him that a large display ad was scheduled to run the next morning (fit reading for the stockholders on their way to the meeting) wherein five Fox senior executives pledged their support for the Halsey, Stuart plan over the Bancamerica-Blair plan. The first name on the list was Winfield Sheehan. Unwilling to believe that someone who’d been with him since the very beginning really would betray him, Fox had previously told himself that Sheehan was simply a lost sheep, temporarily deceived but ultimately loyal. The other signers of the ad were Saul Rogers, James R. Grainger, Clayton Sheehan, and John Zanft, the general manager of Fox Theatres who had promised Fox after the December 17, 1929, round-robin letter that he would cause no further trouble.

  Fox didn’t bother to contact Sheehan—probably not because there was nothing to say but because there was too much to say. After hanging up from the newspaper employee’s call, he phoned Zanft. He asked, “You didn’t sign another statement that would be harmful to me, did you?”

  Yes, he had, Zanft confessed, but he wanted to explain.

  “I told him I wanted no further explanation,” Fox said. He never saw Zanft again.

  So, on March 5, shaken by these personal disappointments, Fox appeared for the shareholders meeting and sat down at the table set up for him and his lawyers. At 10:58 a.m., he rapped the gavel twice to call the meeting to order.

  Immediately, an aide appeared at his side with a message. Poker faced, Fox spoke briefly with Untermyer and, before the chatter in the room had subsided, announced a half-hour adjournment.

  An important court decision had come in.

  Another worry during the past few days had been the question of who would have the right to vote Fox’s Class B voting shares at the shareholders’ meetings. Although numerically those shares wouldn’t be especially significant to the day’s vote—at Fox Film, Fox’s voting shares amounted to 50,101 out of a combined total of 920,660 voting and nonvoting shares, and at Fox Theatres, 100,000 out of a total 1,683,000 shares—strategically they were crucial. Whoever voted Fox’s B shares at the stockholders meeting would establish a precedent to vote them later on. And later on was all that really counted. The stockholders’ vote was being taken only to inform Judge Coleman of the will of all the investors. The outcome would not be binding.

  If Otterson and Stuart succeeded in voting Fox’s shares, they could claim the right to vote the shares at the next meetings of the Fox companies’ boards of directors on April 15, 1930. Because Fox’s voting shares controlled appointments to the boards, Otterson and Stuart would be able to replace all the Fox loyalists with their own choices. And that meant that even if the shareholders approved the Bancamerica-Blair refinancing plan, the new boards could kill the plan.

  There were only two ways for Fox to avoid this scenario. One would be to have Bancamerica-Blair rush through its plan, get the $27 million to pay off Otterson’s and Stuart’s loans, and—before the April board meetings—officially dissolve the contested December 3, 1929, voting trust. That was an impossibly short schedule even for the best of times, and early 1930 was the worst of times in U.S. financial history.

  Fox’s second option, his only real option, was to establish a legal right to control his Class B voting shares, which were now in escrow at the Bankers Trust in New York. Toward that goal, on February 28, 1930, he had filed suit in the New York Supreme Court and won a temporary injunction restraining Otterson and Stuart from voting his Class B shares at the stockholders meeting. The next step was to make the injunction permanent and get the shares physically returned to him. On March 3, Samuel Untermyer had put on his best showboat style and argued in front of Judge Aaron J. Levy that Otterson and Stuart were trying to “slug Fox for $10 million . . . If somebody tried to do it for $10, they would probably go to jail.” Halsey, Stuart’s behavior was “sordid beyond words,” Untermyer charged, and at the suggestion that AT&T had high-minded motives, he scowled: “I’ve seen all the idealism I want to see from the telephone company.”

  Judge Levy had waited until the last minute to decide the matter. That was what the aide had come to tell Fox right after the first two raps of the gavel. Levy had just released his written opinion.

  The news was bad. In addition to refusing Fox’s plea for a permanent injunction, the judge had delivered a blistering lecture that would be widely quoted in the press. His opinion charged that in a “flagrant and unwarranted” repudiation of the voting trust with Otterson and Stuart, Fox had behaved in a sneaky, selfish, and self-destructive manner. “Suffice it to state that the court is not at all impressed by his disingenuous charges . . . that he is the unfortunate victim of a malevolent conspiracy to seize control of the companies,” Levy wrote. “It is said that of little acorns great oaks do grow. Here we have a little $1,600 acorn which grew into a sturdy $300,000,000 oak. Why was not well enough left alone? The very Fox chopped down this healthy thriving tree with his own hatchet. The world knows much about avarice and cupidity, and I wonder if this is not another illustration.”

  Levy’s decision was not what it seemed. Far from being a paragon of judicial probity, the judge was a Tammany Hall hack who had risen to his position through service to the political machine and by the benefit of its corrupt methods. In 1912, then a lawyer, he had represented William Shapiro, the getaway car driver in the sensational murder of gambler Herman Rosenthal, the killing that had implicated both Fox’s movie theater partner Big Tim Sullivan and Winfield Sheehan. The following year, with Tammany’s backing, Levy had been elected to the Municipal Court bench; evidence indicated ballot box tampering. In 1923, he won election to the state supreme court and was not removed even though twelve election inspectors were subsequently indicted for fraudulently miscounting ballots in his favor. Levy would long maintain his underworld ties. In 1932, for instance, he would dismiss parole violation charges against Owen “Owney” Madden, one of the city’s most notorious and ruthless gangsters, accepting Madden’s unsubstantiated word that he’d already been discharged from parole. To Madden’s own amazement, Levy would remark, “I think this man would make a useful member of society.”*

  Indeed, corruption in the New York City judicial system was so widespread that in their 1932 book What’s the Matter with New York: A National Problem, Norman Thomas and Paul Blanshard would write, “The sine qua non of both appointment and election is party loyalty and service . . . Brilliance in a New York City judge is accidental.”

  In addition to his skewed sense of justice, Judge Levy had an ax to grind against Fox. Levy was a partner in a dressmaking business operated by Sally Milgrim, whose brother had a chain of theaters that he had sold to the Fox Metropolitan company. After discovering that the Milgrims had lied about the theaters’ annual earnings, Fox’s auditors had lowered the price accordingly. Subsequently, Levy, who evidently owned an interest in the theater chain (despite a law prohibiting judges from engaging in for-profit business), told F
ox executives he wanted the original deal to go through. When they refused, he vowed to get revenge. Hoping to expose Levy’s hidden bias in his decision about the voting shares, Fox immediately sent messengers to find the Milgrim brother who had fallen out with Sally and Levy. The brother refused to say what he knew.

  Although Levy’s scornful comments about Fox’s character would be quoted with inordinate frequency both at that time and going forward, the legal ruling wasn’t catastrophic. It meant only that Otterson and Stuart could not be prevented from voting Fox’s Class B shares at the stockholders meeting. It didn’t entitle them to vote those shares. Levy didn’t have the authority to order that. Essentially, the issue of control of the voting shares remained just as confused as before.

  The main impact of the decision was that Fox had to adjust a few terms of the Bancamerica-Blair plan. That was the reason for the half-hour adjournment. The Bancamerica-Blair plan included an issue of preferred stock, which would have required approval by two-thirds of both A and B stockholders. With his voting shares, Fox believed he had two-thirds approval. Without them, he knew he didn’t. Hastily, the Fox boards of directors substituted common stock for the preferred stock, so that only approval by the boards of directors, which Fox controlled, would be required.

  At 11:30 a.m., Fox reopened the stockholders meeting. “I was in a daze and bewildered,” he said later. Surveying the crowd, he saw very few friendly faces. “There were some nice ladies and gentlemen who were honestly stockholders,” but also “ruffians and gangsters, whose job it was to hooray everything the telephone company wanted and shout down everything that Fox wanted.” Although guards had been posted at the main doorway on Fifty-Sixth Street, the building had about five other entrances where agitators might have sneaked in.

  Behind Fox was more trouble: his table was positioned about one-third of the room’s length from the westerly wall, and farther back was a table for Otterson, Stuart, and their associates. Were they going to send secret signals to the crowd? Fox feared so. For the first time in his life, he said later, he was unsure if he had enough energy to tackle the job ahead.

  Nobody saw his self-doubt. The press reported that Fox looked confident and remained “smiling and calm except on several occasions when he was provoked, whereupon he flashed out and invariably won his point.” He never sounded desperate. When, early on, a voice in the crowd asked how he wanted them to vote, he replied evenly, “I would like to have you vote as you think you should, but I am in favor of this plan.”

  Lasting for several hours, the meeting was less a meeting than a prizefight, with each side jabbing and punching at every possible opportunity and inciting the crowd to loud, boorish behavior. The room, “packed to suffocation,” was ready for a brawl. No sooner had Untermyer read a summary of the Bancamerica-Blair plan and opened the floor for discussion than pandemonium broke out. “Cheers, hisses, handclapping, and stamping of feet” drowned out stockholders’ attempts to speak, while Fox and Untermyer pounded on the table in a futile effort to restore order.

  Although mostly Fox let Untermyer do the talking for him, at one point he jumped directly into the fray. When Arthur Berenson, the lawyer who had filed the receivership lawsuit against Fox Film on behalf of two small-change Massachusetts shareholders, announced that he wanted to speak, Fox, with “elaborate courtesy,” introduced him, “Ladies and gentlemen, this is Mr. Berenson . . . who has a petition in court to plunge this company into the hands of a receiver.” This unleashed another uncontrollable outbreak of “jeers, cheers and catcalls” that lasted a full ten minutes, with many in the audience standing on chairs and tables in a deep circle around Fox’s makeshift desk.

  Undeterred, Berenson branded the Bancamerica-Blair plan “absolutely destructive . . . wasteful to the last degree” and bitterly attacked Fox’s leadership. Receivership, Berenson insisted, was the only hope of salvation.

  “No! No!” the crowd shouted. “No! Choke! Sit down!”

  As Berenson struggled to be heard, Fox calmly pointed out, “I think you ought to sit down in all good taste.”

  When Berenson refused, Fox shrugged, “What will we have to do? Bring an ambulance outside and have you run out?”

  “You just try to have me run out and see what will happen!” Berenson thundered.

  “My God, man, won’t you please sit down?” Fox pleaded.

  When Berenson remained standing and tried to continue speaking, Fox turned away and recognized the next speaker.

  It was theater, yes, but quite good theater. Sheehan was overheard to remark to Otterson, “All they need for this show is a theme song.”

  Even lunch, brought in around 3:00 p.m., didn’t restore civility. Sheehan shoved Fox aside in a rush toward the food, while Stuart, Otterson, and their lawyer, Richard Dwight, commandeered the coffee corner and for some time wouldn’t give any to their opponents.

  Although Fox seemed in clear command, the other side got in its wallops. Most effectively, Harley Clarke stood up and answered the great mysterious question about where Halsey, Stuart was going to sell $74 million in securities all by itself in times such as these. Clarke said that his General Theatres Equipment company had committed to buy Halsey, Stuart’s entire issue of stock and debentures. That statement drew scant attention in the press, and Fox himself did not think much further on it. However, it meant that a major new financial force had aligned itself with Otterson and Stuart.

  If Fox discounted the threat behind Clarke’s declaration, this was understandable given the spirit of the day. Fox’s cheering section was louder than that of the opposition, and he had the solid foundation of his achievements over the past fifteen years. As one unidentified stockholder put it, “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.”

  The meeting’s last main speaker also gave Fox good reason for renewed confidence. Emory R. Buckner was the lawyer for an independent coalition of Fox Film stockholders that had been organized about two weeks before the meeting by Morton J. Stern of J. S. Bache & Co. The so-called Stern Committee had amassed proxies for 330,000 Fox Film shares out of the total of 920,660 outstanding. Two days earlier, Fox had been confident that he had the Stern committee’s support. However, after the shocks of the last twenty-four hours—the Halsey, Stuart newspaper ad and the Levy court decision—doubt overtook him. “Everything that I had was now in the balance. It was in the hands of Mr. Buckner,” Fox would recall. “There were times during his [Buckner’s] recital . . . that everything before my eyes turned black.”

  Buckner spent a considerable amount of time complaining about “this vendetta” between Fox and Halsey, Stuart, and the havoc it had inflicted on Fox Film. “Who is right we do not know,” Buckner told the stockholders. “You are getting shot on the sidewalk while they are carrying out their duel on the street. That is what is happening to you. Or, another way, while they are rocking the boat, you are going over the falls.”

  Then Buckner pivoted. It didn’t matter how much the Halsey, Stuart plan proposed to save, he said. All that mattered was that Fox Film’s board of directors had turned it down. It also didn’t matter whether the board was right or wrong in doing so. Being “first, last, and all the time for avoiding receivership, morning, noon and night,” the Stern committee wanted only to approve whatever plan William Fox wanted. Fox wanted the Bancamerica-Blair plan. Therefore, the Stern committee would vote its 330,000 shares of Fox Film stock for that plan.

  With that statement, Fox won. Jack Leo had collected proxies for another 300,000 shares, so the Bancamerica-Blair plan was now approved by the owners of 68 percent of all the outstanding Fox Film stock.

  Still, that was only part of the battle, and arguably the less important part. Yet to be decided was the question of the Class B voting rights. Fox proceeded to vote them. So did Otterson and Stuart. Again Fox won. Because he was named as the owner on the certified list of stockholders as of March 1, 1930, the inspectors rul
ed that his ballot was the valid one.

  A shorter and much more subdued Fox Theatres stockholders meeting followed. There, too, Fox clearly had the lead and successfully voted his Class B voting shares.

  On March 6, 1930, at 850 Tenth Avenue, the official results were announced. Out of the 596,602 Fox Film Class A shares counted, 564,577 had voted in favor of the Bancamerica-Blair plan. So had 93,745 out of 94,805 Fox Film Class B shares counted. Altogether, those results represented a 95 percent approval rate among Fox Film shareholders for the Bancamerica-Blair financing plan. On the Fox Theatres side, out of a total of 1,086,854 Class A shares counted, 987,516 had voted for the Bancamerica-Blair plan, and of course, because Fox owned them, so had all 100,000 Class B shares, representing a nearly 92 percent approval rate.

  Fox was jubilant. All his troubles had ended, he believed. Surely all the stockholders who had rousingly endorsed his leadership would rush to buy Bancamerica-Blair’s $65 million in new Fox securities. After the announcement of the vote count, pressed by a major investor to make a statement, Fox hesitated. He really hated personal attention.

  “I think that I have, not by words but by actions, deserved the vote that you have cast in favor of the plan I recommended,” he began. But that wasn’t a very good speech for such a climactic moment.

  Summoning his sense of drama, he continued, “I cannot promise you that I am going to work any harder from now on than I have in the past, because I don’t believe I have the same vitality left. After all, I gave this company my best years, from 21 to 51, and I do not believe that I have got thirty more years left, and I am sure if I had, they won’t be years with as much energy as I was able to expend in the last thirty. But all that I have belongs to these companies, I pledge you that.”