by Coll, Steve;
6
Friends of the Family
Shortly after the Bonaventure meeting, Bart Winokur returned home to Philadelphia, but he stayed in touch with Petersen and Copley by telephone virtually every day. When the three of them talked now, the subject was almost always the same. How could they stop Gordon Getty? It wasn’t so much a debate over technique as it was a question of strategy, judgment, diplomacy. It would be easy enough to initiate a sudden, open, and quite dangerous corporate and legal war with Gordon. The company could sue him on behalf of the public shareholders, for example, alleging that Gordon was disclosing confidential information and violating his fiduciary duties as a director. Or, Petersen and the other top executives could try to buy the company out from Gordon, using Getty Oil’s rich assets to borrow the money to purchase 60 percent of the company’s stock. Then they could put the kind of squeeze on Gordon that had been described by Winokur at their hotel meeting.
These were radical, risky ideas, however. They would be sure to provoke a bitter, chaotic, highly publicized contest for control of Getty Oil. The facade of cooperation between the trust and the company so long preserved by Petersen’s public silence would be shattered. Gordon would be forced to scramble to protect both himself and the value of his family trust; he might form any number of hasty alliances with outsiders interested in taking the company. In such a battle, which would inevitably involve lawsuits and publicity campaigns and proxy fights and shareholder votes, it was quite possible that Getty Oil would somehow be lost, either to Gordon and his allies or to a neutral, so-called “white knight” who might step in to buy the whole company out of its distress for cash. In either event, Sid Petersen’s long career would be finished. The challenge in his mind early that winter, then, was to find a way to restrain Gordon without setting off a full-scale war. It was like the challenge faced by the West during Hitler’s rise in the 1930s, one lawyer involved put it later. You didn’t want to be Neville Chamberlain, but you didn’t want to start World War II, either.
So Petersen, Winokur, and Copley turned to the 1934 Sarah Getty Trust document, and to the tortuous history of the Getty family and its wealth. Surely, through the Getty family itself, there was a way to challenge Gordon indirectly. After all, Petersen thought, the company and the family beneficiaries were now really in the same position: both were at the mercy of Gordon Getty’s caprice. If Gordon fouled things up, not only would Getty Oil be lost, but the family fortune would be jeopardized as well. As Winokur had tried to explain at the Bonaventure—rudely, Gordon felt—if the trust was squeezed, or locked in as a 40 percent minority holder in some newly configured company, there would be nothing Gordon could do about it. For one thing, the Sarah Getty Trust document provided that the trust’s shares could only be sold if the trust faced the prospect of a “substantial loss.” For another, the trust’s premium value as an independent, large, potentially controlling block of shares would vanish if a single outsider owned 60 percent of the company. The trust would then be just a minority shareholder at the mercy of new ownership. As Winokur had tried to convey at the Bonaventure, there were hundreds of conceivable scenarios in which the trust could be hurt by outsiders bidding for control of Getty Oil.
And if the trust were hurt, it was not only Gordon who would be affected; it was his family as well. Gordon’s brother, J. Paul Jr., chronically ill and dependent on heroin and other drugs in a London hospital, received millions annually from the trust. What would he think of Gordon’s sojourn in Wall Street and his urgent talk of company restructurings? The Georgettes, George Getty’s three daughters—Claire, Anne, and Caroline—were smart, sophisticated women who had known “Uncle Gordo” as the unpredictable man who warred with their father when George was Getty Oil’s executive vice-president. The Georgettes now lived in Los Angeles. Two of them were married, and while they did not lead publicly extravagant lives, they were highly protective of their fortune—approximately $8 million each in annual trust income, plus a portion of the corpus when the last of the Getty brothers died. Indeed, when rumors about Gordon’s adventures in the fall of 1982 began to spread, the Georgettes had contacted Sid Petersen through their lawyer to ask what their uncle was doing. Petersen had then declined to answer their inquiries, knowing he would offend Gordon if he did, and he told the sisters to direct their questions to Gordon, who was in the best position to provide answers. When the Georgettes responded that Gordon would not answer their questions on the grounds that he might inadvertently disclose confidential company information, Petersen had to laugh a little at Gordon’s selective caution, but he nonetheless had decided not to provoke Gordon by talking with his nieces.
Now, after the Bonaventure, Petersen changed his mind. The only way to control Gordon without provoking open warfare was through his family, who could sponsor the appointment of a corporate cotrustee to serve with Gordon as Lansing Hays had done. In a series of four or five conversations that January, Petersen, Winokur, and Copley devised a clandestine, two-track strategy that, if it succeeded, would shift the forum of dispute with Gordon to the courts, and would widen the intrigue to include the entire Getty family. As a legal matter, Winokur pointed out in those January conversations, Gordon’s right to be sole trustee of the family fortune was still technically unresolved.
The trust instruments provided for Security Pacific National Bank to serve with Gordon and Lansing after J. Paul’s death, but even after Lansing’s death the bank had yet to either officially decline or accept the position. And thus, the Lasky firm had taken the position that by default Gordon was the rightful sole trustee. But didn’t the Getty family, the trust’s beneficiaries, have the right to challenge that position if they wished? And didn’t the bank have the right to make up its mind and finally accept a corporate cotrusteeship? If Security Pacific would accept the position, then Gordon would have to persuade a designated bank officer, the new cotrustee, to go along with his restructuring schemes and his attempts to control company policy through the trust’s stock ownership. Such an officer, conservative and cautious by training and inclination, would be unlikely to side with Gordon against the professional corporate managers now running Getty Oil. Gordon would not personally be hurt by such an arrangement, Petersen believed; he and Ann would still receive their millions in annual trust income. But the era of Gordon’s business follies would be finally ended.
While a team of Dechert Price lawyers in Philadelphia began to investigate the detailed legal history of the Sarah Getty Trust to determine the various ways a legal challenge to Gordon’s sole trusteeship might be launched, Winokur flew back to Los Angeles for a meeting on Thursday, January 20, with an attorney named Edward Landry. Landry was an estate and tax lawyer with the Los Angeles firm of Musick, Peeler & Garrett, which had drafted J. Paul Getty’s personal will and had been involved in a variety of disputes involving the trust, the J. Paul Getty Museum, and Security Pacific Bank. At one point years earlier, Landry had advised the bank on the dangers it faced if it accepted a corporate cotrusteeship. Those dangers mainly involved the potential for litigation among Getty family members, which might tie up bank assets or lead to financial liability.
Because of his firm’s history with the Getty family, Landry had come to know Dave Copley, Getty Oil’s general counsel, and Copley regarded Landry as an important source of information about Security Pacific’s current thinking about the trust. Landry would also be a useful contact, Copley thought, because he sometimes worked personally with the lawyers for the Georgettes and J. Paul Getty Jr., whom Sid Petersen now hoped to involve in his campaign against Gordon. Ronald was out of the question as a potential participant—he was fighting his own battles against Gordon over his paltry three-thousand-dollar annual income, and besides, he was not well liked by the Getty Oil executives. Petersen’s frustration with Gordon was born at least in part from his conviction that Gordon’s father had not intended for Gordon to run the trust by himself; certainly, the old man had never intended for Ronald to be in charge. But J
. Paul Jr. and the Georgettes had much more at stake than Ronald, and were regarded by Petersen as reasonable, intelligent people, regardless of their much-publicized foibles and family tragedies.
The meeting with Landry in Los Angeles that Thursday, only eight days after the confrontation with Gordon at the Bonaventure, included Copley, Winokur, and another lawyer from Dechert Price’s Philadelphia offices, who specialized in trust matters. Copley asked Landry to give the group a “composite picture” of Security Pacific’s position regarding a corporate cotrusteeship. Little had changed from the bank’s point of view, Landry said. Security Pacific remained convinced that serving as cotrustee with Gordon posed more problems than it would be worth. But if Getty Oil had new information to present, or new ideas about how to solve the bank’s problems, Landry was confident that Security Pacific’s top executives would be willing to listen.
For Copley and Winokur, it was a start, at least. At best, they hoped that if they could sit down with the bank’s chairman of the board and explain the situation, Security Pacific would agree to initiate a court action by petitioning for its right to serve as cotrustee with Gordon. At worst, Winokur hoped the bank would go to court and officially decline to serve, thus opening a case about whether another bank should be appointed to serve in Security Pacific’s place.
After hearing about the meeting with Landry, Sid Petersen called the chairman and chief executive of Security Pacific, Richard Flamson, on Wednesday, January 26. Petersen knew Flamson socially; as chief executives of mammoth, downtown-based corporations, they moved in the same circles.
“Dick, I’m calling basically because the legal advice I’m getting as to the risks the bank might face if it became a cotrustee with Gordon seems to be significantly different from the legal advice that you are getting. I think if we sit down, and have everybody talk about it, with the two of us there, we might be able to resolve it.”
“I’d be agreeable to that. I’ve heard about your meeting with Landry.”
“I just think you’re getting bad advice, Dick. The chances of the bank getting in trouble are not even a million to one—they’re non-existent. We can even arrange for insurance, if that will help. We think five hundred million dollars in liability insurance is possible to arrange.
“Back in 1973,” Petersen went on, “your bank signed a fee agreement with J. Paul Getty to serve as cotrustee. He relied on at least the implied acceptance that you gave. I think you now have a moral, if not a legal, duty to serve.”
“How can we get such different legal advice?” Flamson responded. “I’m willing to make one more effort to have our attorneys reconcile their views.”
A meeting was arranged for Wednesday, February 9, at Security Pacific’s corporate headquarters in a mirrored-glass skyscraper in downtown Los Angeles. Flamson would attend, as would Petersen; Winokur; Copley; Robert Smith, head of Security Pacific’s trust department; two other bank executives; and a bank lawyer. It would be a kind of corporate summit meeting, a last chance for Petersen to persuade the bank to challenge Gordon Getty’s right to control his family’s fortune.
“We’ll be happy to hear what you have to say and to discuss all these matters with you,” Security Pacific’s chairman said as the meeting began that sunny, hazy Thursday morning.
“What are the specific reasons that Security Pacific has not gone forward with the cotrusteeship?” Bart Winokur asked immediately. “Perhaps if we hear them, we can address your concerns.”
Robert Smith, the bank’s top trust executive, did most of the talking in the wide-ranging discussion that ensued. “There are several ambiguous provisions in the trust document,” he said. “There’s the provision restricting the sale of Getty Oil stock unless the trust is faced with substantial loss, for example. That provision might put the bank in a position where in attempting to follow the trust document, the bank might be challenged as to whether it was violating the securities laws. If you know that Getty Oil Company is about to experience a substantial loss, and so you sell the trust’s stock, then it could be argued that you should have disclosed your knowledge to the public before selling. But if you did that, then the stock price would collapse and you would have the substantial loss you were trying to avoid.” In other words, if Getty Oil experienced some internal catastrophe—an oil spill that left the company exposed to hugely expensive lawsuits, for example—the bank could do nothing to protect its position.
“I don’t think the trust document, any trust document, would require a trustee to violate a federal law,” Winokur responded, and the Dechert Price trust expert he had brought along agreed. Winokur and Smith went back and forth on that issue, but they could not come to terms.
“The trust is huge,” Smith said, “billions of dollars. The bank faces large risks of exposure if it deals in any way with the trust—just because of the trust’s size. What would happen to the bank if it made an error of some kind, or an omission? We could lose a substantial portion of our assets in a lawsuit.”
“But isn’t handling large trusts the business of a bank like Security Pacific?” Winokur asked pointedly. The implication was clear: risk is a part of business. Security Pacific, after all, was a bank willing to lend billions to Third World debtor nations like Mexico, Brazil, and Argentina. Could supervising the Getty family fortune be any more risky than that?
Smith only repeated himself, however. “The trust is just too large.”
“What if insurance could be obtained to protect the bank’s liability if there were errors or omissions in your trust management? Getty Oil has an insurance subsidiary and we could make the arrangements. Would that satisfy the bank’s concerns?” Winokur asked.
“Well, that is something to think about,” Smith answered.
The statements from Smith and from the other bank executives at the meeting made it clear to Winokur, Copley, and Petersen, that the trusteeship was something the bank had been studying for years, and that the very length and depth of Security Pacific’s internal inquiry now made it nearly impossible for the bank to shift direction. Over the years, there had accumulated in the bank’s files a substantial pile of memos outlining all the risks Security Pacific might face if it accepted a corporate cotrusteeship; even if those risks were one in a million, a certain bureaucratic inertia had now taken hold within the trust departments. If Security Pacific was ever sued in a dispute over its management of the trust, the memos written about its potential risks would be certain to haunt the bank in litigation. The executives at the meeting just kept repeating the worries they had been dwelling on for years.
“That clause about not selling except in the face of substantial loss is just a huge concern,” one of them said. “I can easily imagine a scenario in which the bank as trustee would try to sell its Getty Oil stock in order to avoid a loss because of events at the company, but is forced because of federal securities laws to disclose the information it has. Then the market is ruined, and the bank is sued by the beneficiaries. It’s a no-win situation.”
“I just feel that a corporate cotrustee would afford benefits to all shareholders in relation to the large block of stock the trust has in the company,” Sid Petersen told the bank executives. “That’s my main concern.”
As the meeting concluded, Flamson, the bank’s chairman, made it clear that Security Pacific was not going to change its course simply because Getty Oil now found itself in an uncomfortable dispute with Gordon Getty, however much the bank might sympathize with Petersen’s plight.
“If we had to make the decision today, I don’t know if we would make the same decision we made before,” Flamson said, referring to the bank’s refusal to accept a cotrusteeship even while Lansing Hays was alive. “But the decision is behind us. Although we have not filed an official declination, I cannot see the bank accepting the trusteeship at this time.”
Disappointed but still determined, Petersen, Copley, and Winokur returned from downtown to Getty Oil headquarters. If Security Pacific was unwilling to serve, tha
t only meant the three of them would have to push harder into the Getty family for help. In recent weeks, the battle with Gordon had transformed the three Getty Oil leaders into a secretive triumvirate, planning and strategizing outside normal company channels. Secrecy was imperative now, both within the company and with regard to the Lasky firm and Gordon, who of course had no idea what course was being plotted by Getty Oil management. Despite the extraordinary demands of his battle with Gordon, Petersen still had to supervise the ordinary business of Getty Oil, but increasingly he became a remote, secluded figure on the executive floors, distracted by the intrigue he carried on with Copley and Winokur.
And within days after the meeting with Security Pacific, the triumvirate was busy with a fresh strategy. The team of lawyers at Dechert Price in Philadelphia had drafted a “Petition for Appointment as Successor Trustee” that Winokur had hoped would be filed in court by Security Bank. But if not by them, why not by some other bank? Indeed, there was a logical, credible candidate: California-based Bank of America, an institution even larger than Security Pacific, and whose retired chairman sat on the Getty Oil board of directors. Like Security, Bank of America had performed wide-ranging services for Getty Oil over the years. It was regarded as a bank relatively willing to take risks—if those risks promised lucrative rewards. And here was a chance, as cotrustee of the Sarah Getty Trust, to earn millions of dollars in trust fees every year, perhaps more from this one client than from all the bank’s other trusts combined. Petersen himself made direct contact with the bank’s executives, who said they would be glad to consider whatever the Getty Oil chairman had in mind. On Friday, February 18, Copley mailed a copy of the company’s draft petition to Harris Taylor, Bank of America’s vice-president and assistant general counsel in Los Angeles.