The Hiltons: The True Story of an American Dynasty (62 page)

Most persuasive to the judge was the letter Conrad Hilton had dictated to his assistant Olive Wakeman and lawyer G. Bentley Ryan in August 1971 in which he specifically stated that he had not believed from the beginning that Francesca was his daughter. This was the letter he had his attorney put away for safekeeping, “just in case.”

“His foresight in dictating this letter was quite prescient,” wrote the judge. “ ‘If this matter ever comes to court,’ he had written, ‘I am asking you two dear friends, who witnessed this dictation, to testify to the reasons why I have permitted the relationship to exist between Francesca and myself.’ ”

Moreover, many people testified that Conrad was of sound mind when he signed the will. Therefore, there was no question about it, the judge decided: Conrad Hilton knew exactly what he was doing when he wrote his will and he bequeathed Francesca an amount of money he decided was appropriate. The judge then ruled in favor of the Conrad N. Hilton estate.

“This case was an attack on the moral values and work ethic of Conrad Hilton,” Hilton attorney Ralph Nutter then declared. “He believed his children and grandchildren should work for a living and that was a virtue, hardly an insane delusion.”

Obviously, Francesca Hilton was disappointed by the judge’s decision. She took it hard. “For years, she had fought for recognition, and that’s what this case was really about—recognition and acknowledgment,” said one close friend of hers. “But, in a sense, the judge ruled that she
had
been recognized in the will. She
had
been acknowledged in the will. She just hadn’t been given a lot of money, and that was Conrad’s right. You can imagine how she felt about that. You can also imagine how Zsa Zsa felt about it.”

Unsurprisingly, Zsa Zsa was quite upset. Taking a very theatrical turn, she told the attorney Myron Harpole, “We haven’t even
begun
to fight yet. You just wait and see.” It was a sunny California day and the two were sitting poolside on the patio of Zsa Zsa’s sumptuous estate, under an oversized umbrella As the attorney presented her with a stack of documents requiring her signature, Zsa Zsa spoke about her daughter’s difficult legal battle. “Francesca says she wants to appeal,” she observed. “And I think she should,” she concluded. She said that even though she was angry that Francesca had lost her case, she was gratified to know that the estate had not been able to prove that she wasn’t Conrad’s daughter. “And they tried, too, didn’t they?” Zsa Zsa asked bitterly. “Embarrassing me with their questions about my sex with Connie. But the truth is the truth.” When the lawyer reminded Zsa Zsa that the fight really hadn’t been about paternity, but rather about Hilton’s will, Zsa Zsa scoffed. “Yes, it was about Francie’s inheritance,” she agreed, “but please don’t be naïve,” she added. “For years, the Hiltons have been whispering amongst themselves that Francesca is not Conrad’s daughter, robbing her of her true heritage.” She added that when Francesca had children, it was inevitable that the battle for recognition would be passed on to an entirely new generation, “and I simply won’t have it,” Zsa Zsa concluded. “I am not going to have my grandchildren go through the same thing my poor daughter has gone through all of these years. So, yes! Francie should definitely appeal.”

In fact, Francesca agreed with her mother; she had come so far, she felt she had no choice but to take it all the way. Therefore, in the spring of 1982, she mounted an appeal.

Unfortunately, she would lose on appeal as well.

Then, as if to add insult to injury, Francesca would also be forced to forfeit the $100,000 Conrad Hilton had bequeathed her. As per the terms of his last will and testament, any unsuccessful contester had to sacrifice any inheritance. “Jim Bates insisted that we put that provision of the will into effect,” Myron Harpole recalled. “Therefore, Francesca Hilton was deprived of any inheritance. She didn’t get any money at all.”

PART FOURTEEN

Heir Apparent

Barron’s Option

D
oubtless, one of the primary reasons James E. Bates, coexecutor of Conrad Hilton’s estate along with Barron Hilton, was adamant about enforcing the clause in Conrad’s will that would disinherit Francesca for contesting it was because of the complications her legal action had created for Barron and the Conrad N. Hilton Foundation. Francesca wasn’t entirely responsible for the ensuing chaos—but she certainly hadn’t helped matters. As a result of her contesting of the will, it could not immediately be admitted to probate. It wouldn’t be until March 1983, when Francesca lost her appeal, that Barron’s concerns were finally able to be fully considered.

It’s commonly believed in the business world that Conrad Hilton’s will did Barron a great disservice. Even Donald Trump—a good friend of Barron’s—noted in his book
The Art of the Deal
, “The assumption had been that Conrad Hilton would pass on his near-controlling interest in the company to Barron—or at the very least that he’d spread it among family members. Instead, Conrad Hilton used his will to disenfranchise his children. He just left Barron a token number of shares of stock. The result was to make Barron just another high-level corporate manager who lacked the power of a major stockholder.”

Trump’s assessment was at least partly accurate. However, the situation wasn’t quite so cut-and-dried, luckily for Barron Hilton.

Conrad Hilton owned the largest block of stock held by the Conrad N. Hilton Foundation, a controlling amount of 27.4 percent, or 6.78 million shares—which was worth about $500 million at the time of Conrad’s death. The rest was divided among board members, with Barron holding just 3.6 percent. Hilton’s will granted Barron an option to purchase a described portion of stock in the estate “at the values as appraised in [Conrad’s] estate.” These assets were, basically, anything above that which a charitable corporation (in this case the Conrad N. Hilton Foundation, the beneficiary of most of Conrad’s assets) was permitted to hold, as defined by the Tax Reform Act of 1969. According to that act, the estate was only allowed to hold 20 percent of Conrad’s Hilton Hotels Corporation stock. If Barron could pull together the money, he would be allowed to purchase any excess stock, which was the remaining 7 percent and was worth millions of dollars. He had, according to the will, ten days to exercise this option. However, there were some immediate questions about this particular option (which, incidentally, became known amongst the players in this case as “Barron’s Option”).

The board of directors of the Conrad N. Hilton Foundation and its lawyers—such as Myron Harpole, who was hired by James E. Bates to defend the foundation—maintained that Conrad Hilton’s intentions were clear not only by virtue of what he stipulated in the will, but in large part because of what was widely known about him. He was someone who never intended for his family members to attain great wealth by virtue of their lineage to him, and that much was generally agreed by all. Therefore, when he bequeathed $750,000 worth of stock to Barron, that was his sole intention—or so the foundation argued. Beyond that, they maintained, Conrad had no further intention where Barron was concerned.

Another opinion also held by some of the foundation’s attorneys, and one that was not so openly stated at the time, was that James E. Bates—who was Conrad’s personal attorney and friend from 1944 until his death, and who drew each of Conrad’s wills and codicils since 1947—had made a serious error by even including Barron’s Option in the will. “Jim Bates was an excellent lawyer, but not a tax attorney,” Harpole allowed. “He also did not allow a review of the will by any of us who actually were tax attorneys. Therefore, Barron’s Option was a serious error on his part. We argued that Jim Bates—according to his own interpretation of the Tax Code of May of 1969—had ill-advised Conrad. We believed that Conrad was led to believe that there would be no excess stock at all, and thus there would be nothing for Barron to purchase. That scenario was much more in line with Conrad Hilton’s personality and with what we believed was his intention where his son was concerned.”
^*

A Windfall for Barron?

T
hings got worse for the Conrad N. Hilton Foundation and much better for Barron Hilton when he was finally able to fully exercise that option in November 1983, four years after Conrad’s death. It was then that he and his lawyers fired the first of a few surprising salvos.

First, Barron’s team argued that because of various tax code complications arising from Barron’s position as both a shareholder of Hilton and a director of the foundation, the amount of excess stock now available to him had been ratcheted up to a full 100 percent—the controlling interest—of Conrad’s stock in the company. He could buy it all if he wanted to—and he most certainly
did
want to—and he could make a profit on it too. Within that four-year period, the stock’s value had skyrocketed.

Barron’s attorneys then fired their next salvo. They argued that not only did Barron have the right to purchase all of the stock in question, but that he should be able to buy it at its so-called date of death value as of December 1979, meaning what it was worth when Conrad died ($24⅝ a share),
not
what it had appreciated to by 1983 ($72 a share). The result? Barron would be paying $170 million for $500 million worth of stock, a profit of
$330 million
. The actual payment for the stock would go back to the foundation, but the profit would be Barron’s and Barron’s alone. “It’s called a great deal,” Donald Trump observed. “It may also be called trying to rewrite your father’s will.”

There was just no way, the foundation argued, that Conrad Hilton ever intended for Barron Hilton to make hundreds of millions of dollars in profit, especially on excess stock he didn’t even realize would exist. The foundation argued that Barron was taking advantage of the huge windfall he was able to make because of a big mistake—or at the very least, a big loophole—in the will. In other words, they charged that he was undermining the intent and purpose of his father’s will.

“I knew Conrad pretty well. I was his lawyer for thirty years,” said Myron Harpole, “and I spent a great deal of time sitting behind my desk, staring at the ceiling and just asking myself, ‘Is this
really
what Conrad would have wanted?’ And the answer that kept coming back to me was, ‘No way. Not Conrad. No way. I
knew
Conrad. We
all
knew Conrad. No way.’ ”

James E. Bates’s deposition went a long way toward supporting Myron Harpole’s theory:

James E. Bates also suggested in his deposition that, like Francesca, Barron was really just angry because he hadn’t gotten as much money from his father as he had hoped. Barron said that theory was hogwash. He stated that he “never for a moment questioned my father’s interest in leaving his wealth to charity instead of to family. Indeed, my father instilled those same values in me.” That said, he also believed that Conrad would never begrudge him the opportunity to make a profit if that opportunity presented itself.

Barron’s attorneys further theorized that Conrad was afraid that if Barron didn’t have the option provided in his will, an outside buyer could come in and try to purchase any excess stock, thus making the company vulnerable to a hostile takeover. Indeed, Conrad had frequently stated to friends and associates that he did not want his hotels to go the way of the Stevens Hotel and the Statler hotels, which lost their continuity and identity after the deaths of their founders.

Since the foundation felt that James E. Bates had botched things up for them, it moved to reclassify itself as a so-called supporting organization, also known as a public support group, in accordance with the Internal Revenue Code. This step was a means of avoiding having to sell all or part of its hotel stock as “excess business holdings” under that troublesome federal tax law. If it were forced to sell any of those shares, the will gave Barron the option to buy them—and that’s exactly what they were trying to avoid. As a public support group, the foundation argued that it was now entitled to use its “power of sale” to buy back from itself the
entire
amount of stock—
including
the part Barron wanted to purchase at a profit. The result would be
no
stock for Barron, and, thusly,
no
profit for him either. In other words, it seemed—at least in Barron’s view—that the foundation was doing everything it could think of to defeat Barron’s Option.