How many Aggies does it take to turn a multimillion-dollar gift into a multimillion-dollar dispute? Just one: Chester J. Reed.
Reed couldn't have asked for better press than he received in 1986. The late land developer, who estimated the value of his holdings at around $200 million, had just promised 265 acres to Texas A&M to build a $33 million arena in his honor. It was not only the largest single donation ever made to the university, but among the largest given to any school in Texas history.
"My friends think I'm probably crazy. The friends I have don't go around giving their land away. But they are not Aggies," he told The Houston Post at the time. "Aggies are just different. They're the kind of people who put their money where their heart is."
They didn't know at the time the problems that donation would cause, and not just for A&M. The Reed family is now embroiled in a lawsuit that accuses him of cheating his own children to create the grand arena bearing his name.
Whatever Reed's faults, his sincerity was never suspect when it came to his alma mater. By 1986, he already had donated seven tracts of land to the university to fund everything from the chancellor's home to a $500,000 chair in the college of veterinary medicine, from which he had graduated. Even when Reed's business transactions were challenged, his school spirit was not. When Fort Bend County confiscated the illegal "campaign contribution" Reed left in an envelope on the desk of County Commissioner Alton Pressley, Reed's only complaint was "It irritates me that they kept my $10,000. I would much rather have given it to A&M."
The land Reed had promised to the university for the arena was appraised at $13 million during Houston's oil bust of the mid-'80s. "This area is hot, even in this terrible market," he told the Houston Chronicle. It was located in the fast-growing spot between Westheimer and I-10, just west of Cinco Ranch, and it seemed reasonable that the university would double its money. A&M negotiated arena funding from the legislature based on the land's value, but when the university could sell the acreage in 1997 for only a measly $1 million, critics cried fraud.
"I'm not saying it was intentional misrepresentation, but at least it was negligent representation. If this were a lawsuit, I'd take it in a heartbeat," Carlos Villa, a member of the Texas Higher Education Coordinating Board, told the Chronicle.
At the time, Reed was land-rich but cash-poor, and living off loans from a bank. To satisfy his original pledge for the arena, Reed hustled up more property to give to A&M. He donated 27.7 acres at the northwest corner of Westheimer and West Belt Drive, held by the family partnership, CJR Ltd. The move would eventually upset other beneficiaries of Reed's generosity, his daughter-in-law Janet Reed and grandchildren William and Caleb.
Janet wed Chester's son Robert Forrest Reed in 1980, a marriage into a wealthy family that would seem to make her set for life. In the stormy periods of marital separation, his parents usually took him in. "Every time he left us, they always let him come to the house and gave him cars and credit cards and let him stay there," Janet complained in a deposition.
As a reward for completing drug and alcohol rehab, Forrest gained a boat business underwritten by his parents. That venture failed. "He didn't stay there much, actually," Janet said of the business. "He fished tournaments called BASS and he went to lots of different states." When Forrest died of cancer at the age of 37 in 1993, his interests in the trusts, and therefore the Reed family partnership, transferred to his children.
According to a lawsuit by Janet and her sons, they were told that Forrest's estate had been used to cover his lengthy medical expenses and debt. She says she became suspicious and sought legal advice in 1996, after she was asked to sign a release stating she had received all the property to which she was entitled -- after years of repeatedly being told there was no estate left. Her lawyers started snooping around and discovered that Forrest Reed's heirs had ownership interests in the land donated by his father to A&M, but they had not agreed to give it away, and hadn't received any of the tax benefits from the contribution.
The lawsuit alleges civil fraud and conspiracy. It accuses trustees, who are required to act in the best interests of the beneficiaries, of breaching their fiduciary duties. Forrest's family wants a full accounting of the funds and to have the trustees ousted and replaced.
Trustees involved in the dealings were other relatives and Chester Reed's close associates. They included Mary Lou Hanzelka, his longtime secretary who managed to be named president of his company Southwest Inc. That role created an apparent conflict of interest when Southwest owed money to the trusts.
William Ogden, attorney for the trustees in the case, says the family members who are suing were hardly impoverished by the trustees or relatives. More than $1 million was paid out over the past 20 years to Janet and her two children, he says. They had a house bought for them to live in, "and then when they outgrew it, another house for them to live in, plus living expenses of $4,000 a month," says Ogden. "Plus we've bought them two cars, plus we're paying college education expenses. I mean, they haven't exactly been mistreated."
Chester Reed was a patriarch who insisted on having things done his way, and could easily exert some influence over the trustees. Ogden notes that his expertise in commercial real estate would make his opinion valuable to the trustees. Reed's lawyer, Wayne C. Fox, noted in a deposition that Reed also "hated to pay taxes" -- and the formation of the CJR Ltd. family partnership helped him in that regard.
Of course, having the family trusts in the limited partnership aided Chester Reed in another pursuit. When A&M came demanding that Reed make up for his initial shortfall in donations for the arena, the setup also allowed Reed to get around a provision in the trusts that banned making such gifts. Chester and his wife, Billie Jean, contributed the additional land to A&M after a series of paper transactions among companies that Reed controlled.
Bobbie Bayless, the attorney for Janet and her boys, explains: "The only way we pieced all that together is they give us one piece and we say, 'Okay, that looks really wrong tell us why you did it,' so they give us this piece. And we say, 'Okay, that looks even worse; tell us why you did that.'
"When Forrest died, we basically became the black sheep, and we weren't going to get anything," Bayless says. "Once the A&M property was gifted, then they basically decided they would buy us out of the partnership, but that was after the A&M property."
According to Ogden, that was done because the other children were given control over their interests in the business decisions when they turned 35. Forrest died, so the grandchildren weren't in a position to do that. "They couldn't be expected as minors to intelligently consider the risk about what they ought to do about these real estate investments. So their interests were converted into cash," he says. The boys each received about $550,000.
Chester Reed, who died three days before Christmas in 1999, lived long enough to see his beloved arena finally open on the A&M campus in 1998. The $38 million special events facility and home to Aggie basketball spreads over more than 230,000 square feet and seats up to 12,500 spectators.
Reed's family is scheduled to gather this October in a much smaller venue: the Harris County probate court of Judge Russell Austin. Their attorneys will try to determine if the heirs, like A&M in '86, were shortchanged in his quest for the Aggies' ultimate monument: the Chester Reed Arena.
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