Daddy's Money

By most appearances, when 90-year-old oil magnate Howard Marshall II passed away three years ago, he died a happy man.

Marshall, a Houstonian whose net worth was estimated between $500 million and $1 billion, could afford to say and do what he damn well pleased, and he usually did. For the last 14 months of his life, he was married to Anna Nicole Smith, a model and Playboy centerfold 63 years his junior. In press coverage of their May-December romance, Smith was often portrayed as a gold digger -- and she may well have been one. But photos of Marshall with Smith show a satisfied smile on his wrinkled face.

Though Marshall's wealth may have bought him happiness, the money he left behind has so far brought little but grief, paperwork and whopping legal fees. The case unfolding in Houston probate court for the last two years is a Dallas-like drama that pits brother against brother in a feud that reaches back two decades.

Both of Marshall's lanky sons look like their father, and both have seemed content to reside quietly in their father's long shadow. But otherwise, the two brothers chose very different paths in life. The elder, J. Howard Marshall III, set out in business on his own, in electronics, and settled in California; E. Pierce Marshall, three years younger, followed their father into the oil business, and now lives in Dallas. They fell out with each other in 1980, when Pierce believed his brother had betrayed their father in a business deal. By most accounts, they haven't spoken with each other since. (Neither son agreed to be interviewed for this article.)

J. Howard Marshall II left the majority of his estate to Pierce, now 59 -- and nothing to J. Howard III or Anna Nicole. In his 1996 lawsuit, 62-year-old Howard III contends that his father broke a promise to treat him and his brother equally in their inheritance; Pierce maintains that Howard III knew he'd never get another dime from their father.

By his own lights, Pierce is doing his level best to make that sure his father has his way one last time.

In 1974, the Marshall family gathered in Burbank, California to celebrate the wedding of J. Howard Marshall III, usually referred to as Howard Jr. Pierce Marshall served as his older brother's best man -- just as Howard Jr. had done for him several years earlier.

The occasion served as a backdrop for Howard Sr. to put an emotional exclamation point on his life's work. During the celebration, the 69-year-old took his two sons aside and presented them with identical gifts: 4.25 percent of the voting stock of Koch Industries, an independent oil refiner, marketer and transporter located in Wichita, Kansas. Koch (pronounced "coke") is the second-largest privately held company in the United States; Fortune Magazine estimated its 1996 sales at approximately $25 billion.

Marshall considered the business to be his greatest achievement. In his autobiography, Done In Oil, he recounts how he broke into the oil business. In 1933, two years after graduating from the Yale School of Law, he joined the Roosevelt administration, working under Interior Secretary Harold Ickes, who was looking to curtail the production of domestic petroleum. But it wasn't until after World War II that Marshall left the public sector for good.

After a brief stint practicing law in San Francisco with Standard Oil, he packed up his first wife, Eleanor, and their sons Howard Jr. and Pierce, and drove across the country to Kentucky, where he'd taken a job as president of Ashland Oil and Refining. In the 1950s, Marshall developed a friendship with Koch Industries founder Fred Koch Sr. Through a series of shrewd deals, they gained control of a large portion of Great Northern Oil Company stock. In 1967, Marshall traded his interest in Great Northern for an 8.5 percent share of Koch Industries. Two years later, armed with Marshall's stock, Koch Industries gained complete control of Great Northern. Now Marshall owned pieces of both.

"It was either the smartest or the luckiest thing I ever did, and maybe a combination," wrote Marshall. "It turned out to be the best deal I ever made."

Giving his sons that 8.5 percent of Koch stock didn't leave Marshall destitute -- he still owned his own company, Marshall Petroleum, Inc., as well as a large amount of non-voting Koch stock -- but the act represented the sum of the old man's glory. He was passing on to his sons the fruits of the best deal in a lifetime of dealmaking, and he wanted Pierce and Howard Jr. to share equally in the bounty.

But six years later, they'd both be drawn into a battle for control of their father's beloved Koch Industries -- a battle for succession that would pit father against son, Marshall against Marshall, and Koch against Koch.  

Fred Koch Sr. was a follower of John Birch and the son of a Texas newspaperman. He founded the family business, initially called Winkler-Koch Engineering, in 1925, and achieved success by patenting the thermal catalytic cracking process that greatly increased the yield of gasoline from crude oil.

After the 1967 death of Fred Sr., his oldest son, Charles, now 62, took control of Koch Industries and began to pump 90 percent of the company's profit back into the business. The practice meant huge growth for the company, but smaller dividends for its shareholders.

After several years, some members of the Koch family became fed up with the policy, and in 1980 they mounted a challenge to Charles's control of the company. Led by William Koch, one of Charles's younger brothers, the dissidents argued that Koch stockholders deserved to receive more cash from their investment, and that the company should go public. (Bill, an avid sailor, cultivated an expensive hobby: In 1992 he would win the America's Cup.)

Bill's plan to wrest control of Koch Industries from Charles involved increasing the company's board of directors from nine members to eleven. The plan would also have removed Howard Sr. from the board.

"I personally like him very much," Koch said in an August 1997 deposition. "He had a very powerful presence, very professorial, was extremely articulate, had a good sense of logic about him. He did show a number of strange peculiarities, however. He tended to get drunk a lot, passed out at one of the stockholders meetings. When he got drunk, he got very foolish. At one stockholders meeting he got up and gave a toast to Koch Industries, to his ex-wife, to his current wife, to his kids, to just about everybody in the room. It was embarrassing."

Key to Bill Koch's scheme was the backing of one, if not both, of J. Howard Marshall II's sons.

In a deposition taken in 1983, Bill Koch states that in the spring of 1980, he approached both Marshall brothers. According to Koch, even Pierce, the supposedly loyal son, was initially interested in the plot.

"I remember Pierce telling me he supported me 100 percent," testified Koch. But Pierce, he said, was "wishy-washy" and "started backing off that commitment."

In Howard Jr., however, Bill Koch found a more willing conspirator. For this Marshall, it seems, the deal boiled down to two things: libertarianism and liquidity. Howard Jr. was no fan of Charles Koch's support of groups such as the Cato Institute. But perhaps more important, Howard Jr. needed to cash in his Koch Industries stock to help support MDH, Inc., his fledging electronics company.

By Thanksgiving 1980, Bill Koch was set to call the special meeting of the Koch Industries board that would change the makeup of its directors. But then Howard Sr. got wind of the deal.

On November 29, Pierce Marshall called his father to warn him about the impending coup. "I told my father that the dissidents had been joined by Howard," Pierce testified last July, "and were planning to deelect the entire board of Koch Industries and elect a majority for themselves."

Howard Sr. was furious and immediately phoned Howard Jr. Howard Jr. acknowledges that during that tirade, his father promised to disinherit him. But the next day, when the elder Marshall phoned again, he calmly asked for a meeting. Howard Jr. agreed.

On the morning of December 1, 1980, Howard Sr. arrived at Howard Jr.'s office in Pasadena, California. In a 1983 deposition, Howard Jr. said he was shocked by his father's physical appearance: "He could hardly walk or stand or talk carefully.'Sick' is the word I guess you can use."

The old man's message was simple. He would pay $8 million -- or more than $200 a share -- for Howard Jr.'s Koch Industries stock, the 4.25 percent given to him six years earlier. Howard Sr. was prepared to write a check there on the spot, but he did not want to get into a bidding war with the Koch dissidents. Take it or leave it, was his position.

Over Monday and Tuesday, Howard Jr. and his father and other officials from Koch Industries, including Charles Koch, met several times. By late Tuesday the deal was done, and the elements were put to paper. In addition to the $8 million, Howard Jr. also received a note of indemnity and a hold-harmless agreement in the event Bill Koch decided to sue him for reneging on his agreement to back Bill in the takeover attempt.

Now, 18 years later, Howard Jr. is suing his dead father for breach of another contract that he says was made that week -- a verbal contract. In Harris County probate court, Howard Jr. is contending that Howard Sr., in a private discussion, rescinded his threat of disinheritance and promised he'd treat both sons equally in his will.  

Howard Jr. says he could have sold his stock for twice the $8 million his father paid him. Instead, he claims, he sold to his father because the old man looked so frail -- and because the old man promised to remember him in his will.

Of that promise, Howard Jr. can offer little proof other than his own word.

When Howard Sr. died on August 4, 1995, he willed his estate not to Anna Nicole Smith, his bodacious bride of 14 months, but to the J. Howard Marshall II Living Trust and Marshall Petroleum, Inc. Both entities are controlled by his younger son, Pierce.

Pierce's attorneys portray him as the loyal son, a common man who, though well educated, was not as brainy as his brother. Pierce, they say, may have had disagreements with his father, but wanted very much to please him.

And in fact, while Howard Jr. was in California trying to make a go of the electronics industry, Pierce remained in Texas, near his father, and followed his father into the oil business.

Howard Jr.'s lawyers don't dispute that Pierce was closer to Howard Sr. In fact, they try to turn that point to their own advantage. They maintain that Howard Sr. always mistreated Howard Jr., and that Pierce was the old man's favorite. Howard Sr., they say, chose to bestow his worldly goods on Pierce, the son he loved, rather than keep his promise to Howard Jr., the son he never loved enough.

Last July, during a three-week trial that ended in a mistrial, Howard Jr.'s legal team described their client as a poor little rich boy, the brother who had never been able to gain his father's affection. Attorney Don Bowen asked the jury to pretend that they were watching an old home movie. The imaginary movie, he said, shows a skinny, bent boy lugging a suitcase to a car. Tears are running down his cheeks, and his dog barks through the door screen. The scene fades, and then cuts to an external shot of a military boarding school -- Culver Military Academy, the Kentucky school where Howard Jr. was sent when he was nine.

"We see this sort of harsh man," said Bowen. "Captain's uniform, got a drinker's nose, grabbing that little boy's hand and pulling him into the dormitory while he's looking back over his shoulder at his mama and his brother. We see the car drive off, and his mama and his little brother don't look back."

Howard Jr. went on to accuse his father of other cruelties, such as wife-beating. And according to one of the attorneys in the litigation, the Marshall brothers have long differed in their opinions of the women in their father's life.

Howard Sr.'s marriage to Anna Nicole Smith was not the first time one of his romances had raised eyebrows. A few years before catching Anna Nicole's topless-dancing act at Rick's, the aging oilman fell for a woman that one of the attorneys in the current litigation describes as "trailer park trash." Howard Sr. never married Lady Dianne Walker, another topless dancer, but for years he lavished upon her gifts of furs and jewels. According to a Texas Monthly article, in 1991, after 52-year-old Walker died during plastic surgery, Marshall shelled out $52,000 for her funeral and left a tearful note: "I never loved thee casually. Till we meet again in the next world, your own man, now and forever, Howard." Despite those tender words, Howard Sr., with assistance from Pierce, sued Lady Walker's heirs to get back everything he'd ever given her.

Observers say that Howard Sr.'s dealings with both Lady Walker and Anna Nicole Smith show that, besides the oil industry, there were only two true loves in his life.

One was Eleanor Pierce, his first wife, a graceful, religious woman. They were married in 1931, while Howard Sr. was still at Yale, and together they had sons Howard Jr. and Pierce.

In 1961, Howard Sr. divorced Eleanor to marry Bettye Bohanan, the other great love of his life; Marshall dedicated his autobiography to her. Her interests, like his own, lay in the wheeler-dealer world of the oil industry.

By the time of their father's second marriage, both Marshall boys were grown men. According to one of Pierce's attorneys, Pierce, ever loyal to his father, embraced Bohanan as his stepmother, but Howard Jr. resented her.  

"In addition to loving his mother," says lawyer Rusty Hardin, who represents Marshall Petroleum, "Pierce also loved Bettye. It was real clear during the trial that Howard Jr. did not. He only cared about his mother."

Ironically, it may be Howard Jr.'s mother, Eleanor, who blows away his chance at his father's money.

Of all the women in Howard Sr.'s life, it's hard to imagine any of them being more impressive than Eleanor Pierce Marshall Stevens.

After they dissolved their 30-year marriage in 1961, Stevens could have taken her settlement and joined the ex-wives clubs of Houston society. Instead, at age 59, she enrolled at the Unity School of Christianity in Missouri and became an ordained minister. After graduation, she moved to Fort Lauderdale, Florida, where she worked as an associate minister. Then, from 1968 to 1976, she was the minister of the Unity Church of Memphis, Tennessee. She retired to care for an ailing cousin in southern California. After the cousin's death in 1979, Stevens moved back to Memphis and became the minister of a splinter group from her church.

In 1987, she retired again, this time to Dallas, and in 1988 married her second husband, James W. Stevens. They live at the Forum, an upscale Dallas retirement community where Jim receives care for Alzheimer's.

Stevens was 93 when she sat down for a videotape deposition in October 1997, but on the tape, she looks 25 years younger. Before the deposition began, she asked how long the proceeding would take, explaining that she'd scheduled a ballroom dancing lesson for later that day. It was easy to see the beauty, intelligence and charm that attracted Howard Sr. to her more than 60 years before.

During the 46-minute question-and-answer session, Stevens made it clear that she cares for her two sons equally. But her further testimony could destroy Howard Jr.'s claims to his father's estate.

Stevens allowed Howard Sr. to manage her financial affairs even after their divorce. After all, as she states in the deposition, Howard Sr. was "a great man, who had great business imagination -- the kind that leads to making profitable decisions." They remained friends and spoke frequently until his death. During those conversations, Stevens testified, Howard Sr. never wavered in his desire to disinherit their older son after his attempted coup in 1980. The situation, she said, caused her much grief.

According to Stevens, she learned of their falling-out via a phone call from Howard Sr., who was nearly in tears. He called her in December 1980, shortly after he had bought the Koch stock from his son.

"He was terribly upset," recalled Stevens, "and he thought that I should know this thing that had happened because Howard Jr. was the child of both of us. And he was extremely upset, angry and outraged."

Stevens said Howard Sr. said he'd given their son $8 million to buy back the Koch stock, but that "there won't be any more."

"And I asked him, 'Does that mean you won't leave him anything in your will?' And he said, 'That's exactly what I mean,' in a very angry and decisive tone."

Stevens said that she also spoke directly to Howard Jr. about the rift between him and his father. During a visit with her son and his wife in California, Howard Jr. and his wife talked openly about expecting to inherit from Howard Sr. Stevens says she took the opportunity to set them straight.

"I thought it was too bad," testified Stevens, "because I knew that it was not going to be so, and I told them that." Her words, she said, were met with what she perceived as a stunned silence.

Though she very much hoped that her ex-husband would change his mind, Howard Sr. continued to stick to his guns regarding Howard Jr. In 1993, said Stevens, she and Howard Sr. were having a cup of coffee during a family wedding rehearsal dinner. As they talked casually, Stevens asked Howard Sr. if he was still insisting on not leaving Howard Jr. anything in his will.

"And he said, 'Damn right!' " said Stevens. "He was still mad. Still outraged."

But the evidence perhaps most damaging to Howard Jr.'s claim to his father's estate -- what Pierce's attorneys call their smoking gun -- are the words of Howard Jr. himself in what is known as the "Dear Woofy" letter.

On December 4, 1992 -- almost 12 years to the day after he claims to have struck a verbal agreement with his father allowing him to share in the estate -- Howard Jr. wrote Stevens, whom he addressed by her nickname, Woofy. He began the letter by rubbing his mother's nose in his father's romantic affairs.  

"He has bragged about his affair with Lady Walker," wrote Howard Jr., "saying he was proud to exhibit such a pretty, younger woman on his arm. Now he is totally enamored with his Playboy Centerfold and is considering adding marriage to his lavish gifts to her."

Howard Jr. lashed out at his mother for never standing up to his father, whom he describes as a "vindictive" and "brutal" man who "maliciously uses his wealth for dominance."

After those harsh words comes a sentence that Howard Jr. must surely wish he'd never written: "I have no regrets regarding my decision in 1980, and prefer to live my life independently of my father, even at expense of a large inheritance."

During the trial last summer, Howard Jr. tried to explain the letter by saying he was obviously angry, angry because he had learned that that he would not receive as much as his brother from his mother's estate -- an estate which was controlled by Howard Sr. He also explained that when he wrote the words "at the expense of a large inheritance," he was referring to his father's initial threat to cut him out of the will, a threat he says was dropped.

But in the view of one attorney involved in the litigation, who asked not to be named, "that letter just kills Howard's case. Instead of a smoking gun, it's more like a neutron bomb."

To the dismay of Pierce Marshall and his attorneys, so far the fallout hasn't been deadly.

Not since the 1970s fight over the fortune of Howard Hughes Jr. has an estate generated so much paperwork for Harris County's probate court. Marshall-related documents filed there are said to number somewhere between 800,000 and 1,000,000.

Last week, probate court judge Mike Wood consolidated all the lawsuits against the estate, including one by Anna Nicole Smith; now all will be considered at the same time as Howard Jr.'s claims. Wood also set the case's trial date for the next millennium: January 24, 2000.

Though there has been consolidation, there is no conciliation. Howard Jr.'s lawyers are led by husband-and-wife team Jack and Dianne Lawter. During the discovery phase of the trial, the Lawters requested so many documents that a special master was appointed to oversee them all. When those documents were not produced fast enough to suit them, Jim Scanlan, the original judge in the case, came down hard on Pierce's team.

"My rulings speak for themselves," says Scanlan, who is retiring this year. He slapped Pierce's team with close to 20 sanctions totaling approximately $200,000, plus $30,000 in court costs to date.

In the opinion of Lee Ware, Pierce's lead personal attorney, the Lawters are engaging in "trial by sanction" because they don't have much of a case.

Neither Jack nor Dianne Lawter would discuss the case with the Press. Jack Lawter did not return several weeks' worth of phone calls. Two weeks ago, Dianne Lawter informed the Press that she and her husband would respond to written inquiries, but later backed out of that agreement. In refusing to speak, the Lawters cited concerns that they might be sued by Pierce.

In 1996, Pierce did sue Anna Nicole Smith's attorney, Diana Marshall (no relation), for remarks she made to the Houston Chronicle; Marshall had accused Pierce of manipulating his ailing father to exclude Smith from inheriting her husband's estate. A jury eventually awarded Pierce $8 million in damages; he later settled for $800,000. In the opinion of Marshall Petroleum attorney Rusty Hardin, Pierce's willingness to settle for the lesser amount shows that Pierce is obsessed not by money but by principle.

"Pierce put up with his father's love of a young woman," says Hardin, "and all these other things that were kind of embarrassing to Pierce. Pierce would shake his head and still try to help his father. But the one thing his father always made clear to him was that Howard Jr. was not to get a dime. And that's what this is all about."

Three years after Howard Jr. sold his Koch Industries stock back to his father in 1980, Koch Industries also bought out Bill Koch and other dissidents for $1.1 billion. Bill Koch later filed suit, claiming he'd been duped into selling the stock for only half its value.

During his deposition in the Marshall case, Bill Koch testified that yes, Howard Jr. had told him of the inheritance agreement he claims to have had with his father. Koch knows something of family feuds, of money and betrayal, and he offered an incisive observation.

Howard Jr., he said, "should have gotten it in writing.

Sponsor Content


All-access pass to the top stories, events and offers around town.

  • Top Stories


All-access pass to top stories, events and offers around town.

Sign Up >

No Thanks!

Remind Me Later >