Silver Bullion and Underground Homes

Girard Henderson was an interesting client of the New York City law firm of Cravath, Swaine & Moore (CS&M), where I was an associate attorney, 1966-70.[1]

His grandfather was a Sandy Hook ship pilot who piloted ships into the City’s harbor and who managed to save a significant amount of money. Henderson’s father invested the inheritance from the grandfather in a New York City warehouse that burned to the ground, and there was a long delay in obtaining payment by an insurance company. As a result, the father went to work as a bookkeeper for the California Perfume Company (CPC) in Suffern, New York and became one of its substantial shareholders.

After Henderson’s father’s death, his mother inherited the CPC stock, and in 1935 she contributed those shares to a newly formed personal holding company, Alexander Dawson, Inc. (ADI) in exchange for all of ADI’s stock. Later, presumably after his mother’s death and after a buyout of his brother, Henderson became the sole owner of ADI.

Prior to 1955, however, he gave 27% of the ADI common stock (and some ADI preferred stock) to his then wife, Theodora Henderson, while Mr. Henderson maintained his personal control of ADI. In 1955 Girard and Theodora separated and later were divorced.

In 1967 Theodora formed her own holding company, Theodora Holding Corporation (THC), and she contributed her ADI common stock to THC in exchange for all of its stock.

In the meantime, in 1939, CPC changed its name to Avon Products, and in 1964 Avon’s stock was listed on the New York Stock Exchange and became a very successful stock with rising prices.

As of September 1968, ADI’s net worth was $150 million with Avon stock comprising 75% of its assets. The other 25%, pursuant to a diversification policy, was invested in other stocks and several small companies.

World's Fair, New York City

One such company was the Underground World Home Corporation that promoted such homes as safe places in the event of a nuclear attack by the USSR. It  had a demonstration home at the 1964 New York City’s World Fair. Henderson also had his own underground home in the Rocky Mountains near Denver; its underground swimming pool had a mural of the New York City skyline on the east wall and one of the San Francisco skyline on the opposite wall. As of September 1968, ADI also had invested $14 million in silver bullion and Swiss francs that were stored in a vault under the airport in Zurich, Switzerland.

 

Court of Chancery, Wilmington, DE

In or about September 1968 THC commenced a stockholders derivative lawsuit against ADI, Henderson and another corporate officer. The complaint alleged mismanagement regarding these non-Avon investments and corporate contributions to the Alexander Dawson, Inc. Foundation. As ADI was a Delaware corporation, the case was filed in the Court of Chancery in Wilmington.

The case went to trial in 1969. It was the first trial in which I participated. I was “second chair” to Cravath partner, Jack Hupper. I handled the exhibits and other papers and did not say one word on the record. But at least I was in court observing the trial and seeing how it was done.

In September 1969 the court issued its decision. It noted that after trial the plaintiff had withdrawn its claims regarding silver bullion and other ADI investments made at Henderson’s direction, including the Underground World Home Corporation. Instead the plaintiff after trial had limited itself to claims regarding ADI’s purchase and sale of a seat on the New York Stock Exchange (NYSE) and the ADI charitable contributions to the Foundation. The court upheld the validity of the charitable contributions, but concluded that Henderson had used corporate funds for his personal benefit with respect to the NYSE seat and, therefore, had to account to ADI for any profit on the sale of the seat and on brokerage commissions.

I do not remember any of the substantive or procedural details of the trial, but I do remember that just before trial Henderson broke a leg in a New York City taxi accident. When he testified at trial, the broken leg in a cast had to be elevated on a makeshift pedestal.

I also recall that before trial Henderson had to delay a trip from the West Coast to New York City to meet with Mr. Hupper and me because he was hosting a special dinner with Rudy Vallée, a famous crooner in the 1920s through the 1940s.

Silver bullion

Nor can I forget that Henderson and ADI kept some of their records in an informal office in a small house in a New York City suburb on the west side of the Hudson River. One day I drove there over the George Washington Bridge to find relevant documents. I was surprised to find a  bar of silver bullion at the back of one  of the file drawers.


[1] This account is based on memory and Theodora Holding Corp. v. Henderson, 257 A.2d 398 (Del Ct. Ch. 1969). See also Post: Lawyering on Wall Street (April 14, 2011).

Lawyering on Wall Street

From June 1966 through April 1970, I was a Wall Street lawyer. I was an associate attorney with the law firm of  Cravath, Swaine & Moore.[1] Its offices then were on the 56th through 58th floors of the Chase Manhattan Bank Building one block from the New York Stock Exchange on Wall Street. From my office window I could see the New York Harbor and the Statue of Liberty.

Cravath then was considered a large law firm with approximately 100 lawyers, as I recall. Its system was to hire top graduates of the top law schools and to put them in a “class” of their contemporaries to compete for one of the very few partnership slots after seven or so years.

I decided to join Cravath after a summer clerkship in 1965 that I had enjoyed. The firm was regarded as the crème de la crème of law firms. Its starting salary of $9,000 ($62,235 in current Dollars) was the best. Living in New York City sounded exciting. The practice of some Wall Street lawyers becoming high government officials was an alluring dream that I hoped to fulfill. For example, John Foster Dulles was such a lawyer with another firm who became Secretary of State in the Eisenhower Administration, and Roswell Gilpatric was a Cravath partner when I was there who had been Deputy Secretary of Defense in the Kennedy Administration.

While I was at Cravath, it jumped the starting pay of its lawyers to $15,000 ($95,550 in current Dollars). This was such startling news that it was covered by the Wall Street Journal. Those of us who already were associates received a similar bump in pay. My wife and I thought we were rich and moved from our Brooklyn Heights apartment to the first two floors of a row home several blocks away.

I was in Cravath’s litigation department or group. I initially was assigned to Partner John R. Hupper, who was an excellent, careful, kind man and an excellent teacher and mentor for young lawyers. I also worked for other equally capable partners, including Thomas D. Barr, Frederick A. O. “Fritz” Schwarz, Jr. of the toy store family and Albert R. Connelly. The senior partner of the group, Bruce Bromley, who was called “Judge” Bromley because of his service in the New York courts, was another capable lawyer for whom I worked. Much to my subsequent regret I did not know at the time that Bromley was instrumental in the Eisenhower Administration’s selection of Joseph Welch to be the Army’s lawyer in the 1954 McCarthy hearings. Given my personal interest in Welch, which will be discussed in a subsequent post, I would have loved to have talked with Bromley about this important piece of U.S. history.

The more senior associates really did a lot of the supervision of the newer lawyers. I fondly remember some of them: Eugene P. Souther, who later became a partner in another Wall Street law firm; Victor M. Earle, III, who became the first general counsel of one of the big accounting firms (Peat Marwick); Robert E. Bouma, who became a partner in a Chicago law firm; Dorsey D. “Dan” Ellis, Jr., who became a law professor at the University of Iowa and then Dean of the Law School at the University of Washington at St. Louis; George J. Wade, who became a partner in another Wall Street law firm; and Alan J. Hruska, who became a Cravath partner.

I got along with the other young associates in the litigation group even though we all knew we were in competition with one another. Since I was there only four years, however, the real competition started after I left. My best friends and contemporaries were Jay Gerber and Arnold Messing, who later were successful lawyers with other firms in New York City and Boston respectively, along with Howard J. Kristol, who became a partner in a Wilmington, Delaware law firm, and David S. Cupps, a subsequent partner in a Columbus, Ohio law firm.

Another contemporary in the litigation group was David Boies, who later became a famous Cravath partner who defended CBS in a libel case by General Westmoreland regarding the Vietnam War. Some of his other famous cases were as the U.S. Government lawyer who destroyed the credibility of Bill Gates in cross-examination in the Microsoft antitrust case and as the lead lawyer for Al Gore in the litigation against George W. Bush over the 2000 election in Florida.  The New York Times Sunday Magazine in June 1986 put David’s photo on its cover for its lead article about him, “The Litigator.” My wife and I were guests of David and his wife in their Washington Square apartment on the night in 1969 that Neil Armstrong walked on the moon. I was always amazed that David was able to combine the stressful life of the young associate with teaching antitrust law at N.Y.U. Law School and having season’s tickets to the Metropolitan Opera. On a trip to Minneapolis for a pretrial conference in the IBM antitrust cases, David, several other associates and I gathered in one of our hotel rooms for cards and room-service dinner. To my surprise, David ordered two dinners; he was never overweight or heavy, and I assumed that his metabolism rate was so high that he needed super quantities of food. David is still going strong. As the lead partner now in his own law firm, he recently was in St. Paul, Minnesota as the lead lawyer for the NFL in litigation over the football teams owners’ work stoppage.[2]

Under the Cravath system, it took a long time for a new lawyer to be able to do anything by himself. My first court argument was on a motion in a small case in the state trial court in Manhattan (New York Supreme Court). I do not remember the case or what my motion was. But I do remember the huge courtroom with hundreds of lawyers milling around and waiting for their cases to be called. While I was waiting, I heard an argument on a defendant’s motion for more definite statement in the complaint that starts a lawsuit. The pro se plaintiff (one without a lawyer) was a rabbi, and the judge said, “Rabbi, please hire a lawyer. You have written a novel, not a complaint.”

There were two notable cases that claimed my attention in New York that will be discussed in subsequent posts. One was Adam Clayton Powell, Jr.’s lawsuit over his 1967 exclusion from the U.S. House of Representatives. The other was the set of antitrust cases against IBM over its System/360 computers.

Being a Wall Street lawyer for four years was challenging and exciting. So too was living in New York City with a wife and two young sons. I value those years, but am still glad that I decided against staying for the competition for partnership at Cravath and instead chose to move to Minneapolis to practice law with Faegre & Benson.


[1] Cravath, Swaine & Moore LLP, http://www.cravath.com/; Cravath, Swaine & Moore, http://en.wikipedia.org/wiki/Cravath,_Swaine_%26_Moore.