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Daddy's Money

In probate court, the sons of oilman J. Howard Marshall II air a high-stakes family feud a fight about loyalty, betrayal and whether their dad played favorites

By Steve McVicker 

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.

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