June 10, 2008 8:29AM

The Hunt Oil Family’s Battle Royale

By Elizabeth MacDonald

Hunt Petroleum, the oil and gas producer owned by the Hunt oil family of Dallas, Texas, has sold itself to XTO Energy (XTO) for $4.2 bn in stock.

An historic sale, to be sure, as the deal combines one of the largest US oil and gas players, with properties in 12 states, with one of the country’s oldest oil dynasties founded by H.L. Hunt, a company that owns properties in the Gulf of Mexico, Texas, Louisiana and elsewhere. 

But behind the scenes of the sale, an ugly battle has broken out that has ripped apart the Hunt family, a fight that could see a stepped-up war of words due to the sale, a fight that’s already taken a nasty turn.  

Albert Hill III, 37, great-grandson of H.L. Hunt, hired lawyer William Brewer of the Dallas law firm Bickel & Brewer to slap a law suit last November against his father, his sisters, his aunts, as well as trustee Thomas Hunt who oversees two trust funds owning 100% of the privately held stock in the family’s primary asset, Hunt Petroleum.

Albert III’s law suit accuses his family members and the trustee of tax evasion, fraud and mismanagement of about $4b in assets in the two family trust funds. The suit, filed in state district court, also alleges that the trustee hid Hunt Petroleum’s true value from the trusts’ beneficiaries and conspired with the family to underpay estate taxes owed to the IRS.

Brewer says his client is scrutinizing the deal to see if family could have received a higher price. His spokesman says XTO’s chief executive Robert Simpson noted on a conference call that the deal could generate more than $1.2 bn in cash flow next year, making the deal price equivalent to about 3.5 times projected cash flow, which apparently is very low. Simpson evidently commented on the call that the company used to pay six to seven times projected cash flow for these types of companies.

“The sale doesn’t in any way impact our lawsuit, and nothing will stand between our client and the legal recourse he is seeking,” Brewer says, adding the sale “seems like an attempt by the Hunt family to distance itself from alleged past misdeeds associated with Hunt Petroleum and the trusts that own the company. The price of these assets go up every day, so why was there the sudden rush to sell for less than companies typically pay for them?”

Specifically, Al III alleges in the complaint that the defendants conspired to push him as well as his family out of the two trusts soon after he refused to agree to a plan to divvy up the trust money amongst themselves once they sold off their interests in Hunt Petroleum.

“The suit has absolutely no merit,” says Michael Lynn, lawyer for Al Jr., the father. “We don’t think he [Al III] has rights under the trust as a beneficiary, we deny he’s a beneficiary.” Lynn adds that besides, “none of the beneficiaries have any right under Texas state law governing operations of trusts to control or provide advice or otherwise direct the investment decisions of trusts. The rest of the family have happily lived with that [the law] for decades.”

The lawyer for Tom Hunt, George Bramblett, argues similarly that Al III doesn’t deserve to be a beneficiary. Al III became a beneficiary when his father signed his stake over to the son, which the father has since tried to rescind.

Hunt says Al III’s lawsuit is “severely ill-founded” and that Al III is “acting in complete disregard of the specific intent of HL Hunt and his wife, Lyda, who established these trusts.”

He adds: “They intended that assets in the trusts be managed by a trustee and an advisory board, not by beneficiaries and certainly not by persons who only claim to be beneficiaries. Both trusts further expressly forbid even acknowledged beneficiaries from suing the trusts.”   

Bramblett says in an interview that: “Al III is the one who won’t respect the trust’s provisions,” adding the suit is filled with “highly inflammatory” rhetoric, and that Al III and his lawyer Brewer have yet to take any depositions and interrogatories. “They’re just looking for publicity,” Bramblett says.

Al III steadfastly believes he is taking “a difficult but principled stand” in his battle to protect the family’s trusts for H.L. Hunt’s ancestors.

This is a fight that’s shaping up to be a pitched battle between father and son. Al III’s close family members though believe he is a prodigal son who, with his former beauty queen wife, a one-time Miss Georgia who finished first runner up in the Miss USA pageant of 1993, blew millions of dollars on a lavish lifestyle and have spent their way into a hole they hope the trusts can pull them out of, reports indicate.

Al Jr.’s staff totted up personal debts of Al III and Erin and came up with a total of $2.275m, including a $1.56m mortgage and a $97,094 revolving credit balance at Neiman Marcus, reports indicate.

“The personal attacks against Al Hill III are a smoke screen, designed to help several family members avoid a discussion of the real issues involved in this case,” Brewer says in a statement. “The family began ostracizing Al III when he wouldn’t go along with the lying, cheating and stealing that have been the modus operandi for years.”

Brewer adds that: “Until Al III began demanding transparency, full disclosure and forthright treatment of tax obligations, no one ever suggested he wasn’t part of the gang.”

Al III, whose parents divorced when he was eight years old, has asked the court to stop his father and aunts from selling Hunt Petroleum and partitioning the trusts, citing H.L. Hunt’s provision that the trusts remain intact until 21 years after the deaths of the two trusts’ initial beneficiaries, Margaret and H.L. Hunt Jr.

The suit though is loaded with purple rhetoric, with insistently eyeball-grabbing sections entitled “Defendants’ Shameless Campaign of Non-Disclosure, Browbeating, Threats, and Dirty Tricks.”

It goes so far as to call the trustee, Thomas Hunt, a man beloved by the family for generations, the “spider in a web of conflicting interests” of the family. Brewer points out that Hunt is not only trustee of two family trusts, but is chairman of Hunt Petroleum and executor of H.L. Hunt’s estate.

Brewer supplied notes of an October 2005 family meeting that purportedly cites the need for “checks and balances” from independent directors of Hunt Petroleum. The documents state that family members were worried about Tom Hunt’s various “conflicts of interests,” with one saying: “He wears so many hats it’s hard to keep them all straight.”

It’s a fight that has laid bare the inner workings of one of America’s most colorful dynasties, the H.L. Hunt dynasty, with more than 200 members.

H.L. Hunt invested his poker winnings in a stake in the Arkansas oil rush of the 1920s. He later hit it big with a huge strike in east Texas, at the time one of the largest oil discoveries in the world.

By 1948, Life magazine reported that H.L. Hunt was one of the richest men in the country, up in the big leagues with J. Paul Getty, Howard Hughes and the Rockefellers.

Al III’s great uncles captured headlines in the late ‘70s through 1980 for trying to corner the world’s silver market, triggering a colossal price spike and an epic bust. The two were then banned from commodities trading. Bunker Hunt, who had helped develop Libya’s oil fields, then filed one of the largest personal bankruptcies in history.

H.L. Hunt’s son Ray Hunt, who took over Hunt Oil from his father, is the wealthiest Hunt family member, says Forbes Magazine (he no longer is affiliated with Hunt Petroleum). The Hunt clan includes airline entrepreneurs, actors, an ambassador to Austria, lawyers, accountants, racehorse breeders, artists, and a fighter jet pilot, D Magazine says.

H.L. Hunt’s family is so entrenched in Dallas’s social stratosphere, it helped shape the city’s skyline, says D Magazine, with Ray Hunt’s Reunion Tower, Hunt Oil Tower and various other properties dotting the landscape for decades, reports indicate.

Al Hill III’s father, Albert Hill Jr., is a former tennis ace who reportedly helped build the World Championship Tennis tour with his uncle Lamar Hunt, one of the founders of Major League Soccer and the American Football League and also the founder and owner of the National Football League’s Kansas City Chiefs.

Albert Hill Jr. divorced his son’s mother and reportedly dated a Bond movie girl and Audrey Landers, a star from the TV series Dallas.

Brewer notes the father had a short stint at Betty Ford and a five-year suspended sentence for assault of a paramour. Al Jr. reportedly later became partially paralyzed from the neck down after he fell off his first-floor porch, cracking a vertebra in his neck. Rehab brought some movement back, and throughout his son Al III helped him through the ordeal.

Like father, like son. Al III also had an admitted problem with alcohol growing up, having driven his girlfriend’s Toyota Supra through a white clapboard house at 65 mph, reports indicate. He got a DWI charge reduced to reckless driving, spent 30 days in rehab, returned to school and gave up drinking and never resumed.

Al III’s chain of service stations and convenience stores, which he had reportedly begun acquiring in 1997, also encumbered him with business debt and by 2002 one business, Food Fast Holdings, was in bankruptcy protection, reports say.

Later, Al Jr. hired his son for $10,000 a week to serve as his investment consultant and family representative. The father then signed over 90% of his interest in the trust to his son Al III, along with his other two children.

Al Jr. has since fired his son and has written a letter to the trustee Tom Hunt and his daughters, trying to revoke his letter signing over most of his interest. The matter is now in probate court, with the father arguing he was not competent at the time to sign his interests over due to his injuries, his lawyer Lynn says.

Brewer says his client, the son, Al III, “is a direct beneficiary of his grandmother’s trust, and therefore entitled to the information, rights and full recourse he is seeking. A jury will find any suggestion to the contrary laughable.”

Brewer says his client Al III merely wants to know why the sudden rush to sell the company, why not let the trusts continue to operate as originally designed, with the 21-year provision.

He says Al III is holding fast that the core issue is the family’s move to break the trusts in order to sell Hunt Petroleum and then seize the proceeds sooner than the family would have been able to do had the trusts’ 21-year provisos remained intact. The Tom Hunt side of the case is maintaining there is a serious issue over who the trust beneficiaries lawfully are.

Brewer also says his client wants a full accounting of the trusts assets, “the mountain of cash, billions of dollars of mineral rights, and substantial real estate holdings, which have often been used as the personal bank account of those in control of HPC [Hunt Petroleum].” 

Brewer says at one meeting, Al III asked for information, but was told to remain silent. Brewer says Tom Hunt called him a “whipper-snapper,” but that the family could owe upwards of $500 mn in taxes. Al III then hired Brewer to file suit alleging mismanagement and a second lawsuit alleging the executor had lied to the IRS about the tax obligations of the estate.

Al III is asking particular questions about the tax positions taken by Tom Hunt, the man who oversees both trusts, serves as chairman of Hunt Petroleum, and is executor of the family estate. Al III alleges Tom is conflicted and has enacted a complex scheme to shelter assets, avoid taxes, and cheat today’s generation of the Hunts out of the fortune planned for them decades ago.

Al III says his family threatened to ostracize him. He says his father sued him and yanked his son’s beneficiary claim on the trust. Al III also says he was fired from the family business, disinherited altogether, and terminated from his consulting relationship with his father.

The suit could take years to settle.