Curtis traveled from island to island on his ship, selling shares to islanders around Micronesia, sometimes just one share at a time. In those days, a little more than a decade after the American invasion, there was only one local with a large enough business to be a major shareholder: Joe Tenorio, aka “Joeten.” Joeten, Gridley remembers, “was the guy.” A slight, gentle islander of partly Japanese heritage, Tenorio would build a conglomerate that included hardware stores, shopping centers, a hotel, and car dealerships, among other things. “I think Joeten and Larry were friends,” Gridley says. “They were very similar in that they befriended people that could expedite their interests . . . but I would wager it was Larry who would seek him out for his agenda.” He adds that Joeten passed away many years ago, but there is someone more important whom I should talk to, and he is still on-island.
Sixteen
Picking a Fight
Joe Lifoifoi, the chairman of UMDA, emerges from a sliding glass door, lumbers forward to shake my hand, apologizes gruffly for the dogs (“My security, because of the frequent power outages . . .”) and sets up a few plastic chairs next to the pool. His face is the color of chestnuts; his teeth are stained red with the residue of betel nut, a mild narcotic sold at the gas stations here and chewed with lime and salt to induce a pleasant buzz. His nose is wide, almost Polynesian. There is no trace of the Japanese or Spanish lineage that distinguishes so many islanders here, whose parents or grandparents mated with their occupiers. (I am told that the last pure Chamorro or Carolinian died in the late nineteenth century.) Lifoifoi apologizes for his broken English, making fun of the education he received from the American occupiers when he was a boy.
A Carolinian whose father was active in Micronesian politics, Lifoifoi is the consummate insider here. He attended the University of Guam in the early 1960s, where he mingled with the children of other prominent Micronesians from Palau, Yap, Phonopei, Truk, and the Marshalls. After school, Lifoifoi returned to Saipan and became a politician, eventually rising to the position Speaker of the House. Many of his friends did the same. Local government is by far the largest industry in Micronesia; for years, it employed 80 percent of the adult population here. The second-largest is tourism.
Lifoifoi was a representative in the CNMI Legislature when Continental Airlines was awarded an exclusive contract to provide air service to Micronesia, in large part by creating a new airline that would be majority-owned by Micronesians themselves. Air Micronesia, or Air Mike, as it was known, was 60 percent owned by United Micronesia Development Association, aka UMDA, and 36 percent by Continental. (The balance belonged to the Hawaiian carrier Aloha Airlines.) Continental provided the planes, the personnel, the operational expertise, and even the cocktail napkins and agreed to pay UMDA a percentage of profits after it recouped its investment. In exchange, Air Mike allowed Continental to use its route authorities, as well as its gates in Honolulu, Guam, and Tokyo. Because airports rationed gates by nationality, Air Mike’s foreign ownership provided Continental with a valuable back door to Asia.
So the creation of Air Mike made UMDA a major player in Micronesia but at a steep price: UMDA was no longer a vehicle for empowering the islanders to control their destiny, as its founder Russ Curtis had imagined; now its most important division was a legal sleight of hand that appeared to empower the islanders while a cadre of executives quietly ran the show from Continental’s headquarters in Houston. The principle of outside control was memorialized in Air Mike’s operating certificate, which stated that it could fly only under the control of Continental Airlines. The result of such a lopsided “partnership” was inevitable: by 1983, UMDA had yet to receive a dime of profit sharing and, despite repeated requests from its board of directors, Continental had never even provided the islanders with a simple accounting. Whether there were profits or not became the subject of public debate. The New York Times reported that Air Mike had made money as far back as 1971, while Continental claimed that its joint venture in the islands had accumulated more than $20 million of losses. At a special board meeting in August 1983, Air Mike called Continental’s bluff, repudiating their profit-sharing agreement and contesting Continental’s right to use the Air Micronesia name. Less than a month later, DHL filed an application with the Civil Aeronautics Board to replace Continental Airlines as Air Mike’s operating partner.
Continental, however, was already plotting a hostile takeover of UMDA. The airline’s lawyers at the Carlsmith firm first approached UMDA’s president, a friendly expat named Garrick Utley. Utley agreed to sell his stock to Continental for $400,000; more important, he agreed to help Continental acquire director proxies to vote at the next UMDA board meeting, where the airline planned to amend UMDA’s articles of incorporation so that there would be no 60 percent local ownership requirement and no accounting requirement. Meanwhile, an attorney from the Carlsmith firm was sent to cajole Joseph “Joeten” Tenorio, UMDA’s chairman and the largest shareholder, to cooperate. Joeten, however, had no intention of selling. If Continental wanted to acquire a majority of UMDA, he told them, they’d have to get their shares elsewhere. Carlsmith’s attorneys refused to back down. The pressure became so intense that Joeten collapsed during one particularly contentious meeting and had to be removed on a stretcher; at around the same time, UMDA’s counsel returned to the States. (The rumor, according to a current UMDA director, is that the man had suffered a nervous breakdown.)
Joeten, Lifoifoi tells me, sought out Hillblom’s counsel in a very unusual meeting. The old man invited Hillblom to his office and then asked him to hide in his private bathroom so he could listen in on a meeting that Joeten was about to have with one of Continental’s attorneys. Hillblom obliged; he sat on the toilet seat, ear pressed against the door, as the attorney cajoled and threatened Joeten to support his client’s takeover of Air Mike. Meanwhile, Hillblom made up his mind: he would buy UMDA himself.
Of course, that was more easily said than done. Carlsmith had already signed option agreements with every large shareholder except Joeten. The rest of UMDA’s shares were spread all over the islands, in such small amounts that acquiring them seemed like more trouble than it might be worth. Hillblom thought otherwise, though he would need connections. Joeten immediately thought of his friend Lifoifoi.
“When I met Larry,” Lifoifoi grumbles, “he said what he wanted to do was better for the people of Micronesia than what Continental was planning; was for the good of Micronesia. And I said, ‘Okay, I’ll go.’ But Larry didn’t know me then. I’d heard about him being Larry Hillblom, being rich, but I didn’t care about that. If his intention is good for the people in this region, I will volunteer. I’m not looking for a salary. So we started traveling, and I started opening up the doors for him to meet the president of FSM [Federated States of Micronesia], the presidents of Micronesia, Republic of the Marshalls, Republic of Palau, and all that.”
Lifoifoi and Hillblom scoured Micronesia for shares of UMDA. They flew in small planes, stayed in small hotels, and drank a lot of beer. Although Hillblom was younger and, in theory, the less politically experienced of the two, he lectured the islander on how to read people. “This guy’s phony,” he would whisper to Lifoifoi during a meeting. Or, “This guy’s real.” One of Hillblom’s greatest insults was “This guy’s a dime a dozen.”
The more time they spent together, the more bizarre Larry became. Lifoifoi noticed that he had an aversion to talking on the phone with anyone, particularly his executives at DHL. “Sometimes they have to call me to talk to Larry to please call,” he remembers. “I relayed that message, and Larry would say, ‘You know, they’re getting good pay to think and now they want my answer, they want to know what I’m thinking? No. I’m paying them a good salary for them to think.’ So he would never answer the telephone. Never!” There was only one exception: if locals called, Hillblom would answer the phone right away. Only one DHL employee, Po Chung, met with Larry on a regular basis, flying in from Hong Kong whenever he needed an audience.
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sp; When Lifoifoi dropped in at Hillblom’s office on Beach Road, he was surprised to find the H in DHL sitting at the computer, typing rapidly. He was even more shocked by the hours his new friend kept. Hillblom ordered a cot delivered to the office so that he could work all night and take short naps to recharge. Meals were often nothing more than a piece of fruit and some coffee. While the locals were terrified of Continental Airlines, which was, after all, the great bird that delivered them—and nearly everything else—to their islands, Hillblom seemed to relish having such a powerful adversary.
“Larry loves to go to court,” Lifoifoi says with a grin. “He loves you to sue him! I mean, Larry loves to sue, but he’d prefer that you sue him first. And he countersues, and he stays on you until you collapse. You know, it’s just like that boonie dog who bites you,” he continues, referring to the ubiquitous stray dogs that wander Saipan in lascivious packs. “And he stays and stays for five or ten years until you go broke.”
Seventeen
Under Attack
Hillblom’s latest opponent was no silver-spooned heir like Charlie Loomis, nor a golf club–swinging bureaucrat like Robert Timm. A ruthless strategist and self-made multimillionaire whose youthful face was appearing on the covers of magazines, including BusinessWeek and Time, Continental Airlines chairman Frank Lorenzo would soon be described by Barbara Walters as the “most hated man in America.” Handsome, tan, impeccably dressed, and prematurely gray, he remains a poster child of the “decade of greed,” a hero to an emerging breed of financiers who would make vast fortunes slashing jobs and destroying companies. By the time Hillblom purchased his first share of UMDA, Continental was already in bankruptcy—less than two years after Lorenzo had acquired it. (A few years later, he would take over Eastern Airlines and drive it out of existence entirely.) Lorenzo would become so hated that he and his executives required a security detail to walk through their own hangars. So, on the surface at least, Lorenzo and Hillblom could not have appeared more different. Yet they shared more than outsize ambition: a middle-class upbringing, success in a highly competitive industry, an almost pathological fear of unions, and a fascination with bankruptcy laws. (In fact, Lorenzo had just become infamous by using bankruptcy to void his pilots’ expensive contracts.)
By the winter of 1984, Frank Lorenzo and Larry Hillblom shared something else: each owned roughly 25,000 shares of UMDA. Equal, however, they were not. Lorenzo had dozens of corporate attorneys at his disposal. And by placing the airline in Chapter 11, Lorenzo had made himself the beneficiary of the law of unintended consequences. Because all litigation involving a bankrupt company or individual is automatically stayed and removed to that company’s bankruptcy court, Continental’s bankruptcy guaranteed Lorenzo a home court advantage. But Hillblom had an ace up his sleeve, too.
Continental Airlines v. People of Micronesia* et al. was filed in FSM Superior Court on October 9, 1984. As expected, the complaint was immediately removed 8,000 miles west, to a federal bankruptcy court in downtown Houston (only a few blocks from Lorenzo’s skyscraper office), where a cherubic Mississippi native named T. Glover Roberts and a phalanx of corporate attorneys now awaited Hillblom’s response. So did the FSM’s young counsel, a brilliant legal wunderkind who hoped to stem what appeared to be Micronesia’s biggest battle in four decades.
“I started as a lawyer with Clifford & Warnke in 1975,” the attorney Barry Israel begins, referring to the legendary firm founded by Washington power broker Clark Clifford. Ensconced at a table in an elegant restaurant of a colonial hotel that he owns, Israel is a pudgy man of middle age who wears a boyish haircut and wire-rimmed glasses, and clutches a Black-Berry. In the late 1970s, his firm was representing the Federated States of Micronesia—a nation that the UN had just created out of a few stray archipelagos in the Western Pacific. Clifford & Warnke also had a close relationship with the CAB and represented Continental Airlines; Israel himself had appeared before the CAB in support of Continental Airlines.
Israel eventually left Clifford & Warnke, but he managed to keep both Continental and the FSM as clients. “In 1983 or 1984,” he recalls, “Continental’s attorney called me and said that the Air Mike situation was untenable. I think that they were making a play for control.” Israel called on his two clients: Tosiwo Nakayama, the president of the FSM, and Frank Lorenzo and Barry Simon, Continental’s general counsel. A deal was brokered: Continental would own 55 percent of Air Mike, with 45 percent owned by the governments of Micronesia. In addition, Continental would agree to continue servicing all the Micronesian archipelagos. But at the same time that Israel was putting together a compromise, Continental’s law firm on Saipan, Carlsmith, was optioning UMDA shares on behalf of Continental. That’s when Israel found out that the infamous Larry Hillblom was also trying to buy UMDA.
“I had first met Larry in 1982,” Israel says, “and then I’d run into him on airplanes. Larry thought that he was a territorial law expert. He liked to discuss his ideas with me, but I couldn’t understand what he was talking about. Larry had a brilliant but complex mind. We were approached by FBI agents thinking that he was a drug dealer because of his own drug problem and the cigarette boat. A lot of people thought he was CIA.”
Hillblom at a settlement meeting in San Francisco with Judge T. Glover Roberts, Continental’s bankruptcy judge, as Ted Mitchell looks on (Courtesy of Barry Israel)
The next time Israel flew to Micronesia, he got word that Hillblom wanted to meet him. The multimillionaire picked him up at the Hyatt on Saipan in his DeLorean and drove to Lao Lao Bay for a round of golf. As it turned out, Hillblom wanted to talk about his vision for Micronesia—a subject with which Israel was already somewhat familiar. He had heard about Hillblom’s lawsuits, and how he planned to embarrass the United States at the UN for its hypocrisy vis-à-vis its colonies in the Western Pacific. In fact, Hillblom’s well-known legal theory that the Territorial Clause did not apply to the CNMI was causing Israel’s client, the FSM, some concern. “As a lobbyist,” he says, “I knew that it could interfere with the compacts we wanted.”
As they traversed Saipan’s most beautiful golf course, Israel paced himself to beat Hillblom by one stroke, and Hillblom reiterated his views on the CNMI’s sovereignty. “He mentioned that he’d bought the Bank of Saipan and didn’t want FDIC oversight,” Israel says. “He said he was interested in telecommunications. He talked about the lawsuits that he’d filed against the federal government.” Israel thought that Hillblom wanted to make Micronesia more independent from the United States because it was to his benefit as a tax haven.
When Israel asked Hillblom how he viewed himself working with a government, he replied that he didn’t have any intention of working with a government and if he had to pay people off, he would—though, he added a little sheepishly, he would not do anything directly. When they strolled off of the eighteenth green, the Philippine Sea shimmering in the distance, Israel tallied his score: one under Hillblom. Then he turned to his opponent. “There’s no way that either I or the FSM can work with you,” he blurted. One month later, Continental fired Israel’s firm. A short time after that, Joe Lifoifoi and Hillblom showed up at President Nakigawa’s office and threatened to keep his country in litigation for a decade if they consummated Israel’s deal.
Continental’s bankruptcy judge was not amused that a single individual could hold the airline’s plans hostage from 7,500 miles and fifteen time zones away. Hillblom and representatives of all four of Micronesia’s nations were promptly summoned to a settlement conference at a posh San Francisco hotel.
Nearly a decade and a half had passed since the Loomis battle, but when Hillblom peered out at the Golden Gate Bridge from his airplane window, his mind must have processed the similarities. Instead of Loomis, he was fighting a much larger rival: Continental Airlines. Instead of the hostile Nixon appointee Samuel Conti, he would face the hostile Reagan appointee Roberts. Instead of the Pillsbury law firm, he would be going toe-to-toe with attorneys from a downtown Houston out
fit. Instead of Perry Mason v. Huey and Dewey, it was Perry Mason v. the Professor (Peter Donnici), the islander (betel nut–chewing Joe Lifoifoi, sitting next to him), and UMDA’s new general counsel, a bombastic expat named Ted Mitchell.
Mitchell, a middle-aged Harvard Law School graduate who was fond of Hawaiian shirts and groomed facial hair, was probably the most prominent attorney on Saipan and was fast becoming Hillblom’s favorite. Despite the Ivy League pedigree, Mitchell was scrappy, like him. Other attorneys would describe “Ted” as brilliant but psychotic—the latter due to alcoholism, perhaps. Mitchell had been hired by the Congress of Micronesia to start the islands’ first legal services corporation in the 1970s after founding a similar outfit on the Navajo reservation in the States. His most famous victory had prevented the U.S. Air Force from testing high explosives in a delicate coral reef—a case that had prompted a State Department official to sniff to the New York Times of Mitchell and his fellow attorneys, “They consistently project an image of hostility to the United States.” He could be a tireless advocate for the powerless islanders, then become violent with family and friends when he drank. Mitchell would become infamous for shoving a fellow attorney into a jukebox during an argument at a Saipan bar—with such force that the man suffered permanent brain damage and died a short while later.
Hillblom, Mitchell, and Lifoifoi stayed overnight at the DHL ranch in Half Moon Bay. The next day, Hillblom drove back to SFO to meet the members of the Marshallese delegation. “He had two cronies with him,” Israel, who had gone to the airport with the same idea but got there a little too late, remembers. “I walked around a corner as one of the Marshallese said to Larry: ‘If you want us to do this, you need to pay us more.’”
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