King Larry

by James D. Scurlock

  Two weeks later, Lupo received a full apology from JAL’s lead attorney. And once again, DHL’s headquarters was swarming with lawyers. This time Lupo bit his tongue—for eight months.

  Federal Express had started flying planes into Japan by the time Lupo’s secretary announced that Klaus Schlater, chief financial officer of Lufthansa, Germany’s largest airline, was on the phone. Like Hillblom, Schlater liked to get to the point.

  “I know you’ve been having these discussions about a cargo airline,” he told Lupo in a thick German accent, “and I like to do things a lot bigger, a lot faster. We’d like to buy twenty-five percent of DHL.”

  “Sorry,” Lupo replied, “but we’ve been going through due diligence for eight months now and this is a really slow process and I’m confident that we will eventually conclude with JAL.”

  “What if we just take the due diligence that they’ve done,” Schlater offered, “we don’t do any of our own, and we will not renegotiate anything? We’ll just sign on to the memorandum of understanding that you have with JAL.”

  Lupo thought about Schlater’s proposal for a moment. It was extraordinary—a multibillion-dollar corporation, a flag carrier, offering to sign on the dotted line without peeking behind the curtain or kicking the tires. “That’s pretty interesting,” he admitted. “We’ll go back to JAL and talk about it.”

  But by the time Lupo arrived in San Francisco to present the deal to Hillblom and DHL’s other shareholders, Hillblom had had second thoughts. The deal had gone from a minority stake in DHL to over 50 percent—a quarter each for JAL and Lufthansa, plus another 12.5 percent for Nissho Iwai. Even with the exact ownership of DHL still at issue, Hillblom would obviously no longer be in the position he had enjoyed for three decades, the position that he’d told Carla he wanted—of pulling the strings. Instead, he would be a minority shareholder in a multinational corporation owned by three other, very conservative, multinational corporations. The deal might save DHL but it would also push him out of the picture entirely.

  “Larry was not too enthusiastic,” Lupo recalls of the shareholder meeting. “But he got the other guys to agree. I think he very much believed in the strategy of the deal. He could see his future evolving in Asia and JAL was a very important force in Japan and in Guam and Saipan and so on. But if the financial mechanics weren’t right for him personally, he wasn’t going to go along with it.”

  Eventually, the shareholder issues were resolved by Peter Donnici, who split the company up according to what percentage of DHL’s success each of its thirteen shareholders could claim as their own. Hillblom ended up with a clear majority of the domestic company and about half of what would now be known as DHL, International. At signing, Hillblom would receive $120 million for his shares in DHL, International and his stake would be reduced to just above 20 percent. But there was still a possibility of Hillblom’s becoming a billionaire. “We’re going to TSE this,” he said to Lupo one day, referring to an IPO on the Tokyo Stock Exchange, where the price-earnings multiples were such that he could probably consider himself a billionaire already.

  The closing was held one year later in the conference room of a New York City law office. “Larry was sitting there,” Lupo recalls, “and all the massive documents [occupy] a whole table, and everyone’s going around signing their documents. And one lawyer says, ‘This transfer was made to this account, blah blah blah.’ And then a settlement agent from one of the banks comes in and he says, ‘Everything’s fine except that we don’t have JAL’s transfer of so many millions of dollars.’ This is after twelve months of due diligence. And Hillblom says to the head guy of JAL, ‘You know, before we’d started this process, if you guys had just told us you didn’t have the money, it would have saved us all a lot of headache.’ And everybody cracked up.”

  The Japanese christened their takeover of DHL the Polar Bear Deal and passed out white teddy bears after the last rider was initialed. No one remembers the significance of polar bears, except that they are both larger and more ferocious than tigers, perhaps.

  Lupo kept two photographs from the occasion. One shows five middle-aged men memorializing the creation of what would soon be the dominant global express company. Four, including Patrick Lupo, are wearing dark suits and ties. The fifth is dressed in a dark sports coat; his shirt is open—no tie—colored glasses. He has not shaved for days and appears to be signing a document, though his hands are blocked by a sloth of teddy bears spread about the conference table. Directly behind him, Peter Donnici looks on, hands folded behind his back, lips locked in a scowl.

  Hillblom left Manhattan the next morning with his teddy bear and little else. The year before, a tax specialist in Donnici’s firm had arranged the sale of Hillblom’s majority stake, held in a Bermuda-based holding corporation, to Po Chung for $226 million. No cash had been exchanged and there was no record of the transaction, other than an unsigned memo in the attorney’s files. So the largest share of the DHL payout never even touched American soil, much less stuck to Larry Hillblom—or any corporation with which he was legally affiliated. Yet he was suddenly, officially, a very, very rich man.

  When a limousine deposited him at the Continental terminal at Newark Liberty Airport, Hillblom approached the first-class ticket counter. He handed his PS-1 card to the ticket agent, who stared a little curiously at his T-shirt, which was silk-screened to resemble a blazer, oxford, and tie. During the Air Mike negotiations, when Continental’s attorneys had finally agreed to give Hillblom his coveted PS-1 pass, they had attached a stipulation that they’d hoped would kill the deal: if Hillblom wanted to travel first-class, he’d have to wear a tie. The ticket agent accepted Hillblom’s card, buried her eyes in her computer, and found him a front-row seat to San Francisco, which also happens to be my next destination.

  Twenty-Five

  Money Problems

  “Larry was a real character,” Jesse Choper, the renowned constitutional law expert, dean of Boalt Hall, and Hillblom’s former corporations professor reminisces from behind his desk overlooking campus. Choper is a thin, elegant man who dresses well and wears his silver hair slicked back like Gordon Gekko. For an academic and for an attorney, Choper’s attitude is disarmingly candid—as is his smile, which he flashes often when discussing his most infamous student. Several floors below us, in the building’s foyer, a huge bronze sign lists Larry Lee Hillblom among the building’s major donors, alongside giant law firms like Morrison Foerster. “He was fairly soft-spoken and not terribly articulate,” Choper recalls. “I was not initially impressed but eventually he distinguished himself as an original thinker . . . he was pragmatic rather than intellectual.”

  Throughout the 1970s and 1980s, Hillblom was a regular guest in Choper’s Berkeley office. He would show up, usually unannounced, sink into one of the chairs opposite Choper’s desk, and pontificate on his two favorite subjects: DHL and Micronesian politics. Choper had followed Hillblom’s success from day one. He and his wife, like a few other Boalt Hall professors, had served as DHL couriers several times, and at Choper’s request, Hillblom had donated $25,000 to fund a chair in Stefan Riesenfeld’s name. Still, the professor-turned-dean remains shocked by how successful his farm boy student became. “It’s difficult for me to imagine how he dealt at the higher levels,” Choper says. He follows up with a story of when his secretary had once asked if she should call the police when Hillblom showed up asking for the dean; apparently, she assumed he was a deranged student.

  That Hillblom could operate at the highest levels had, however, turned out to be quite an understatement by the early 1990s. The awkward, soft-spoken boy from the San Joaquin Valley had cultivated a multinational corporation that, according to the New York Times, employed 24,000 people and produced revenue approaching $2 billion in 1990. Even more impressive, the philosophy that had caused so much consternation in Choper’s lecture room when Hillblom had tried to express it now had a respectable name: “law and economics.” And politicians like Margaret Thatcher and George
Bush were now preaching that the government should foster economic growth rather than temper it, just as Larry had argued. In law journals, “law and economics” had become the buzz phrase du jour.

  So when Choper started a $10 million fund-raising campaign for a new Boalt Hall law school building, he placed Hillblom at the top of his list of possible donors. Japan Airlines and Lufthansa, he’d just read, had acquired a minority stake in DHL. Their investment had not been disclosed but was likely to be in the hundreds of millions, considering the size of Hillblom’s company. And Larry was always inviting Choper to come to Saipan. In fact, the dean seemed to remember that Hillblom owned the airline out there. Choper asked his secretary to leave a message at Hillblom’s office in Saipan.

  Larry, he says, called back almost immediately. “I’m gonna take you up on your offer,” Choper informed him, “but I have to warn you that it’s a fund-raising visit.” Choper’s only request was that his new girlfriend be allowed to join him.

  Not long after, the dean received two first-class tickets on Continental Micronesia—via DHL, of course. He removed a pledge card from his desk, filled in Hillblom’s name and $250,000, then folded it neatly next to the plane tickets. Despite Hillblom’s bonhomie, something told Choper that getting him to sign on the dotted line was not going to be easy.

  The trek to Hillblom’s home would only confirm this suspicion. Even in first class, the journey from the States to Saipan is an arduous one: three flights (connecting through Honolulu and Guam) spanning more than twenty hours, fourteen time zones, and two customs clearances. The finish line is the small arrivals hall of Saipan’s Polynesian-style airport, where Hillblom greeted the dean and his date in the summer of 1990, carried their bags to his car, and deposited them at the Hyatt Regency on Micro Beach amid gentle gusts of hot, humid tropical air.

  “The next day,” Choper recalls, “he drove us around the island in his broken-down Honda with Josephine, whom he’d nicknamed ‘Tita.’ I think it means ‘monkey’ in Tagalog. Every time he said it she tried to slap him.” Across the island, Hillblom pointed out businesses that he’d either started or bought: a technology company called Saipan Computer Services, a realty firm with an unpronounceable, a pawnshop, condominiums, golf courses, a beachside restaurant, a Honda dealership, a small printing operation that silk-screened T-shirts, the rodeo-brothel complex on the northern tip of the island where he’d erected a giant movie screen and showed first-run films amid a cattle-grazing field and, finally, the island’s modest DHL office.

  But Hillblom was especially proud of a nondescript building on the southwestern side of the island—a rounded cement bunker supported by several of Micronesia’s ubiquitous latte stones. The building housed the CNMI’s new Supreme Court, where Hillblom often began his day. The governor had recently appointed Hillblom as a special judge to the court, which had replaced the U.S. district court as the destination for appeals of superior court rulings. Supreme Court rulings could still be appealed to the Ninth Circuit in San Francisco but, under the CNMI Constitution, the Supreme Court would become the island’s sole appellate court in fifteen years. At that time, Supreme Court rulings would be appealable only to the U.S. Supreme Court. Hillblom had fought for the establishment of the CNMI Supreme Court for one very simple reason: The U.S. Supreme Court hears a fraction of the cases submitted to it. With the establishment of its own appellate court, the CNMI would at least have judicial sovereignty.

  “Larry was very proud of being named an associate justice of the Supreme Court—much more so than of the money he’d made,” Choper recalls, slightly misstating Hillblom’s position if not its importance. Hillblom was a special judge, not an associate judge, meaning that if any of the court’s three permanent judges were unable to hear a case, he might be called in. On an island like Saipan, where people frequently travel and where a large part of the population is intimately connected—genetically or otherwise—the odds of a justice’s being absent or of having to recuse himself is very high.

  Over the next several years, Hillblom sat in on a great many cases and wrote just as many opinions. He took the role very seriously, arriving at the court’s modest temporary quarters on Beach Road early in the morning, well before the other justices, and poring over the day’s cases next to a steaming pot of Vietnamese coffee. Sometimes he brought fresh wheat bread that he’d baked in a machine in his office. When the justices needed a table for conferencing, Hillblom ordered one custom-built. His opinions were exhaustively researched, though they often meandered to his favorite issue, the Territorial Clause. “I thought they were sound,” Choper says of the opinions that Hillblom proudly sent him, like a son seeking approval.

  “Larry was a great host,” Choper continues. “He took us out for dinner every night and threw a big party for us at that house overlooking the ocean.” Hillblom showed off the DeLorean, and walked his old law school professor down the cliff in front of his house, pointing out a surfside cave where he’d lived for a few years—or so he said, at least. But when Choper breached the topic of his pledge, Hillblom became argumentative.

  “How much do you need for the job?” Hillblom asked, annoyed. “What are you planning to do?”

  “I’ve told you what we’re going to do,” Choper replied, more annoyed. “And it’s in the literature.”

  “Are you going to have computers?” Hillblom said.

  Choper bristled. He remembered how hard it had been to collect the $25,000 that Hillblom had pledged for Riesenfeld’s chair; now he was asking for ten times that amount. What had he been thinking? After a tense back-and-forth, Hillblom put forward a jaw-dropping idea.

  “He wanted to manage the construction himself, because, by building it at night, he thought he could nix the union.” Choper shakes his head. “Larry insisted that it could be built on the cheap and talked about how he’d built this road in Half Moon Bay at night so there had been no regulation and that’s how they should do Boalt Hall and that bit of genius would be his contribution.” What Larry didn’t tell him was how a local news helicopter had spotted the two huge Caterpillar earthmovers roaming his property and alerted both the public and the local authorities to what he was doing; the reporter he assumed it was a new public road, a bypass to Highway 1, which also happened to be under construction at the time. That fiasco had cost Hillblom a small fortune in legal fees. Even without that knowledge, however, Hillblom’s idea inspired more anger than admiration. “I told him that this was a public university,” Choper growls, “not a private road on his ranch!”

  Hillblom and Ted Mitchell, before the “Clash of the Titans” (Courtesy of Michael W. Dotts)

  Choper waited until the last day to pull out the pledge card. “By then, I knew I’d worn him down,” Choper brags. He asked Hillblom to sign it in his presence—something that he had not demanded of any other donor. Such pledges are notoriously difficult to collect, Choper says, even with a signature. But he wanted to impress upon Larry that he owed the money, that it was not something that he could argue his way out of. That night, Choper, his girlfriend, and Hillblom celebrated the visit over dinner at a restaurant near the hotel. Afterward, Larry walked them to Little Ginza, which had been Saipan’s bustling downtown during the Japanese occupation. Now it was a mishmash of restaurants, massage parlors, shops, and strip clubs anchored by a cobblestone promenade. Choper and his girlfriend followed Hillblom toward the neon sign of a nightclub. In front of the entrance were several young Asian women in matching leather miniskirts. Hillblom motioned for his reluctant guests to come inside, where he chose a comfortable spot and ordered a round of drinks.

  “A few of the girls came over to the table,” Choper recalls. “They knew Larry and he them. Clearly, ‘Tita’ was not the only woman in his life. After the girls walked away, Larry turned to me and my girlfriend. He said he only had sex with virgins, that he’d spent ten million dollars on girls because he was deathly afraid of AIDS and didn’t want to have sex with anyone who wasn’t a virgin.”

&nbs
p; An awkward silence followed as the dean and his girlfriend digested what Hillblom had just revealed. Finally, Choper spoke up: “Only virgins, Larry?”

  “Yeah,” Hillblom replied nonchalantly, as one of the girls delivered their drinks. “You have to be careful.”

  Choper took a sip of his beer. Maybe, the older man thought, he had not asked for enough.

  Jesse Choper was not the only solicitor to descend on Saipan in the wake of the Polar Bear Deal. On May 29, 1991, a Caucasian man in a dark suit presented himself to the receptionist at the CNMI Department of Finance Building near the crest of Saipan’s Capital Hill. When prompted, the man announced that he was an auditor from the U.S. Inspector General’s office in Washington, D.C.

  The Department of Finance holds the tax records of all CNMI residents. Under a unique provision of the Covenant, virtually anyone who makes the request is allowed access to the tax records of all CNMI citizens. But when the Inspector General’s auditor demanded to see the records of several residents, including Governor Larry Guerrero and his close friend, Larry Lee Hillblom, the clerk called the governor’s office for authorization. A few moments later, she hung up the telephone and apologized. The records, she explained, were not available.

  Like Choper, the auditor had traveled thousands of miles on three flights, and he was not about to leave without getting what he’d been sent for. So, once again, the clerk called the governor’s office, which in turn called Special Supreme Court Justice Larry Hillblom. “A federal government office doesn’t have the authority to demand anything,” Hillblom told the governor matter-of-factly. “Allowing the Inspector General access to local tax returns violates not only the CNMI’s right to self-government but the privacy rights of its citizens.”