Battle for the Shrinking Millions

Howard Hughes, who honed to perfection an almost fiendish talent for playing off his aides and lawyers against one other, would be delighted with the tangled mess he left behind. His death 14 months ago immediately set up a potential clash between his long-estranged family and the financially privileged insiders who ran Hughes' solely owned Summa Corp., which was founded in 1972 to oversee his vast holdings. At first, to almost everybody's surprise, peace reigned between the rival camps. But, after months of growing tensions, a full-scale battle for Hughes' fortune has now broken out.

Family Pact. The struggle pits Hughes' first cousin, Houston Lawyer William Rice Lummis (pronounced Lumm-us), 48, against Chester Davis, 66, the Wall Street in-fighter who in 1973 finally won the twelve-year TWA antitrust suit for Hughes and became a major power within Summa. At stake is what remains of Hughes' fortune, estimated to have been as high as $1.8 billion in the late 1960s (excluding Hughes Aircraft Co.) but now assessed by Merrill Lynch, Pierce, Fenner & Smith at no more than $168 million. If no will is found, Lummis, who is the court-appointed temporary co-administrator of Hughes' estate, hopes to divide up that estate in an amicable settlement among the 22 heirs. He buttressed his position last week among the heirs by negotiating a new pact that includes two adopted children of Howard's uncle, Film Producer Rupert Hughes, who had been left out of an earlier agreement. Fighting back, Davis, who wants the entire estate to escape the 77% federal death levy by going to the tax-free Howard Hughes Medical Institute, has petitioned a Delaware judge to strip Lummis of his executive authority over Summa.

Initially, Davis and Lummis appeared to be working together smoothly. Only a day after Hughes died, Davis sought out Lummis in Houston. Rather than battle the family, Davis suggested that Lummis become temporary sole stockholder of the estate, and that he join the Summa board. In August 1976, Lummis became Summa chairman at $180,000 a year. Summa Executive Vice President Frank William Gay, who commanded Hughes' Mormon Mafia of personal aides and was a Davis ally, was given the post of chief executive officer. Davis remained chief counsel and a board director.

Lummis, who resembles the young Hughes to an almost uncanny degree, quickly adopted some of Howard's habits. He moved into a suite in the Summa-owned Sands Hotel and avoided the press as assiduously as Hughes had. A skilled financier, he began to study Summa's books, and what he saw frightened him. During the final reclusive years of Howard Hughes, as the old man lapsed into comas and became hooked on drugs, his affairs were miserably mismanaged. From 1971 through September 1976, Summa lost $132 million, mainly on casinos and hotels in Las Vegas. During those years, all of its competitors were in the black. The top Summa officers prospered, however; as the company lost more than $52.2 million in 1975-76. Gay, who started off in Hughes" service as a clerk, drew $761,131 in salary and bonuses. Most startling was the decline of Summa's cash position. From 1966 to 1976, Hughes pumped $715 million into Summa. Yet in March of this year, Summa had only $94 million left. Declared an alarmed Lummis: "There's going to have to be some spigot turning."

Lummis was especially fearful that Summa could not meet the first installment--an estimated $28 million--on Hughes' estate tax, which falls due next January. He suggested a number of possible economies (like disposing of Hughes' 13-plane fleet of unused executive jets) and the sell-off of several divisions (prime candidate: a helicopter company). Lummis also hired Merrill Lynch to evaluate the market worth of the company; it came up with the shockingly low figure of $168 million. Critics charge that some assets were understated. Hughes' Silver Slipper casino, for which he paid $4.5 million, was valued at only $1. That appears to be a case of ultraconservative accounting practice: placing a nominal value on an asset whose worth is difficult to measure.

No Means. At a tense Summa board meeting on May 18, Davis led the directors in voting down every one of Lummis' proposals. Lummis got angry. At a May 26 meeting, he kicked Davis off the board, though Davis remains general counsel ("One thing at a time," explains a Lummis confidant). Lummis installed a majority of his own men on the board. He also lifted the title of chief executive officer from Gay and bestowed it on himself. But Gay and Nadine Henley, the other members of the Summa triumvirate, kept their seats on the board.

Davis and Gay were appointed by Hughes as directors of the independent Howard Hughes Medical Institute, which owns Hughes Aircraft (worth about $500 million). Henley serves as secretary. So far, Lummis has found no legal means of deposing them. From that bastion, they can wage a campaign against Lummis' stewardship of the estate. But much of what remains of Howard Hughes' fortune may end up being spent on court costs and lawyers' fees.

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