The Man in the Black Hat, Part Two
Can a rancher in South Texas take on the third-largest oil company in the world and win? He can if his name is Clinton Manges and he has made it his business to have friends in high places.
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Spring is the best of seasons in Duval County. The dust that hangs in the South Texas air for the rest of the year has returned for the moment to the pebbly soil, tamped down by the rains that accompany the dying thrusts of winter. The huisache is in bloom, and for once the brush seems almost benign. Spring is the most welcome time in Duval County for another reason. It is the season for politics, an activity that has attained the status of a sport in the land the patróns once ruled. In towns like Benavides and Realitos and San Diego, the county seat, not a telephone pole escapes the placards of the candidates. If one is so inclined, he can dine almost every night on beans and barbecue at a rally somewhere in the county.
Early in the spring of 1982, several hundred people gathered for such a rally on a large ranch west of Freer. In many ways it was typical. The food tables were loaded with mesquite-smoked brisket and short ribs, pinto beans and jalapenos, tortillas and white bread, sliced onions and pickles. Set up outside, the tables were illuminated with lights strung on temporary poles. In a nearby building, a country-and-western band sawed away while a solitary couple danced. One of the hostesses wore a brown double-knit pantsuit, house slippers, and enormous diamond earrings.
But this was no ordinary rally. Few local candidates were present. Instead the grounds were overrun with supplicants for statewide office, for the state senate, for judgeships. State comptroller Bob Bullock was there. So was Jim Mattox, now the attorney general; Garry Mauro, now the land commissioner; Jim Hightower, now the agriculture commissioner; Ann Richards, now the state treasurer; Bill Kilgarlin, now a Texas Supreme Court justice. The dance hall was actually an airplane hangar, and an adjacent landing strip, complete with night lights, remained busy throughout the evening as candidates and guests flew in and out while guards directed traffic with flashlights. This was Clinton Manges’ coming-out party. The owner of the 100,000-acre Duval County Ranch was making his move to expand his political influence beyond the brush country. In the next few weeks Manges would invest more than $1 million in political contributions and would transform himself from a regional power broker into a statewide front-page figure.
THE LESSON OF CLINTON MAGES
His allies end up fighting him.
His enemies get ensnared in fights that never end.
One of his politicians is under indictment.
When Clinton Manges is involved, nothing is ever smooth or simple.
Late in the evening the guests assembled in the hangar to hear speeches. The oratory was as unusual as the rally. Most of it was directed not at self-promotion but at Manges: he was a loyal Democrat; he sided with the little man; he helped the underdog. Finally Bob Bullock, the only candidate whose friendship with Manges predated his quest for public office, got up to speak. “I am a Clinton Manges man,” Bullock told the crowd. “If you don’t like Clinton Manges, don’t vote for me.”
There seem to be more and more Clinton Manges men in Texas politics these days. Manges is unquestionably in the top rank of Texans with political influence, a rank that includes names like Perry Bass of Fort Worth and Walter Mischer of Houston. Moreover, he has done something that none of his peers have attempted: he has enriched himself directly—and enormously—as a result of that influence. Their empires are not dependent on the rulings of government. Clinton Manges’ empire is. He has used state agencies to pursue wealth; he has used state courts to enhance wealth and to defend it from others. Not since George and Herman Brown’s friendship with Lyndon Johnson has a Texas financial empire been so dependent on political influence.
Early this year the influence Clinton Manges began to accumulate with that 1982 rally paid off in a big way. To settle a major lawsuit brought by Manges and the State of Texas, Mobil Oil gave up its oil and gas lease covering 64,000 acres of the Duval County Ranch. The press portrayed the outcome as a $100 million windfall for the state treasury and gave Manges most of the credit. The Mobil case is indeed one of the major stories of contemporary Texas politics, but not one of the major reasons that have appeared in the papers. It is important because it shows how the state and the press were taken for a ride by Clinton Manges. It is important because it represents the apotheosis of political influence. It is important, most of all, because it shows what it can mean to be a Clinton Manges man.
THE LAST CHANCE
“Don’t worry about the state,” said Clinton Manges. “I can take care of that.”
The statement took Tom McDade, a Houston lawyer for Mobil, by surprise. He was in McAllen taking Manges’ deposition, when the talk turned to settlement of Manges’ $1.5 billion lawsuit. But there was a problem. The State of Texas had jumped into the lawsuit on Manges’ side, but no one from the state was at the meeting. That was when Manges informed McDade that he had the power to bargain for the state.
Everything Manges had been working toward for years was symbolized by the scene inside that room. There was wealth, represented by the money Manges hoped to get from Mobil. There was power, represented by Mobil’s very presence: Mobil, his enemy through eleven years of court battles; Mobil, which had sworn never to negotiate with him, to fight him to the last lawyer; Mobil, which had insisted from the beginning that Manges didn’t deserve a dime. And there was influence, represented by Manges’ assertion that he could handle attorney general Jim Mattox and land commissioner Garry Mauro. Both Mattox and Mauro had benefitted from tens of thousands of dollars in campaign contributions from Manges a year earlier; now they had in effect given Manges the state’s proxy.
The Mobil case was the culmination of Manges’ career, the chance to apply all of the lessons he had learned from more than a quarter century operating in the remoteness of the brush country. He had been close to the masters of South Texas and had seen them at work—Lloyd Bentsen, Sr., at land dealing, George Parr at politics, Oscar Wyatt at oil and gas—and he had made their skills his skills and their knowledge his knowledge. The battle lines were drawn: the rituals and mysteries of South Texas against the third-largest oil company in the world.
Everything he had gone through since moving to Duval County in 1971 was riding on this case. Long on land but short on cash, Manges was besieged by attacks on his empire of ranchland and oil and gas interests. The Seattle-First National Bank was hounding him to repay $35 million in loans. He had had trouble before, and would have trouble again, making the mortgage payment on the Duval County Ranch, the heartland of his holdings. The extensive land and mineral interests he had pried loose from the Guerra family of Starr County had been drastically reduced in the initial rounds of a continuing court fight. He was delinquent on his property taxes; creditors were suing him for unpaid bills; his former lawyers were suing him for unpaid legal fees; former friends and business associates were suing him for broken promises. It was eat or be eaten, and Mobil was the only nourishment available. He had to win. It was his last chance.
THE TIME BOMB
The state gained a foothold in the Mobil case because of events that took place decades before Clinton Manges bought the Duval County Ranch. The original ranch had covered 144,000 acres before Exxon acquired the northern 44,000 acres, but it did not include all the mineral rights underneath. Some still belonged to the state. Around 14,000 acres of state-owned minerals were included in the original Mobil lease. That was permissible, however, thanks to one of the most controversial laws ever passed by the Texas Legislature —the Relinquishment Act.
In early years of the Texas oil industry, the state had found that owning minerals and getting money for them were two very different things. As in the case of the old Duval County Ranch, much of the state’s oil and gas lay beneath backcountry property to which there was no access except through the surrounding lands of the surface owner. In theory, the law gave the owner of the minerals the right to produce them; in practice, shotguns, fences, gates, and impenetrable brush gave the owner of the surface superior rights. The state owned the minerals but couldn’t lease them. Meanwhile, there was nothing to stop landowners from leasing adjacent property where they owned the mineral rights. Down in the reservoir, oil that supposedly belonged to the state flowed out of the… state-owned area and into private wells. Deciding that half a loaf was better than none, the Legislature in 1919 passed the Relinquishment Act. It authorized the owner of the surface to lease state-owned minerals. In return, the state gave up half its royalties to the landowner. When the ranch company made its bargain with a predecessor of Mobil in 1925, the lease included 50,000 acres where the ranch owned the minerals and another 14,000 acres where the state owned the minerals.
THE FORMER ALLIES OF CLINTON MANGES
JOHN BOYD: Manges’ Seafirst banker wanted to get in on the Southwest oil boom —over his head.
OSCAR WYATT: Once they did deal together. Now they’re fighting, and Wyatt is moving to Manges’ home turf.
FRANK NIGRELLE: He didn’t take heed of others’ experience with Manges when he bought the Mobil lease. Now he’s suing Manges.
The lease also included two legal time bombs that would not explode within the lifetime of any of the people who negotiated the original document. One was a seven-year time limit. If Mobil did no explore for and produce oil or gas within that time, the lease automatically expired. The second was a ninety-day drilling clause. Once oil was found, Mobil could not let more than ninety days expire between the time it completed one well and the time it began to drill the next. As long as Mobil complied with those two provisions, the lease remained in effect until the oil ran out.
Mobil began to drill on the ranch in 1930. In 1933 it discovered that a portion of the bountiful Government Wells field around Freer extended under the ranch. But a year before that discovery, two events had taken place that one day would be discovered by Clinton Manges. In the summer of 1932 Mobil let 91 days elapse between wells. And the seven-year term of the lease expired without any drilling on state mineral lands.
THE ENEMIES OF CLINTON MANGES
MOBIL OIL: Manges said it owed him $1.5 billion for violating its lease. Mobil said it didn’t owe him a dime.
EXXON: Because of Manges, it had to pay the state $4 million. Now Exxon wants even more from Manges.
SEAFIRST: The bank thought it had iron-clad security for its $18 million loan to Manges. But he was a step ahead.
THE WAY OUT
In the late seventies the idea of trying to break the Mobil lease began to take shape in Clinton Mages’ mind. He was then unaware of the mistakes Mobil had made back in 1932. But he was very much aware of the effect the Mobil lease was having on his own finances. It was killing him. The lease provided for a one-eighth royalty —standard in 1925 but low for post-Arab embargo Texas, when one sixth or even one fourth was the norm. To make matters worse, Manges wasn’t getting the full eighth or anything close: long before selling to him, the shareholders of the old ranch company had reserved 80 per cent of the royalties under the lease for themselves. So Manges was getting just a fifth of an eighth. That alone was plenty of incentive to try to break the lease —especially since Manges’ precarious financial situation (he was still facing numerous lawsuits over bills from his frenzied drilling during the mid-seventies) absorbed as much cash as he could get his hands on.
But fighting Mobil would not be an easy matter. Mobil had the money and the time and the lawyers to starve him out. He needed millions, but how could someone whose creditors had dozens of judgments on record against him hope to come up with that kind of money? Moreover, the two men who had been his most recent sources of capital had, like so many of his former associates, fallen out with him. One was Joe Schero, who had made millions in fried-chicken franchises and lost millions in oil deals with Manges. He had paid off some of Manges’ most pressing debts in return for mineral interests that hadn’t panned out. The other was Manges’ old South Texas mentor, Oscar Wyatt, the founder of Coastal States Gas. Manges had borrowed $5 million from Coastal in 1974, failed to pay it back, refinanced it in 1977, and failed to pay that back. Manges was also overdue in repaying a personal loan from Wyatt.
The way out of his predicament came from an improbable source, the Pacific Northwest. With the Texas oil boom hitting full stride, the Seattle-First National Bank decided it just had to get in on the action. The bank thought it knew something about the business, since it had helped finance some of Coastal’s far-flung operations, and so its chief energy loan officer, John Boyd, came to Texas looking for potential rowers. An officer at Coastal suggested Manges, and in August 1979 Manges and Boyd set off on a fishing trip in Puget Sound. By the time Manges returned to Texas, he had found a new angel.
Boyd was not exactly the hard-nosed banker of stereotype. Seafirst knew all about Clinton Manges —when Coastal found out that its bank was considering a major loan to Manges, it made certain that Seafirst got the details on his poor credit history at Coastal —but Boyd was undeterred. First Manges got $2 million in unsecured loans, then he went for the big score, $18.2 million. Boyd knew, too, that Manges wanted the money so he could go after Mobil. He even agreed verbally to give Manges leeway on repayment until the Mobil issue was resolved, though how far Boyd went and how valid his assurances were is now a matter of intense disagreement between the bank and Manges. Eventually one of Boyd’s deputies donated some money to be added to Manges’ political contributions. In November 1980 Manges got the big loan; a few weeks before his 1982 political rally he raked in another $15 million, although the first loan had not been repaid. By that time he had all the money he needed to take on Mobil.
WOOING THE STATE
Word travels fast in the oil patch, and it didn’t take long for Mobil to hear that Clinton Manges was trying to break the leases on the Duval County Ranch. Flush with Seafirst money, he had hired an Alice abstract company to research the complex title history of five leases on the ranch, including the big Mobil lease. He sent researchers to Austin to the Railroad Commission to check the history of every well drilled under the Mobil lease. Eventually he found the twin omissions of 1932: Mobil’s 91-day drilling lapse and its failure to drill on state mineral lands within seven years. He found defects in an old Exxon lease on the ranch as well.
He and his lawyers began to build a case they could take to court. It rested on two arguments. One was the 91-day drilling lapse. At that juncture, Manges contended, the entire lease terminated. Mobil owed him the value of every barrel of oil it… had taken out of the ground since that time —at today’s prices, that came to around $1.5 billion. For good measure, Manges also found five other instances in the records when more than 90 days had elapsed between wells.
THE POLITICIANS OF CLINTON MANGES
JIM MATTOX, Attorney General
He said there would be no deal with Mobil unless Clinton Manges was cut in.
GARRY MAURO, Land Commissioner
He said $1 million belonged to Manges instead of to the schoolchildren of Texas.
BOB BULLOCK, State Comptroller
He told a political rally at the Duval County Ranch, “I am a Clinton Manges man.”
Mobil was not terribly worried about the gaps in drilling. The records that Manges relied upon showed only when a well actually broke ground and when it was completed or abandoned. But the lease itself referred to the “beginnings of operations” and the “cessation of work.” Mobil could prove that in the brush country of 1932, clearing and surveying preceded actual drilling by several days; likewise, a day or two of work remained after completion while the crew dismantled the rig. Therefore, the 91-day lapse was really only an 84-day lapse. Similar records explained subsequent gaps.
Manges’ second argument was more troublesome. The original lease had included state mineral tracts, as was allowed by the Relinquishment Act, but it did not identify them as such or single them out for special treatment. That didn’t matter, said Manges; the lease really contained two separate drilling obligations: one covering the state’s minerals, the other covering the ranch’s minerals. Under that theory, Mobil had to start drilling within seven years on both types of property. By 1932 it had drilled only on ranch mineral land; therefore, Mobil had violated the lease. The same logic applied to the ninety-day drilling obligation.
It sounded good, but there was still one huge obstacle in Clinton Manges’ way. His research and his intricate legal theories were of little practical use because Mobil had a file drawer full of documents and case precedents that nullified Manges’ case. Back in 1972, when he first tangled with Mobil over pollution damage to the surface, the company had turned over 107 wells to him as part of a settlement in which Manges had personally signed papers releasing Mobil from all damages that might be owed him under the lease. Manges’ brother, acting as his agent, had signed papers ratifying the very leases Manges was now attacking, acknowledging explicitly that Mobil had complied with the ninety-day drilling clause and the seven-year drilling period. Furthermore, after Manges had subsequently continued the fight against Mobil, the company had gotten a federal court injunction barring him from interfering with its right to operate under the lease. To Mobil that ruling was tantamount to saying that its lease was valid. Under a basic legal principle known as res judicata, once an issue has been settled between two parties in court, neither party may raise it in another case. Clinton Manges was dead in the water. “I don’t consider that we ever had a problem with Clinton,” says Roy Merrill, who retired as general counsel of Mobil’s Houston-based subsidiary while the Mobil-Manges case was still being fought. “Clinton doesn’t have a case and never did have a case.” Mobil’s legal hierarchy, from the corporate headquarters in New York to the outside lawyers in four Texas cities, shares those sentiments.
But Manges found a way around the South Texas roadblock. He turned to one of the old South Texas maxims he had learned so well, that the road to riches sometimes leads to the government. In this case the government was the State of Texas, which had 14,000 acres at stake in the Mobil lease —and which had a much better case against Mobil than Manges did. The state hadn’t been a party to any of the previous Manges-Mobil battles. It wasn’t bound by res judicata or by any of the documents Manges had signed. The statute of limitations that might have prevented Manges from challenging an old lease on the basis of something that had happened fifty years earlier did not apply to the state. If he could interest the state in the case, Manges just might be able to circumvent Mobil’s defenses after all.
He began to woo the state. For once, the old South Texas axiom that government is never natural was indisputable. Manges and the state were partners. The Relinquishment Act clothed him with the authority of the state as its agent. Manges approached Bob Armstrong, Garry Mauro’s predecessor as land commissioner, and began to throw around some big numbers. That state’s case, counting all the oil that had been taken since 1932 and including interest on the money, might be worth as much as $800 million, Manges said. He recited his landowner’s litany against the big oil companies, which was straight out of South Texas and his old fights against Humble and Gulf. Mobil was cheating both him and the state, Manges said. It had kept 64,000 acres tied up withhold, shallow wells and had paid piddling royalties to Manges and to the schoolchildren of Texas (the beneficiaries of that stat’s oil and gas holdings) instead of exploring for the deep gas Manges believed lay far beneath his land. ARCO had brought in a prolific deep well at Seven Sisters, a few miles northeast of the ranch. As part of his 1972 settlement with Mobil, Manges had passed and Mobil hadn’t drilled yet. It was a “sorry old lease,” Manges told Armstrong, and they’d both be better off if he could break it and lease the land at current values. Excited and indefatigable, Manges became a frequent visitor to the land office. When not lobbying Armstrong, he’d hunt down middle managers to deliver his message.
For all Mobil’s confidence about its case against Manges, it had none of the same certitude about its case against the state. Mobil’s lawyers had their arguments, but Mobil’s lawyers had their arguments but they were intricate, hypothetical, and on the defensive, explaining why the obvious did not apply. In the cold light of the law library, Mobil thought it had a pretty good case (the only thing close to a precedent supported Mobil’s position that it had only a single drilling obligation). But the case wouldn’t be tried in the law library. It wouldn’t be tried on Manges’ South Texas turf —he filed suit in Laredo in the summer of 1982 —and if the state joined the suit as well, the contest would be between a rich oil company on the one hand and the schoolchildren of Texas on the other, in a city that was statistically the poorest of the 314 metropolitan areas in America. Mobil decided to seek a separate settlement with the state.
Mobil’s first emissary was Midland lawyer Tom Sealy. In his heyday, which was the fifties and sixties, Sealy was one of the most powerful men in Texas. He pulled strings in Austin for the oil industry, and he was not a person to say no to. But the political climate had changed, and Sealy no longer had the power to impose his client’s will. He offered a crumb —Mobil would return to the state a little less than half of the 14,000 acres under lease, not very promising acreage at that. Armstrong asked for an increase in the royalty; Sealy flatly refused.
Exit Sealy. Enter Tom McDade of Houston’s Fulbright and Jaworski law firm. Mobil had finally realized the political nature of the case. McDade, unlike Sealy, was supporting attorney general Mark White in the governor’s race that fall against Bill Clements, and the attorney general would have to approve any settlement. McDade actually came close to getting an agreement. He consented to giving up all of the acreage except for a small area around each producing well. The state stood to get more than 90 per cent of the acreage back. He also agreed to double the state’s royalty, from one eighth to one fourth. At first Armstrong had also wanted money for the state, $100 million, but Mobil was adamant throughout the case about not paying lots of cash. Later Armstrong relented, and a deal seemed certain —a deal that would have excluded Manges entirely. But the offer snagged in Mobil’s corporate bureaucracy in New York. By the time Mobil got moving, it was too late. Clinton Manges had the upper hand.
THE MANGES MEN
In 1982, before the state officially entered the lawsuit, Clinton Manges had been shut out of the settlement negotiations. Mobil wouldn’t deal with him. In 1983, with the state on Manges’ side, Mobil could no longer ignore him. But 1982 was hardly a wasted year for Manges. In retrospect, that was the year he really won the case. And he positioned himself to win it just the way Mobil had feared—in the dark recesses of South Texas, far from the law library.
When the year began, Manges’ political influence in key offices was tenuous. Attorney general White was no admirer of Manges. Land commissioner Armstrong backed Manges’ suit but was hardly a political crony. He had declined Manges’ repeated invitations to hunt at the Duval County Ranch, and when Manges shamelessly asked Armstrong to give him a state oil and gas lease at bargain terms (an unusually low royalty for the state, an unusually high bonus for Manges), Armstrong turned him down. The Laredo judge who had helped Manges in two previous cases, Ruben Garcia, was under four indictments for official misconduct, had been suspended by the Commission on Judicial Conduct, and faced a tough reelection campaign. But when the year ended, Manges’ influence had rebounded to an all-time high.
He did it with money, money for campaign contributions, money that, if it did not come directly from Seafirst, was freed up by other money from Seafirst. In February 1982, the month of the filing deadline for the Democratic primary, the bank authorized another $15 million for Manges. That spring Manges doled out more than $1 million in campaign largesse, most of it through committee that raised only 3 per cent of its money from sources other than Clinton Manges. The committee was managed by Pat Maloney of San Antonio, Manges’ lawyer at the time (he later joined the ranks of former associates who ended up suing Manges).
Manges says that he wanted to elect “good Democrats,” but the pattern of the contributions was much more specific than that. The vast majority of the money went to candidates for offices that were directly involved in making key decisions that concerned hi empire. Here’s where Manges put his money. For governor: $270,000 to Bob Armstrong, the candidate who best understood the Mobil case who was the most likely to push for the stat’s involvement. For attorney general: $50,000 to Mattox, whose anti-establishment record as a legislator and a congressman made him a likely enemy of a big oil company. For land commissioner: $65,000 to Mauro (but since that was the single most important office, Manges also contributed $25,000 to one Mauro opponent and $15,000 to the other.)
Then there were the judges. Ruben Garcia, who could be presiding over the Mobil case if he managed to escape his difficulties, got $3,000. Manges money reached candidates for the appellate court in San Antonio that would hear any appeal of the Mobil case. Three seats on the Texas Supreme Court were up for grabs (two had no incumbent); those races soaked up more than $300,000 in Manges money, even as the court prepared to hear Manges’ appeal of lower court rulings that had sided with the Guerras in their long-running dispute with Manges.
When the returns came in, Manges had done spectacularly well. Armstrong had lost, but given other results, Manges no longer needed influence with the governor. Mattox was in. Mauro was in. on the supreme court, Ted Robertson, who had received more than $100,000, was in. even one of the losers, supreme court candidate Woodrow Bean, provided a consolation prize by provoking his opponent, incumbent justice Charles Barrow, into noting that Manges had contributed more than $200,000 to Bean and “must want to buy a judge.” Manges promptly filed a 10 million slander suit against Barrow, which, though it had no real chance of success, caused the justice to withdraw from the deliberations on the Guerra case.
More good new came from Laredo, where Ruben Garcia was back on the bench. The indictments against him had been dropped when the prosecution’s chief witness decided not to testify. Garcia won reelection by five hundred votes after denying during a televised debate that he had received any campaign funds from Manges. His contribution from the Manges-bankrolled committee did not show up until after the election. Garcia had also received free legal counsel from Pat Maloney, Manges’ attorney in the Mobil case, on the criminal charges.
Manges’ relationship with two of the victors —Mattox and Mauro —had become personal as well as financial. Manges and Mattox were natural allies. Even their careers were somewhat similar. Both had grown up poor. Like Manges in business, Mattox in politics had been on the verge of extinction more than once —he had won three congressional elections as a Democrat in a Republican-leaning Dallas district, one despite the Reagan sweep in 1980. He had been redistricted out of his seat in 1981 and, given up for dead, had run statewide for attorney general and won. He was tough, feisty, tenacious, and, like Manges, utterly obvious to convention and appearances. As a legislator he had alienated even his allies with his personal attacks on the House leadership, but, again like Manges, he seemed to get away with violating codes of conduct that others did not dare to challenge. Manges’ affinity with the new land commissioner dated back to the days when Mauro was a young protégé of Manges’ close personal friend, state comptroller Bob Bullock. Mauro’s heritage was boiler-room politics —he had been the top campaign strategist for Bob Krueger in the seventies and later was executive director of the state Democratic party before getting the bug to run for office. He liked and understood deals; so, of course, did Manges. The Austin law firm in which he was a partner did work for Manges on the Mobil case during the campaign and after Mauro’s election. Both Mattox and Mauro have visited the Duval County Ranch, Mattox more often, though Mauro sports a facial scar inflicted by a recoiling firearm during a hunt on the ranch. In a deposition taken during the Mobil case, the usually reticent Manges volunteered that he and Mattox were “very good friends.”
The results of the primary election changed the entire tenor of the Mobil case. Most damaging of all for Mobil was the unexpected return of Ruben Garcia to the bench. Soon after Garcia’s suspension was lifted in the summer of 1982, Manges officially filed the lawsuit, as Mobil put it in a court document, not “in the country of his residence, the country where the bulk of his land is located and the country where he claims he votes, [but] in Judge Garcia’s court where Manges hopes to receive favored treatment.”
Mobil’s initial strategy was to try to get Garcia removed from the case —if not voluntarily, then by order of another judge. Mobil’s lawyers saw no other choice. In several previous cases Garcia had taken actions favorable to Manges that were, in their view, clearly out of line. Once Garcia had ventured into another judicial district to issue an order prohibiting a Manges creditor from presenting a letter of credit that was about to come due. Garcia also tried to take permanent control of the case. But the creditor outmaneuvered Manges. Another time Garcia had blocked the sale of Manges’ property to pay off a debt. Garcia’s foray into a case that originated in Gonzales, far from his jurisdiction, caused a peeved appellate court in Corpus Christi to threaten him with an order prohibiting him from further interference.
Mobil was attempting to have Garcia disqualified (he had refused to step aside) when another shock hit. Manges revealed in a deposition that Garcia and Mattox had met privately at the Duval County Ranch in late January 1983, after Mattox became attorney general. It is not uncommon, of course, for judges and lawyers involved in a case to visit, but it is unusual for them to get together at the home of a litigant. Later Mobil filed records of telephone calls between the ranch and Garcia’s private line in the courthouse. Garcia insisted that he did not discuss the case with either Mattox or Manges, but Mobil was unimpressed. In its disqualification motion, Mobil characterized the case as “a scheme by Manges to utilize the forum of Judge Garcia,” Garcia himself as “Manges’ friend and protégé,” and Manges as “a prolific litigant who uses, manipulates, and tries to manipulate courts to do his will, [and] has been accused of bribing judges.”
For Clinton Manges, the Mobil case turned around in December 1982 when Mattox, scheduled to take office on January 1, resurrected Armstrong’s old demand for $100 million in cash. Just before Christmas, McDade had a conference call with Armstrong, Mattox, and lawyers from the attorney general’s office. For the last time, two lawyers for Manges were forced to wait outside. Inside, things fell apart quickly. Mattox stuck to his insistence on cash, arguing that Mobil’s potential liability to the state was $300 to $400 million. (Mobil had privately calculated the maximum of $55 million.) Mattox now acknowledges that his numbers were inflated but says he was relying on Armstrong’s figures at the time. Armstrong, however, had long ago abandoned such estimates, and in any case, his numbers had come from Clinton Manges. Hard feelings developed almost at once between Mattox and McDade, and things didn’t improve when Mattox maintained that Mobil should deal with Mages along with the state, saying, according to McDade’s notes, “We’re not going to negotiate with Clinton Manges.” Finally Mattox told McDade, “You have a case you cannot win and I have a case I cannot lose.” That did it. The meeting quickly came to an end, and McDade flew to New York to tell Mobil that it was time to get ready for trial; there would be no settlement. Outgoing attorney general Mark White came to the same conclusion. When a last-minute attempt at mediation by Armstrong failed, the state officially joined the lawsuit before Mattox took office.
THE STREET FIGHT
Mattox was Mobil’s next target. McDade decided that the burgeoning Mattox-Manges friendship was blocking a separate settlement with the state, and he set out to force Mattox into putting some distance between himself and Manges. That decision, coupled with the natural inclinations of the players —McDade and Mattox share a zest for combat —propelled the case onto the front pages. First came the revelation by the Dallas Morning News that just before Mattox had made a $125,000 campaign loan to himself in 1982, his sister had borrowed the same amount from Seafirst, Clinton Manges’ bank. McDade wanted to know whether Manges had been the go-between at Seafirst and whether, contrary to Mattox’s campaign finance report, the Seafirst money had ended up in Mattox’s treasury. He and Mattox had a blowup that ultimately led to Mattox’s current indictment on charges that he threatened McDade’s law firm with the loss of its lucrative public bond business (the attorney general must give his blessing to government bond issues) if McDade didn’t lay off his sister. Mattox struck back by calling for a boycott of Mobil.
The indictment won the battle for Mobil, but it lost the war. The farther the case strayed from the law library, the more Mobil was playing by Clinton Manges’ rules. Mobil might win a legal case against Manges , bit it wouldn’t win a street fight. Whether intentionally or not, Manges was advertising: the mammoth campaign contributions, the well-timed filing of the case in Ruben Garcia’s court, his uncharacteristic candor in depositions professing friendship for Mattox and revealing the visit by Garcia to his ranch, a newspaper interview saying that yes, he did use the courts to buy time so that he could pay off his debts. The message had little effect on Mobil’s Texas team, the local lawyers and management in Houston, but it had a far greater effect on the corporate headquarters in New York. Clinton Manges could win the Mobil case only if the people at the highest levels of the company were convinced that Mobil had better settle with him because the courts and the politicians in Texas were prepared to do his bidding. If they needed any further evidence, two events in the summer of 1983 provided it.
First, a sharply divided Texas Supreme Court backed Manges in his protracted dispute with Guerra family, overturning two lower court decisions. Even the judges who sided with Manges conceded that he had violated his obligations to the Guerra by leasing to himself on bargain terms oil and gas rights that he and the Guerras jointly owned. Nevertheless, a bare majority of the court ruled, Manges could keep the lease he had made to himself simply by paying the Guerras what he should have paid them in the first place. He didn’t even have to pay the punitive damages that had been assessed by the jury. The Guerras’ lawyers were outraged. It was unprecedented, said one, to allow a person in a position of financial trust to wheel and deal with such impunity. By the court’s logic, if you don’t catch a cheater, he wins; if you do catch him, he breaks even. What really angered the Guerras’ lawyers was that the 5-3 Manges majority included Ted Robertson, who had received $100,000 in Manges money, and Bill Kilgarlin, who turned down $25,000 in Manges money but accepted $17,000 from Pat Maloney, Manges’ attorney in the Guerra case. Had either judge voted differently, the 4-4 tie would have won the case for the Guerras.
In New York, Mobil’s top lawyers heard about the Guerra case. Already worried about the trial judge, they now had to add the Texas Supreme Court to their list of concerns. Soon the list got longer. In a dispute with Exxon that was similar to the Mobil case, Jim Mattox and Garry Mauro showed just how far they were willing to go for Clinton Manges.
MONEY FOR MANGES
In February 1983 Garry Mauro informed Exxon that its old Duval County Ranch lease suffered from title defects and had never been valid. Exxon, Mauro said, owed the state a minimum of $18 million plus interest for the value of the oil produced from the five thousand acres since 1933. as in the Mobil case, Manges’ research had provided Mauro with the evidence to buttress the state’s claim. Manges owned the surface, but the sate owned all the minerals —the standard Relinquishment Act situation in which the surface owner is supposed to get half of the state’s royalties and bonuses under the lease. But what if there was no valid lease? Didn’t the state stand to get everything, Manges nothing? “Manges does not get any of this money. This money is for the schoolchildren of Texas,” Mauro told a San Antonio reporter during the early stages of the case. But that’s not the way things turned out.
Exxon, of course, had different ideas about the validity of the lease. Eventually Exxon and Mauro reached an agreement: Exxon would pay the state $4 million, double the royalties on deep production, and surrender all the acreage not occupied by wells (about half the property). Even though, by Mauro’s earlier reasoning, Manges couldn’t share in the $4 million, he would get a cut of the new royalty and any bonuses for a new lease: not a bad finder’s fee for uncovering the defects in the lease.
The proposed settlement ran into a hitch at the attorney general’s office. Mattox insisted that the agreement be structured to allow the surface owner —Clinton Manges —to share in the $4 million, he wanted Exxon to label the money as royalty or bonus. The conversation turned into a shouting match, with Mattox contending that under the Relinquishment Act Manges was entitled to part of the cash. Exxon refused; in its view, it was only paying damages.
All through the summer Mattox, now joined by Mauro, kept pressing Exxon to give in. Exxon wouldn’t budge. Company lawyers had briefed the point and found that it was totally unsettled in Texas law. Logically, since the Relinquishment Act was designed to reward landowners for leasing the state’s minerals, there should be no reward when the lease a landowner makes turns out to be faulty. But it wasn’t logic that dominated Exxon’s position. Exxon wasn’t about to be party to a deal that its lawyers thought didn’t smell right: why, if there is an open question, should it be resolved against the sainted schoolchildren rather than for them? Exxon also had more selfish reasons for holding out. It saw no reason to make life easy for officials bent on attacking ancient leases on technical grounds —especially since one of the leases Mauro was bent on attacking down the line was Exxon’s lucrative lease on the King Ranch.
Mattox and Mauro finally decided to give Manges the money anyway. On settlement day, Exxon arrived at noon with its $4 million check. The documents were presented in court around two o’clock. As soon as the settlement was approved, Mattox had a reply ready to a letter Mauro had written the previous day. The two officials agreed that Exxon’s $4million was for ratifying a lease rather than for damages and this was similar to a bonus. By the end of the day, Bob Bullock had cut the check, and Clinton Mange was $1.38 million richer.
It is impossible to say with certainty that Jim Mattox and Garry Mauro were wrong about the law. Even if they were wrong, there is nothing to suggest that they erred deliberately, which is where bad administration ends and criminality begins. There were no real losers, since the schoolchildren ended up with the largest settlement in the history of the General Land Office. All that can be said is that Clinton Manges got the benefit of the doubt over the $1.38 million. Mattox and Mauro took their actions without going through the formality of an attorney general’s opinion, the usual mechanism for resolving close legal questions. The lesson for Mobil was clear. If it wanted to settle, Clinton Manges was going to have to be part of the deal.
LET”S MAKE A DEAL
Shortly after the Mattox-Mobil feud exploded into the newspapers, Mobil’s legal team in Texas noticed that the New York headquarters was taking an increased interest in the case. Until then the Texas lawyers had called their own shots, and it seemed to them that New York had shared their legal optimistic assessment of Mobil’s legal position. But suddenly they began getting a different message —as one put it, “‘We don’t care if you can win the case or not. We can’t afford not to get along with the State of Texas.’” From that point on, the Texas lawyers were restricted to handling the litigation part of the case; the settlement talks were run by New York.
Instead of a tough trial lawyer like Tom McDade, Mobil’s new go-between was a pure negotiator, a Washington layer named John Camp. Rather than negotiate directly with the state, Camp dealt with Manges and his new lawyer, Morris Atlas of McAllen (who before the Mobil case had represented a former partner of Manges’, Vannie Cook —against Manges), and kept in touch with Mattox by telephone. Camp met with Mattox once, with Mauro not at all. The outlines of the eventual deal were agreed upon between Camp and Atlas. Things had certainly changed since Mattox and Mauro took office; now, instead of Manges being left out of meetings, it was the state that was excluded —by choice.
The only thing that hadn’t changed was Mobil’s implacable resistance to paying any cash whatsoever. The problem for Camp was that Manges wanted cash above all else. Moreover, Manges had by this time been hit with a $100 million suit for fraud and defaulted loans by Seafirst. Through the late summer and early fall Camp and Atlas sparred for position, until finally at a late October meeting in Houston Atlas repeated his bid for money.
“What is money that isn’t money?” Camp wanted to know.
“Production is money,” said Atlas.
“Oil companies don’t give up production,” Camp said. But Mobil, which had plumbed the depths beneath the Duval County Ranch for half a century, believed it had extracted most of the value of the property. A few days later Camp had a new message for Atlas. The company was willing to give up its producing wells along with the rest of the lease, except for a small royalty interest. In mid-December, the outline of the initial settlement was made public: Mobil would transfer its lease to a group of Florida investors, who would then pay Manges and the state nearly half a billion dollars.
Clinton Manges had won. The lessons of a lifetime, the lessons of South Texas, the lessons learned from Lloyd Bentsen, George Parr, and Oscar Wyatt, had enabled him to beat one of the most powerful organizations in the world. All that was left was to decide how to split the pot with his partner, the State of Texas. And if there is anything he has mastered, it is how to divide spoils with his partners.
The first inkling of trouble came while the Mobil case was still going on. The Dallas Morning News reported that Manges, who under the Relinquishment Act was supposed to share with the state any proceeds from a new lease of state mineral lands, had recently made a series of leases in which his share was $2.2 million and the state’s share was $51,000 —not exactly a fifty-fifty split. It was all legal too; Manges had found a loophole. The effect was that he was able to lease the land to a Colorado group for $1000 an acre —far, far above the market, probably the biggest bonus ever paid in South Texas, an unheard-of figure considering that promising land could be had for $150 to $250 an acre —but split only $25 per acre with the state. Though Manges ran the risk of alienating his allies in the Mobil case, he was following the old South Texas rule: do the deal now, worry about the consequences later. After the story broke, an embarrassed Mauro made Manges pay the state $384,000 as its Relinquishment Act share of the big bonuses, and he adopted a new rule to close the loophole. But any chance Mauro had of mitigating his political damage from Manges’ wheeling and dealing was lost when Manges’ first two checks bounced.
If the experience alarmed Mattox and Mauro in the slightest, they didn’t show it. They went ahead with the Exxon settlement that enriched Manges by $1.38 million. They continued to let Manges take the lead in negotiations with Mobil. And to what should be no one’s surprise, the state got the short end of stick.
How exactly did the state come out? The answer is still up in the air, because the initial settlement with the Floridians fell through and Manges has not been able to pull off a deal for the lease. When the settlement was made public last December, it seemed as if he had arranged a gem. The bonus alone was an astonishing $3100 an acre, three times the astonishing $1000 an acre Manges had wangled a year earlier on another portion of the ranch. But Exxon delayed the settlement by intervening in the Mobil case, claiming part of the money for itself. (As the result of transactions that occurred long before Manges bought the Duval County Ranch, he owned only 70 per cent of the state mineral lands; the other 30 per cent belonged to Exxon.) If Manges was entitled to Relinquishment Act money, Exxon argued, it was too. By the time the lawyers had untangled the situation, the Floridians had cooled on the deal. Mobil gave up the leases, all right, but to its opponents rather than to a third party. Currently the state is operating the wells that produce state-owned minerals, a Manges company is operating the wells that produce Manges-owned minerals, and Manges and the state are still looking for a buyer.
When they find one, they will have to decide how to divide up the money. Mattox and Mauro, who were more than happy to play hardball with Mobil—attacking a lease on technical grounds because of something that occurred half a century ago—have been far more lenient with their political benefactor. If they stick to the split tentatively agreed upon before the $462 million deal with the Floridians fell apart, Manges will get just over 85 per cent of the proceeds, the state less than 15 per cent. That’s not so good, considering that the state began with a much stronger case than Manges did; in short, the state provided the essential ingredients and Manges would get most of the pie. But the state has lost its bargaining power. The time for insisting on a bigger share for the schoolchildren of Texas was before the settlement—a settlement that was reached between Manges and Mobil, with the state on the sidelines.
About the only question remaining is whether Manges will get not only the money from selling his minerals but also his part of the money from selling the state’s minerals under the Relinquishment Act. Manges has agreed to forgo his share—but only if Exxon, which, like Manges, owns part of the surface of the state mineral land’s, has to forgo its share. If Exxon collects, so does Manges. That means the state’s share could rise as high 20 per cent or fall as low as 10 per cent. Mattox and Mauro defend the division on the grounds that the Relinquishment Act requires them to divide the state’s share with Manges, and both say Manges earned his cut by researching and filing the case. They also point out that the state will end up with a better settlement than it would have under the Armstrong-White proposal. But that overlooks one thing. Mattox and Mauro could have used their leverage in all sorts of ways that might have increased the benefits to the schoolchildren of Texas; instead they used it to enrich Clinton Manges.
Even though the Florida deal collapsed, it served an important purpose for Mattox and Mauro: it established a value for its lease to representatives of Manges and the state, press reports continued to cite the value of the settlement as $500 million, with the state’s share estimated at $100 million. Concerned about what investors would think about a company that settled a defensible lawsuit for half a billion dollars, Mobil went public with its own estimate of the value of the lease it had surrendered: $12 million.
Who is right? Part of the appeal of the oil game is that despite all the advances of modern geology, no one can be sure what lies underneath the ground. The stronger a buyer’s conviction that there is a big play under the Duval County Ranch, the more he is willing to pay —and the Floridians were willing to pay plenty. (On the other hand, they were novices at the oil game, they never even made a geological survey of the property, and they never put up any cash, so maybe they weren’t so willing after all.) Still, establishing the value of a property like the Duval County Ranch is far from guesswork. Mobil has been operating on the ranch for a long time, and there is a wealth of information on the record about its lease. That information is not the stuff of half-billion-dollar deals.
Start with actual production. In 1983 Mobil pumped 392,000 barrels of oil and 659 million cubic feet of gas from its lease. The market value of that oil and gas is around $12 million. The rule of thumb in the oil patch for selling producing properties is that a buyer will pay three to four times the annual gross. That makes the production from the Mobil lease worth (since it is very old production) in the neighborhood of $40 million. The state’s share is not impressive. There are just twenty oil wells on the state mineral lands. They produced around 60,000 barrels of oil in 1983, worth, at $30 a barrel, $1.8 million. There are just three has wells on the state tracts. The gas might bring another $100,000. In other words, the most the state could reasonably hope to realize from selling the producing wells is around $7 million.
Nevertheless, Mauro clung stubbornly to his original assessment that the Mobil settlement would bring the state $100 million over the next ten years. When railroad commissioner Buddy Temple questioned Mauro’s figures in a newspaper interview, using Railroad Commission production records, Mauro explained that the $100 million figure represents the value of 5.5 million barrels of oil in the ground that the state also required from Mobil. But the number is meaningless. Mauro concedes that only 1.2 million barrels of those reserves are recoverable by ordinary methods. The rest are “inferred reserves” —oil that can be produced only by costly techniques known as secondary and tertiary recovery. So much depends on unknown factors —the future price of oil, the condition of the reservoir, and the type of technology appropriate to the circumstances —that oil companies do not count inferred reserves among their assets.
Of course, production is not the only asset the state won from Mobil. It also received the 14,000 acres Mobil had held since 1925, which now can be leased anew for whatever someone is willing to pay, but again, a lot can be said about the prospects.
The Duval County Ranch is peculiarly situated. There are major oil fields to the east (Government Wells), to the southwest (Lopez), and to the northeast (Seven Sisters). On a geological map the great Wilcox trend that sweeps through South and Southeast Texas appears to miss the ranch. “You can’t tell me,” says one of Manges’ friends, “that God put oil and gas all around the ranch but didn’t put any under the ranch.” But up to now that seems to be the case, at least in so far as a major new find is concerned.
In 1981 Mobil finally started the deep gas well it had promised to drill as part of its 1972 settlement with Manges. It was only ten miles away from ARCO’s great well at Seven Sisters. After a year off drilling and $20 million, some contributed by Exxon, Mobil shut down its well. The dry hole was one of the factors behind Mobil’s decision to give up its lease. The prospects just weren’t that good.
But Manges believes otherwise, and so do Mattox and Mauro, who have publicly touted the value of the property. There is oil patch talk that maybe Mobil’s rig wasn’t big enough and didn’t go deep enough. ARCO’s well at Seven Sisters came in at 22,000 feet; Mobil gave up at 20,000. Manges told Bob Armstrong that Mobil had lied about the dry hole (presumably to persuade him that his lawsuit was not worth pursuing). During the course of the drilling Mobil did hit gas somewhere below 10,000 feet —“tight gas,” says a retired Mobil landman, referring to a small volume trapped at high pressure that dissipated as soon as the bubble was pierced. Manges showed the well log to potential buyers and obviously caught the interest of the $1000-an-acre Coloradans. So far they have drilled one deep well on the ranch. It was a dry hole.
The proximity of the ranch to the lucrative fields is probably enough to assure a bonus in the $150-per-acre range, which is the going rate for promising property. The unfortunate history of the drilling is probably enough to keep the bonus from going much higher. For the 64,000 acres, then, Manges ought to be able to get a bonus of around $10 million, of which about $2 million will belong to the state. That brings the total value of the lease, counting production and acreage, to around $50 million, and the state’s share comes to $10 million at best. That’s exactly one decimal place removed from the putative $500 million-$100 million deal with Floridians.
BACK TO THE COURTHOUSE
On the fifth day of 1984 the Mobil case came to an end. The lawyers files into the aging Webb County courthouse, went through a few formalities, and then signed the papers and began to think about the bouncy flight north over the brush. As the courtroom emptied, one of Mobil’s lawyers found himself next to an ebullient Clinton Manges.
“Well,” said Manges, “I guess I’m going to have to have peace.”
“Now, Clinton,” the Mobil lawyer said. “You know you don’t like peace. Besides, what would all the lawyers in South Texas do if you stopped filing lawsuits?”
“Oh,” said Manges, “I’m not going to do that.”
And indeed he has not. Manges has been involved in more than 270 lawsuits in his career, and the number is climbing all the time. Buttressed by his victory over Mobil, he is trying to break many of the remaining old leases on the Duval County Ranch. Both suits are based upon what Manges contends is the companies’ failure to explore and produce his land to its fullest potential. Historically that has been a difficult kind of case to win, but Manges has won uphill battles before. Just ask Mobil.
Even if he were inclined to change, it is hard to see how Clinton Manges could do it. He is too ensnared in his past; there are too many old battles in which a winner has yet to be decided. Even a portion of the Mobil case remains unsettled: Exxon is suing Manges to remove its 30 per cent of the minerals from the Mobil lease. The Guerras have asked the Texas Supreme Court to reconsider its ruling in Manges’ favor, but the court has let almost a year lapse without dealing with the request —an extraordinary delay. Regardless of whether Manges holds on to his victory, a new dispute between him and the Guerras is already brewing over another oil and gas lease on the old Guerra lands.
Another unsettled score is Manges’ stormy relationship with his onetime mentor Oscar Wyatt. Over the years they have been good friends and bad enemies, a matter that is complicated by the peculiar codes of South Texas, according to which it is possible to be both at once. There was a time back in the seventies when Manges made a quiet move on Coastal’s stock in an abortive takeover attempt. Subsequently the two men have had spats over just about every deal Manges has had with Wyatt or Coastal, and there have been many. “Manges and Wyatt try to get at each other any way they can,” says a Coastal lawyer. Soon Wyatt will have a new way. He is moving from Houston to Duval County, far to the south of the Duval County Ranch, where he is building a one-acre estate (that’s the house, not the grounds) with a five-story office tower next door. He could, if he so wished, challenge Manges’ influence on Manges’ home territory —and in politically astute Duval County, the word is that Wyatt does so wish.
Manges’ old habits continue to haunt him: failing to pay his lawyers (three former Manges lawyers, including Pat Maloney, are suing him), feuding with former associates (Perry Horine, an old friend, and Joe Schero, an ex-partner, are suing him over deals that went awry), and failing to pay his taxes (he and his companies are delinquent in five counties). Manges’ attacks on taxes are not the humdrum you-charge-me-too-much variety. He is suing Duval County officials for $1 million for failing to forgive penalties and interest on his taxes, and on three occasions he has challenged the entire tax roll, not just his own taxes. Once, against the Freer school district, he was successful. Unless the Texas Supreme Court overturns a lower court decision, Freer not only will have to forgo more than $500,000 in taxes from Manges but also could have to refund the entire $10 million it has collected throughout its eight-year existence. That case could take more money from one school district than the Mobil case will net for all the schoolchildren of Texas.
None of those lawsuits, however, represents the biggest problems facing Clinton Manges. The only thing certain about Manges’ immediate future is that his optimistic assessment on the last day of the Mobil case —that he would have peace —was wrong, 180 degrees wrong. He is locked in a struggle with Seafirst that represents the last major threat to his empire. The bank is suing Manges in federal court in San Antonio, seeking repayment of $35 million in loans plus interest that amounts to approximately $8 million more. (The lawsuit also asks damages for fraud and other claims, bringing the total to $100 million.) Manges rested his case on an oral agreement —that his loan officer, John Boyd, promised not to collect on the loans until after the Mobil case was resolved. Unmoved, a federal judge ruled last December, before the Mobil case was settled, that the loans were in default. Now that the Mobil case is over, Manges still isn’t paying. Indeed, he has sued Seafirst right back, claiming usury and other wrongs. As so many Manges creditors have learned over the years, it is one thing to be owed money by Manges and it is another thing altogether to collect it. Nothing Clinton Manges has ever done says as much about the kind of person he is —a man gifted with a rogue genius, a man who lives by his own rules, a man who will take almost any risk to hold on to his assets—as the tactics he used to thwart Seafirst.
The ploy began after Manges paid off a $5 million debt to a Coastal subsidiary in 1980 by delivering 115,000 barrels of oil. That entitled him to wipe out the mortgage Wyatt’s company held on the Duval County Ranch. And it was convenient for Seafirst, which was then negotiating Manges’ first big loan, for $18.2 million, and wanted a mortgage of its own on the Duval County Ranch. But Manges had other ideas.
He sent an emissary to Coastal with a strange request. He did not want the Coastal lien wiped out. Instead, he wanted the notes and the mortgage transferred to one of his employees as trustee for his four children. Coastal did as Manges asked, although its lawyer did not insist on marking “paid” on the notes that were the basis for the mortgage. Technically the lien was still alive, bit it was now in the hands on Manges’ children.
Then Seafirst, which knew none of this, contributed to its own grief. It drew up the documents for the loan to Manges, including the mortgage. The mortgage cited just two other creditors whose rights to the Duval County Ranch were superior to Seafirst’s —a Connecticut insurance company and a Houston bank, both of which had advanced money to Manges when he originally purchased the ranch. So far, so good. But Seafirst made a fatal error. Rather than sending someone to Texas to file the documents, Seafirst sent the papers to Manges for filing. Oops. Before Manges took them to the courthouse, the documents suffered mutation. To the list of two liens that were ahead of Seafirst’s, a third was added —the Coastal company’s old mortgage. Acting on instructions from Manges, one of his employees had changed the document. The change, Manges says, was made to reflect his oral agreement with Boyd.
Manges filed the mutant documents early in 1981 and bided his time. Boyd resigned in July 1982, and another Manges ally, his last at the bank, left in September. That same month Manges told his employee who was serving as trustee for the children to declare his notes to Coastal in default, even though the notes had been paid. The foreclosure was carried out, the children became the owners of the ranch, and Seafirst’s mortgage was suddenly extinct. The bank didn’t find out about the foreclosure until the following spring (Manges didn’t record the documents) when, during negotiations over restructuring his loans, he revealed what he had done. Seafirst could no longer recover its money simply by foreclosing the ranch. With more than $40 million at stake, it was an unsecured creditor of a man who had transferred his major asset.
But in frustrating Seafirst (for the moment, at least; the bank is trying to have the foreclosure set aside as a “scheme to defraud”), Manges has exposed himself to other dangers. A Seattle grand jury is inquiring into Seafirst’s disastrous energy loan portfolio (in addition to the Manges loans, it included hundreds of millions in participations with the since-failed Penn Square Bank in Oklahoma City). The grand jury recently asked Seafirst lawyers for a copy of their court complaint about the foreclosure. The bank’s lawyers also say that the Manges employee who declared the paid-up note in default has appeared before the grand jury. Federal investigators have been in Texas trying to discover if there was some extra inducement that might explain such unusual bank actions as turning over the security documents to Manges before they were recorded. Manges is contending that he was perfectly willing to let Seafirst have the superior lien to his ranch, if the bank would honor its oral agreement to forebear. When it became clear that Seafirst would not honor it (mainly because the bank denies that it ever existed), Manges cut the bank out altogether. For the first time since he was indicted in 1963 and subsequently fined for making a sales statement to the Small Business Administration, the stakes for Manges are not just his empire but his freedom.
THE LESSONS OF SOUTH TEXAS
Early this spring Manges found a new buyer for the Mobil lease. The terms were much more realistic than the half-billion-dollar deal that never came to pass. The acreage and wells would be sold for $50 million. The buyers, a firm out of Dallas called American Resources, would arrange for Manges to borrow another $50 million. They would also commit to spending $63 million on drilling in the nest three years —enough for three deep wells. If the deep gas comes in, the deal could be worth as much as $200 million to Manges and the state over ten years; without a deep gas find, the $50 million could be the entire payment. The deal was contingent upon the Dallas firm’s finding investors, but the company was confident enough to put up $1 million in earnest money. It appeared that Manges was going to cash in on his Mobil victory after all.
But the deal was just what Seafirst was looking for. Manges’ foreclosure had put the bank in the uncomfortable position of having to deal with Manges in order to get its money. Now Seafirst had the chance to turn the tables. It notified American Resources that the bank claimed a lien on the Mobil lease. Maybe Seafirst is right; maybe not. It doesn’t really matter, because Seafirst has gained the tempo. Now Manges is going to have to deal with Seafirst before he can sell the lease. After all, no one is likely to buy a lease with a $40 million cloud on the title. Most likely, he will have to agree to pay Seafirst out of the proceeds of the sale, or otherwise settle with the bank, before the bank lets any deal go through. That would solve his Seafirst problem, but it would only complete a circle: he borrows from Seafirst to beat Mobil, and he uses Mobil money to pay Seafirst. That will not do; Manges needs the money. His net income from oil and gas operations last year was less than $1 million (although operating the Mobil lease until it is sold will increase that total sixfold.) he realizes little income from the Duval County Ranch royalties, and most of the Guerra lands are, of course, tied up in litigation. Without big money from the Mobil suit, Manges is right back where he was before Seafirst came along.
And so Frank Nigrelle of American Resources has become the latest addition to the list of former Manges friends and business associates who have ended up disillusioned and damaged. As always seems to be the case when Clinton Manges is involved, the disagreement already appears to be hopelessly snarled. Only two months ago Nigrelle told the Wall Street Journal, “Most people are a little afraid of Clinton, but we understood and studied the man. We found out we’re both good old South Texas boys.” Now Nigrelle has taken Manges to court. He want his $1 million in earnest money back. Manges and the state won’t give it to him, contending that he wasn’t ready to go through with the deal anyway. Nigrelle says he was, and he has sued in Duval County for damages.
This time, though, the State of Texas is caught in the web. It too is being sued by American Resources. The property it won from Mobil is tied up with Manges and is supposed to be sold as a package, except that Manges apparently can’t sell it without paying Seafirst. The state is also being sued by Exxon, which insists that if Manges is entitled to money under the Relinquishment Act, Exxon is too. After all the trouble the state went through to help Clinton Manges, the result is that its attorney general is under indictment, its land commissioner is under political attack for getting the state in the oil-producing business, and its property is entangled in Clinton Manges’ affairs. Vannie Cook…Joe Guerra…George Parr…Oscar Wyatt…Joe Schero…Perry Horine…Pat Maloney…Frank Nigrelle…and now, it seems, Jim Mattox and Garry Mauro and the State of Texas. All of them have done business with Clinton Manges, and all have learned the newest lesson of South Texas: he who does business with Clinton Manges does so at his peril.