Head of Hilton Trust Refuses to Step Aside : Conflict Alleged in Dispute Over Will

The president of the Conrad N. Hilton Foundation, the charitable organization established by the late hotelier, has refused a request by the California attorney general to disqualify himself from dealing with claims by Hilton’s son to a controlling interest in Hilton Hotels, according to recent court filings.

Barron Hilton’s father, who founded the big hotel chain, left his estate to the charitable foundation when he died in 1979.

The son has asserted a right to buy the foundation’s 27% stock holding at a price estimated by the executor of the hotel founder’s estate to be $500 million below its recent asset value. Barron Hilton claims the rights under an option in his father’s will.

James E. Bates, executor of the hotel founder’s estate, contended to the court that foundation President Donald Hubbs has a conflict of interest in representing the charitable organization. Bates disclosed that the attorney general’s office made its demand on Hubbs last Oct. 21 on the same grounds. Deputy Atty. Gen. James Cordi said Thursday that the request was turned down by Hubbs.

Hilton’s Longtime Attorney

The contention of conflict of interest is based on the fact that Hubbs assisted Barron Hilton, now chairman of Beverly Hills-based Hilton Hotels, as his longtime attorney. It was Barron Hilton who installed Hubbs as the foundation’s president, Bates told the court.

According to a Bates filing last Friday, Hubbs acknowledged that he had successfully placed in Conrad Hilton’s will 15 years ago an option for Barron Hilton to buy any of the hotel stock deemed to be “excess� business holdings by the foundation under federal income tax law. The filing appended Hubbs’ deposition testimony of Oct. 9, 1984, as the basis of the statement.

The “excess� holdings provision and option are at the heart of the probate court fight here.

The filing also said Hubbs told Bates in October, 1983, that an attorney whom Hubbs hired for the foundation had asked the Internal Revenue Service for an expedited ruling that all of the hotel stock in the Conrad Hilton estate should be considered “excess� and that Barron Hilton’s purchase of it would not be “self-dealing.�

Since early last year, the foundation has been negotiating with Barron Hilton on a settlement of the complex dispute. A trial of the major issues was postponed several times and now is set to begin Feb. 24.

Bates has sought to keep the controlling block of Hilton Hotels with the foundation, which he has said was Conrad Hilton’s firm intention. His filing said the foundation’s counsel gave up its effort to obtain the “expedited� IRS ruling after he voiced strenuous objections.

Hubbs told The Times on Thursday that he will not comment on the conflict-of-interest allegation. Furthermore, he said the foundation’s attorneys will not respond to that aspect when they file further papers with the court.

Hired Own Counsels

The attorney general also requested last October that Barron Hilton’s brother, Eric, another director of the foundation, disqualify himself on the same matters because of his relationship to Barron Hilton and as a Hilton Hotels vice president reporting to his brother. That request also was rejected.

Bates’ filing also stated that three board members of the foundation have hired their own counsel, posing to outsiders the possibility of an internal legal dispute over the hotel stock. The board is expected to consider the latest settlement offer of Barron Hilton at a meeting next Thursday, sources said.

Disclosure of the conflict-of-interest issue came in papers filed with a motion by Bates that he be admitted as a party to proceedings over Barron Hilton’s claims. A hearing on the motion is set for Feb. 10.

Bates’ filing told the court that the proposed sale terms would amount to “a diversion of over $500 million of the estate’s present values, tax-free, to Barron Hilton from the testamentary charitable purposes of Conrad Hilton.�

The figures were based on net asset values given in the hotel firm’s 1984 annual report, Bates’ filing said.

Bates’ attorney, Myron Harpole, said in a declaration filed with the court that, last November and December, lawyers for Barron Hilton and the foundation separately told him that they consider Bates “only a stakeholder� and not a party to the proceedings over the option. The attorneys further told him separately that they contemplated possible action to deny Bates as executor from further active participation.

Subject to ‘Surcharge’

Also, Bates told the court in the filing that a foundation attorney had told him in 1983 that, if he took actions that might impede or delay an expedited IRS ruling and court approval of Barron Hilton’s option claims, Bates might be subject to a “surcharge� of about $214,000 a month.

The figure was based on the difference between what were then the dividends on the stock and the $24.1875-per-share price that Barron Hilton proposed, the filing said. It said the difference between the value of the stock at the $24.1875 figure and the asset value was about $400 million at that time but has since grown by 25%.

Bates said in his filing that the foundation’s counsel has told him that Hubbs and Eric Hilton have not complied “and do not intend to comply� with the attorney general’s request.

Each has remained active in foundation decisions related to Barron Hilton’s option claim, Bates’ papers added.