Here is the story
forbes.com
How a couple of U.S. senators ripped off an innocent landowner, enriching a big insurance company.
Senators for sale
By Brigid McMenamin
COLORADO SPRINGS HEIRESS Anne Trostel Galbraith owns a 14-story art deco office building on a prime corner in downtown Des Moines, Iowa. She inherited the lot on which it was built from her German immigrant grandfather, John Trostel. Grandpa Trostel leased out the lot in 1917 for 99 years at $12,000 a year. That was real money, close to $200,000 in today's buying power.
As was customary, Grandpa Trostel protected himself against inflation with built-in rent increases. More important, the lease contained a gold clause. The rent was set in gold/dollar equivalents.
When the tenant replaced the existing four-story building with the current structure, the rent jumped to $20,000 in gold. Gold was then $21 an ounce, which would have made the rent worth roughly 950 ounces of gold.
Then, in 1933, Congress outlawed gold clauses, and the rent was effectively frozen, except for a $3,000 bump in 1971 that brought the rent to $23,000. Had the gold clause remained in effect, by 1996 that $23,000 would have become about $460,000; roughly 1,200 ounces of gold at $377.
American Life &Casualty Insurance assumed the lease in 1990. It got 143,812 square feet of well-located space for a mere 16 cents a square foot per year. Anne Galbraith was getting a pittance.
Then she discovered that in 1977 Congress had changed the law, permitting enforcement of gold clauses in new leases. Pay up, she told the insurance company. No way, said American Life to her demand of $460,000 annually. Invoking the 1977 law, Galbraith sued. She won in the 8th Circuit Court of Appeals last summer.
American Life faced a huge increase in rent. This would make the company less attractive to Conseco, Inc., the $27.4 billion (assets) Carmel, Ind.-based insurance giant that had acquired 38% of American Life in 1994 and was looking to buy the rest.
Guess what? North Carolina senators Jesse Helms and Lauch Faircloth, in a remarkable burst of interest in gold clauses, sponsored a two-sentence amendment to the Housing Act of 1996. Buried in a mass of unrelated corrections, it provided that gold clauses in pre-1977 leases can't be enforced unless both parties agree. The provision became part of a voluminous "Economic Growth" bill signed into law last September.
What folks like about Galbraith, who don't have high paid lobbyists looking out for them? "Frankly, I don't feel to sorry for her," says Fairchild aid James Hyland.
Galbraith was an innocent victim of a classic Washington lobby ploy. What was Helms' interest in gold clauses? He refused to answer any questions from Forbes. James Hyland, an aide to Senator Faircloth, says the senators amended the law at the behest of Smith Davis, a lawyer at the Washington, D.C. firm of Akin, Gump, Strauss, Hauer & Feld, a lobbying powerhouse and big contributor to Helms and Faircloth.
Questioned by Forbes, Davis refused to confirm any role in getting the amendment passed. But lobbying records show Davis was acting on behalf of a Dallas-based investment firm named Hampstead Group. Hampstead has an interest in a Los Angeles hotel that escaped a nearly $480,000 annual rent jump because of the amendment.
American Life was quick to profit from the new law. Galbraith had no idea this was going on until the company appealed the 8th Circuit decision through Charles Cooper, 45, then a partner with Shaw, Pittman, Potts &Trowbridge, a 250-lawyer Washington firm. Shaw, Pittman specializes in "legislative counseling." It, too, has contributed to the campaign chests of Helms and Faircloth.
Within days after the law passed, greatly strengthening American Life's appeal, Conseco Chairman Stephen C. Hilbert announced his company was acquiring the remaining 62% of American Life. Days later Hilbert blessed the Republican National State Elections Committee with $100,000. Conseco's law firm made two $1,000 contributions to Senator Helms.
Lawyer Cooper claims that he knows nothing about the remarkable coincidences between passage of the law and the completion of the merger.
But now things were going American Life's way. In February the U.S. Supreme Court ruled in American Life's favor, citing the new law. The Court remanded the case to the 8th Circuit, which will have no choice but to reverse its earlier decision.
Conseco, successor to American Life, will go on paying property owner Galbraith just $23,000 a year. No longer needing the building, Conseco will sublease it. It could reap as much as $1.6 million a year
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