On August 24, 1996, in a rural subdivision fifty miles southeast of Dallas, an acrid smell wafted into the small trailer home Danny Smalley shared with his two daughters. The odor was mild at first, as if the pilot light of a stove had blown out. After Smalley’s seventeen-year-old daughter, Danielle, complained, the forty-year-old mechanic went outside to investigate and checked the propane tank behind their trailer. It wasn’t leaking, so he went back to watching the Little League World Series in his bedroom.
Danielle, meanwhile, buzzed around the house, packing and tidying up. Her friend Jason Stone had come by, and the teenagers were discussing plans for her farewell party that night. Danielle was the president of her high school theater club, and had won a drama scholarship to a nearby community college. The following day she planned to move into the dorms. A pretty girl with a bright smile, bangs, and long dark hair that fell past her shoulders, she had dreams of pop stardom. Once she was rich and famous, Danielle had told her father, she planned to buy him a new Harley.
The smell had gotten worse. Danielle felt queasy.
The Smalleys didn’t own a telephone, but she and Jason volunteered to drive over to a neighbor’s home to call in a report of a possible gas leak. A little after 3:30 p.m., Danny walked the teenagers outside and watched for a moment as Danielle backed his 1964 Chevy pickup truck out of the driveway, looped around a telephone pole, and drove for the main road. A couple hundred yards from the house, the pickup stalled as it crossed a dry creek bed. Danielle turned the ignition. Nothing. She turned the key again.
The thunderous explosion spewed a geyser of flame hundreds of feet in the air. George York, the local constable, felt the concussion a couple miles away. He’d heard chatter about a gas leak over the radio. He raced toward the scene.
As York entered the Oak Trail Estates subdivision where the Smalleys lived, he saw terrified families fleeing into the road toward him. The tops of trees were charred and smoking. A picnic table was in flames. The area looked “like it was strafed by Napalm,” York recalled.
York spotted a man running toward him wearing nothing but athletic shorts and a demented expression. Tears streamed down Danny Smalley’s face; his trembling hands were raised to the sky. “You’re no God!” he bellowed. “You’re the devil!” Everything was on fire; it appeared to Smalley as if hell itself had opened up to claim his daughter and Jason Stone.
Their bodies lay about 50 feet apart. The teenagers had been on fire as they tried to run from the truck. Both were on their backs, in the fetal position. “They were still bubbling from the ears and the nose and the eyes,” York recalled. They were unrecognizable, their hair and clothes incinerated. The only way to tell them apart was by examining their genitals. York helped Smalley—still cursing God for stealing his daughter—cover their smoldering bodies.
At 3:09 p.m., in the dimly lit pipeline control center at Koch Industries’ Wichita headquarters, an alert flashed red on one of the six screens Danny Mills was monitoring. This was the nerve center of the company’s pipeline system, where a bank of computer consoles, arrayed in a semicircle, displayed the constantly updating vital signs of Koch’s 40,000-mile network, which Charles and David had built over the last few decades into one of the largest in the nation.
The pressure in the Sterling I pipeline had dropped to zero. It stretched 570 miles, from Medford, Oklahoma, to Mount Belvieu, Texas. Unknown to Danny Smalley and most of his neighbors, it ran within several hundred feet of their homes, coursing with a thousand barrels an hour of highly volatile liquid butane. (The clear gas is used to fuel cigarette lighters, as an aerosol propellant, and is also blended into gasoline and propane.)
The pressure reading couldn’t be right. A malfunction, Mills assumed. Perhaps one of the transmitters that relayed data back to the control center was on the fritz.
Twenty minutes later another alert blinked on his screen, this one showing abnormally low suction at a pumping station. Mills beckoned a coworker over, who peered at the monitor. “It looks like you have a problem,” he said.
A ringing telephone interrupted Mills as he tried to diagnose what had gone wrong with Sterling I. On the line was Rick Burgett, a former Koch contractor who happened to live in the same subdivision as the Smalleys. “You have a major leak in this area,” Burgett told Mills.
A few minutes later, Mills was on the phone with the Kaufman County Sheriff’s Office. He needed to get a technician out to the site immediately. “This is Danny with Koch Industries. The pipeline that ruptured, I need to know where this place is.”
After being transferred a few times, a dispatcher finally gave Mills directions to Oak Trail. “You’ll see it when you get there. They said that the flames are about 200 feet.”
“Flames?” Mills started to panic; he thought there was just a leak.
“Yeah.”
“It’s a gas main broke, blew up,” the dispatcher said.
“Good God.”
The clear liquid gushing from the ground looked at first like water. But it quickly vaporized after hitting the air. Danielle and Jason had unwittingly driven directly into a cloud of butane that had drifted down the creek bed. All it had taken was a single ignition spark to set off a massive explosion that scorched more than a dozen acres of land.
Following the tragedy, Danny Smalley descended into a vortex of despair. Diagnosed with post-traumatic stress disorder, he needed pills to sleep; even when he drifted off, he often woke up mid-scream, as he dreamt night after night about the explosion. While out driving, sometimes a song came on the radio that reminded him of Danielle. But he couldn’t picture her anymore. All he saw was her burnt corpse.
Smalley blamed himself for his daughter’s death—he should have been the one in that truck—and became suicidal. A year after the explosion, friends discovered Smalley in the cemetery where he buried his daughter. He had doused himself in gasoline and was preparing to take his life, as Danielle’s had been taken.
By 1998, the Stone family had settled with Koch, as had Danielle’s mother, Judy, who split with Danny in 1990. Danny pressed forward with a lawsuit, holding out even as Koch’s lawyers threw out higher and higher figures, eventually offering $10 million on the day the case went to trial. Smalley sought something more valuable. He wanted the opportunity to sit on the witness stand and stare down the company that had robbed him of his daughter. He wanted Charles and David Koch to understand just what they had taken from him. He wanted his day in court.
Smalley had hired Ted Lyon, a well-known Texas trial lawyer. A veteran of state politics, Lyon had served for fourteen years as a Democratic legislator in the Texas House and Senate. With a surplus of folksy charm, he was a master at courting juries, as his history of winning record-setting verdicts could attest.
Whenever Lyon took on a personal injury case, he insisted on pacing the accident scene. When he represented parents who had lost a son or a daughter, he made a point of calling on them at home, where he would inevitably find a shrine to the child. In court, he was a storyteller. The details brought the narrative to life; the narrative swayed the jury.
Koch Industries retained its own retinue of legal heavy-hitters to represent the company, including attorneys from the high-powered Houston-based law firm of Fulbright & Jaworski. During one early deposition in the case, Koch’s representatives numbered at least a dozen. On the other side of the conference table sat Lyon and Marquette Wolf, a fresh-faced associate who had recently graduated from Southern Methodist University’s law school. The intimidating display of legal firepower spooked the young lawyer. But it wasn’t Lyon’s first showdown with a powerful corporation trying to flex its muscles. Turning to Wolf, Lyon invoked the catchphrase of the Texas Rangers, the legendary frontier lawmen. “One riot,” he drawled, “one Ranger.”
Meanwhile, in Washington, a dogged, platinum-haired prosecutor named Angela O’Connell was also taking on Koch Industries. She had grown up in the DC area and joined the Justice Department in 1982, after graduating from Georgetown Law School. She was now the lead attorney on one of the largest environmental cases in the agency’s history. In 1995, the federal government had filed suit against Koch under the Clean Water Act, alleging that the company’s pipelines and storage facilities had leaked millions of gallons of oil into the waters of six states across the South and the Midwest. One of the reasons for these spills, the agency believed, was the decrepit state of the company’s pipeline system. Koch had grown into a business behemoth by shrewdly buying up undervalued oil assets that Sterling Varner called “junk”—and in some cases it was now starting to show.
The Justice Department had documented over 300 spills since 1990. The worst of them had occurred in October 1994, when a pipeline in southern Texas disgorged nearly 100,000 gallons of crude and painted a 12-mile oil slick on Nueces and Corpus Christi Bays.
Spills happen in the oil business, but the scope of Koch’s violations and the company’s disregard for the environmental consequences had attracted federal scrutiny. In the event of a spill in U.S. waters, oil companies are required by law to report the estimated amount to the Coast Guard, which marshals resources accordingly and responds to the scene. But Koch “repeatedly lied about the amount to avoid penalties,” O’Connell said. “These guys would call in two barrels when they had something that was a shocking amount of oil.” (In the case of the Corpus Christi spill, the company had originally reported that just 420 gallons of oil had spilled.) Asked by government lawyers whether they had ever knowingly downplayed the size of spills, several Koch officials pleaded the Fifth Amendment.
“Many of Koch’s spills… occurred in remote areas and were never reported to any authorities. Many of these were in the amount of 5 to 6 barrels, although I estimate that there were dozens of spills of over 50 barrels which entered the water,” noted Phil Dubose, who worked for Koch Industries for twenty-six years, rising to become a division manager of its marine subsidiary.
When the authorities did respond, Dubose said, Koch employees were instructed to cover up the extent of the accident by using techniques like “wheel washing,” in which a boat’s engine blade churns up the oil slick to mask it. “It was understood that we should either ‘wheel wash’ the spill, or to cover it up with soil if it was on land,” he noted. “ ‘Wheel washing’ was a standard practice for Koch in my division. Crews often did so on their own initiative, since they wanted to protect their jobs.”
Bill Koch had warned years earlier about the company’s knack for getting into trouble with regulators. Now the government was scrutinizing Koch Industries as never before—and behind the scenes, Bill and his lawyers were providing information to the Justice Department to assist the agency in its investigation.
During O’Connell’s twenty-five-year career at Justice, she had prosecuted nearly every oil company out there—but none, she said, like Koch. “They’re always operating outside of the system. It’s kind of like what they used to call Texas Justice, only it’s happening in Wichita.”
O’Connell began to suspect that Koch had placed her under surveillance. “I thought that my trash can was taken outside my house several days,” she recalled. “I was upset enough about it at the time to report what I thought was a bugging and what I thought was the trash being taken—a number of incidents.” The Justice Department was never able to prove that Koch had targeted one of its prosecutors, but for the first time in her career, O’Connell operated as if everything she said and did was being monitored.
She was especially careful during visits to Koch’s Wichita headquarters, an edifice of sleek brown granite rising incongruously from the Kansas prairie. “When I was in their headquarters and they’d say, ‘Oh, feel free to use the phone, feel free to talk in this office’—we never said anything inside those offices,” O’Connell said. “I never made a phone call inside that place.”
In 1999, as Ted Lyon worked on the Smalley case, he hired a security firm to sweep for listening devices in his offices, located on the fifth floor of an office tower in the Dallas exurb of Mesquite. He suspected that he and other lawyers at his firm were being spied on, perhaps by investigators working for Koch Industries. “There were things during the case that no else would have known about, but somehow they knew about it,” he said.
“We had a lot of different witnesses we had to run down,” Lyon added, “people who had formerly worked for them and things of that nature. We would be talking about them on the phone with an investigator or we’d be talking about them between Marquette and I, and they would suddenly be visited by Koch representatives.”
The security consultants discovered that transmitters had been planted in the firm’s offices and set to broadcast to an FM frequency. “I’m not saying that the Kochs did it,” Lyon said carefully. “I just thought it was very interesting that it happened during the time we were litigating that case.”
Lyon also discovered that the company was having Danny Smalley tailed. He said he turned the tables by hiring a private detective of his own to follow Koch’s investigator, then subpoenaing the PI once he discovered his identity. Koch also attempted to track down witnesses who would chisel away at Smalley’s credibility at trial. According to Lyon, they dug up one woman who was prepared to testify that the grieving father was an alcoholic who beat his daughters; it turned out, though, that she wasn’t much of a character witness. She was a paranoid schizophrenic who had been in and out of a mental institution, where she underwent repeated shock therapy treatments.
“They did everything they could to intimidate us,” Lyon said. “It was battle after battle after battle.” The only option was to match the company’s aggressive legal strategy with their own.
“Unrelenting,” Wolf noted, “was the only way with them.”
Document by document, deposition by deposition, a picture began to emerge of an unusually profit-obsessed corporate culture in which almost everything came second to the bottom line.
“They weren’t just corporate guys trying to hide corporate wrongdoing,” Lyon said. “They did not give a darn about hurting people.… They didn’t care about anything but money.”
Kenoth Whitstine, who had resigned in 1994 as a Koch pipeline manager in southern Texas, testified in a deposition that the company had taken a shockingly cavalier approach to pipeline safety. He recalled taking his supervisor out to inspect one stretch of pipeline that he believed posed a hazard. Portions of the once-buried pipeline were now fully exposed, and Whitstine worried that it could be punctured. “You know,” Whitstine said, “one of them logging trucks could drive over this line here and it could very possibly drag the Dresser off or something and cause a blow-out and possibly burn, catch on fire, and kill… whoever might be in the logging truck.”
The supervisor’s callous response chilled him. He said “that I needed to understand that money spent on certain projects could make a lot more money than on other projects and that they could come back and pay off a lawsuit from an incident and still be money ahead.” The message was that it was more profitable “to take a gamble of something happening later and handle that situation when it arose,” even when human lives might be at stake.
“Given the time-value of money and the rate of return on money invested, Koch made a profit from its repeated decisions to delay implementing standard maintenance procedures and necessary repairs,” said Texas’s onetime deputy attorney general Linda Eads, who joined forces with the Justice Department in prosecuting the Clean Water Act case.
Lyon and Wolf discovered that the section of pipeline that had ruptured near the Smalleys’ home was part of a 70-mile stretch of Sterling I that Koch Industries had taken offline in early 1993, after a newer pipeline, known as Sterling II, had gone into operation. But as demand grew, the company realized it could reap an additional $8 million annually by placing this section back into service.
Constructed in the early 1980s, Sterling I had a history of corrosion problems almost from the outset. It had been constructed in wet conditions, and its anticorrosion coating had started to erode in some sections not long after the pipeline was installed. Before the company brought the decommissioned section back online, it threaded a cylindrical device through it called a “smart pig,” whose magnetic sensors recorded detailed data about the pipeline’s structural integrity. It discovered evidence of corrosion in 583 locations—just within the 46-mile length of line spanning Kaufman County. When the company had previously tested the pipeline, flooding it with water, it ruptured a mile and a half from Danny Smalley’s trailer.
Koch maintenance workers repaired the pipeline and patched up the spots displaying the most damage, but left other corroded areas untended to. In January 1996, after the line passed a second hydrostatic test, liquid butane once again began flowing through it.
Less than eight months later, Danielle Smalley and Jason Stone were burned alive.
“I will tell you Koch Industries is definitely responsible for the death of Danielle Smalley,” Bill Caffey, an executive vice president and board member of Koch Industries, acknowledged during one combative deposition. “We made mistakes.”
On October 6, 1999, when the case went to trial, Lyon displayed a large aerial map of Kaufman County marked with the route of the pipeline, which bisected the county from north to south; it was hard to go anywhere without crossing it. He wanted the jurors to think about the pipeline each morning as they drove to the courthouse, how perhaps it could have been them or their children who had been killed in a butane inferno.
Lyon saved Smalley as his final witness. During the trial, some of the testimony had been so gruesome that the lawyer had periodically asked his client to step out of the room to avoid needlessly subjecting him to it. As Smalley testified, the forty-four-year-old father summoned every ounce of rage within him. “Money to them is blood,” he seethed. “That’s all it is. That’s their life force, is money. That’s all they care about. They’re so greedy, you know. It’s just greed. They put the value of a human life to a piece of paper that says this is money. I choose the life, not the paper. But that’s the only way that I can hurt them, is to take them for every penny that I can get.”
During his closing statement, Lyon projected a clock on a screen and paused theatrically for 60 seconds to give jurors a concept of the agonizing length of time in which it had taken Danielle to die. “There is no more horrible death than a burn death,” he said. “There is no more horrible way to lose somebody than to see them burn to death in front of your eyes.”
Lyon asked the jury to return a massive verdict—$100 million. Instead, on October 22, they awarded an amount nearly three times that. As the $296 million verdict was read, Marquette Wolf, who for more than two years had poured his life into the case, dropped to his knees. On the other side of the courtroom, Koch’s lawyers looked physically ill. The jury had heeded Smalley’s entreaty to send a message to the company. It was, at that point, the largest wrongful death award in U.S. history.
For Charles and David, it was hard to fully digest this blow. Their focus was on Tulsa, Oklahoma, where, a little more than a year after the Topeka trial that was decided in their favor, Bill had dragged them into another bruising court fight. A federal investigation into allegations that Koch Industries stole oil from Native American lands had concluded in 1992 without returning indictments. Inquiries by the U.S. Bureau of Land Management and the Osage Tribal Council in Oklahoma had likewise failed to corroborate the charges. But to bring the allegations before a jury, Bill Koch had cleverly utilized the False Claims Act, allowing a private citizen to sue on the government’s behalf as a whistleblower in instances where alleged fraud had occurred. It was a civil case—not a criminal one, like the Justice Department had contemplated—so the standard of proof was lower than the beyond-a-reasonable-doubt threshold required for a criminal conviction.
Bill wasn’t a typical whistleblower. He’d brought the case for tactical reasons. It was another avenue for the out-for-blood Koch brother to apply pressure to Charles and David in his ongoing campaign to force them to pay up for allegedly scamming him and his allies over the sale of their Koch Industries stock.
In early September, a month before the trial, Charles was diagnosed with prostate cancer and underwent surgery later that month. Bill wished him a “speedy recovery” in the pages of The Wichita Eagle. Even though in a few weeks Bill would take Charles to court in an attempt to prove him a corporate scofflaw, he told a reporter that he still held out hope for a reconciliation. “In spite of all that has happened, when this is over, I would like to take Charles for a sail” and “share several bottles of my best wine with him.”
The notion received an incredulous reply from Koch Industries: “Bill Koch has been attacking Charles, David and Koch Industries for 20 years. That attack is continuing, and now he says he wants to share a bottle of wine and take them sailing?”
The same week that testimony in the Danielle Smalley case began, Bill’s whistleblower suit went to trial in Tulsa. The normally dull courtroom had been outfitted for a spectacle: It featured a 20-foot-projection TV screen and so much multimedia gadgetry that the room plunged into darkness on several occasions when the equipment overwhelmed the turn-of-the-century building’s circuit breakers.
As the proceedings got under way, Roy Bell, a mustache-wearing Vietnam veteran who was Bill’s longtime lawyer, told the jury that Koch Industries had engaged in a “deliberate pattern of fraud” that netted as much as $230 million in overages between 1980 and 1989—“overages” being benign oil industry lingo for crude a company didn’t pay for. Bell displayed a pyramid of photographs. At the bottom were the lowly oil gaugers who, the attorney said, had copped to oil theft. The pyramid rose through the company’s hierarchy until it reached Charles Koch, giving the impression that the bespectacled, white-haired businessman sat atop a criminal enterprise. One might have expected similar imagery at the trial of a Mafia don.
In the weeks that followed, a parade of former Koch employees testified, in person and via videotaped depositions displayed on the large screen facing the jury. Seeking to stoke negative coverage of Koch Industries ahead of the trial, a Dallas-based detective working for an investigative firm hired by Bill circulated a highlight reel of the depositions to a host of Midwestern journalists. The investigator, Jack Taylor, also sent copies of the tape—dubbed “The Koch Method”—to trial lawyers suing Koch Industries, including Ted Lyon and Marquette Wolf, enclosing articles detailing the company’s legal entanglements and environmental misdeeds.
Seated at the cramped counsel’s table, Bill scribbled notes and cracked an occasional smile as the gaugers testified. Hailing from at least a dozen different states, these ex-employees (some of whom had been fired or laid off by the company) told of learning to gauge oil the “Koch way,” by adjusting their measurements to “bring home the barrel”—make sure, in other words, that if Koch paid for a barrel at the wellhead, that much crude or more arrived at the transfer station.
“I felt that it was stealing oil,” Dana Ehrhart, an ex-Koch gauger in Texas, testified.
“It was enough to bother my conscience,” admitted James Spalding, who’d gauged oil for Koch in New Mexico in the 1980s before becoming an evangelist.
“I feel like I’m up here telling the whole world I was a thief, and at the time I thought what I was doing was the right thing,” Curtis Henson, a twenty-five-year Koch veteran, tearfully told the court.
“I had to do what they said to do,” noted former gauger L. B. Perry, “or I wouldn’t have a job.”
The company’s lawyers countered with the testimony of oil producers who had no qualms with Koch’s measuring practices and Koch employees who explained the inexactitudes of gauging. “I made what I felt were necessary and fair adjustments to get to the station with the number of barrels that I bought,” gauger Dale Sanders testified.
In December, as the trial drew to a close, Charles Koch himself finally took the stand. Liz, along with David and Julia, accompanied him to Tulsa for moral support. They watched from the gallery as he related when he had first learned about the vagaries of oil measurement during one of those backbreaking summers of manual labor in his teens. Fred Koch had put his son to work digging pipeline trenches near his refinery in Duncan, Oklahoma. One day, Charles recalled, a couple of oil producers teased him about his father’s “overages.” Their comments—calling his father’s ironclad integrity into question—concerned him enough to bring them up with the company’s pipeline managers. They “explained to me the nature of the crude oil measuring business and how a company like ours would tend to be over.” This was “accepted on both sides—by the producers and the purchasers.” But the rampant oil skimming that Bill had accused the company of simply wouldn’t fly in the industry, he said. “If the producers believe your measurements are not as accurate as somebody else’s, they’re going to take volume away from you.”
The deliberations slogged on well into December. As Christmas neared, the judge mercifully gave the jury a half-day reprieve to complete last-minute shopping. The verdict arrived on December 23, as Charles and his family headed to Colorado for the holidays. The jury found Koch guilty of nearly 25,000 false claims against the government and the company faced a potential penalty of more than $200 million. JURY FINDS KOCH CHEATED, and variations of this headline, screamed from the pages of newspapers across the country on Christmas Eve.
Koch’s chief spokesman, Jay Rosser, who’d spent the past few years attempting to douse the public relations brush fires Bill had started, described the verdict as “another unfortunate manifestation of Billy’s obsessive, 19-year campaign against the company and his brothers. Billy has stalked his brothers, suing them for imagined wrongs of every kind.” He hastened to add that the excommunicated Koch brother had “even sued his mother in the years before her death.”
Publicly, the company maintained a veneer of confidence that the verdict would be overturned. Privately, the brothers and their advisors were shell-shocked. “It was a huge loss,” a former Koch Industries executive said.
Bill had finally scored a big win against his brothers. And he took a victory lap. “This shows they are the biggest crooks in the oil industry,” he told a reporter. In the late 1980s, he had described the case as a Machiavellian tactic to bring his brothers to the bargaining table, but he now framed it as an effort to restore honor to the Koch family name and their father’s legacy. Fred Koch had built the company “on honesty and integrity. After he died, my brother took it over and it became a company that practiced organized, white-collar crime.” So much, it seemed, for reconciliation.
Charles and his company were under siege. By his brother. By the government. By trial lawyers. By an avalanche of bad publicity. In the space of just a few months in late 1999, the company not only suffered a pair of damaging legal defeats, but also pleaded guilty to an array of environmental infractions in Minnesota—the site of the company’s Pine Bend oil refinery, which had been under investigation by the EPA and the FBI. The federal government fined the company $8 million for illegally dumping a million gallons of ammonia-laced wastewater and spilling some 600,000 gallons of fuel into a wetland and the nearby Mississippi River. This was in addition to a $6.9 million fine the company had already paid to settle a suit with the Minnesota Pollution Control Agency over some of the same violations.
Once again allegations surfaced that Koch Industries had tried to conceal its environmental offenses, for example, by dumping pollutants under the cover of darkness and falsifying records. “There were times when… yeah, we lied,” Thomas Holton, an ex-employee who worked in the leak detection unit at Koch’s Pine Bend refinery outside the Twin Cities, told the Minnesota Star Tribune. “We did do that. And I won’t cover that up.”
Morale at the company plummeted. Employees worried about the fate of Koch Industries, and Charles had done little to assuage those fears. What his employees needed was a pep talk, some reassurance that Koch would navigate this traumatic period, but Charles remained closemouthed about the assorted legal threats facing the company. In 1999, as tensions within the company mounted, Tony Woodlief, the Koch management consultant, poked his head into Charles’s third-floor office. Its built-in bookshelves were lined with the twenty-volume Oxford English Dictionary and books by his favorite economic and political thinkers, including Thomas Sowell, Friedrich Hayek, Ludwig von Mises, and Joseph Schumpeter.
When Woodlief first met Charles in 1997, he had been completing his doctorate in political science at the University of Michigan. They were introduced at a conference sponsored by the Institute for Humane Studies, a libertarian organization where Charles had served on the board since the 1960s. The businessman had given a presentation on his management philosophy, which was steeped in libertarian concepts; his goal was to replicate a free-market society within his firm. To Woodlief, then a thirty-year-old academic, Charles’s management system sounded good in theory, but he was skeptical that it could work. Charles liked being challenged on his views, and he enjoyed debate, so he invited Woodlief to Wichita for a firsthand look at his operation. Woodlief took him up on his offer and left with a job.
With many Koch employees on edge, Woodlief asked his distracted boss for a word. They repaired to the company’s large cafeteria, where Charles usually ate lunch, and sat down with their trays. “I think you ought to have an all-company meeting and just talk to them about the struggles we’re facing and reassure them,” Woodlief said. “People respect you and right now they want to hear from you. They don’t expect you to have all the answers. They just want to know that you know they’re worried about the future of the company. They just want to hear from you.”
Charles thanked Woodlief for his advice, but said he wasn’t going to follow it. There were too many unknowns and open questions. If the company didn’t fully understand the regulatory onslaught it faced, how could he tell his employees that everything was going to be okay?
Charles later realized his mistake. Months later, after some of Koch’s regulatory troubles had begun to clear up, he left an apologetic voice mail for Woodlief: “You were right. I should have talked to them.”
As 1999 drew to a close, Koch Industries faced the prospect of still another headline-grabbing trial. In the space of less than two years, it had been dragged into court three times—first by Bill, Frederick, and the Simmons family, alleging the company duped them on the sale of their Koch Industries holdings; then by the grieving father of Danielle Smalley; and then yet again by Bill Koch, billionaire whistleblower. Now, after more than four years, the Clean Water Act case that Angela O’Connell and her Justice Department colleagues had pursued was poised to go before a jury. The case hinged on the accusation that Koch Industries had fouled the environment by leaking millions of gallons of oil from its pipelines and storage tanks, and that the company frequently sought to cover up these accidents by masking or minimizing its spills. During the fall of 1999, the case came so close to going to trial that Justice Department attorneys began looking for hotel accommodations. At the last minute, the company entered into a series of tense negotiating sessions with federal prosecutors and lawyers at the Texas Attorney General’s Office, also party to the case.
Shortly after the New Year, the Justice Department and EPA announced that Koch had agreed to pay a $35 million fine, the largest ever levied under the Clean Water Act up to that point. Accusing Koch of “egregious violations,” EPA Administrator Carol Browner said that the landmark fine “sends a strong message that those who try to profit from polluting our environment will pay the price.” Despite the record fine, some of the lawyers working on the case felt Koch Industries got off lightly, especially given what former Texas Deputy Attorney General Linda Eads described as the “willfulness” of its behavior. “I didn’t feel like it was a win. I didn’t,” she said. “I felt like it was a draw. I wasn’t sitting there giving high fives to everybody.”
Koch Industries, with ample help from Bill along the way, had by now developed a reputation as a corporate outlaw—a company that placed profits over safety, stole from oil producers, and flouted government regulations.
In many ways, the company was an extension of Charles, a reflection of his values, beliefs, and persona. His humble, taciturn style was its humble, taciturn style. His rigid free-market philosophy was its rigid free-market philosophy. If the company had taken an antagonistic view toward government regulation, it had flowed from him.
“We should not cave in the moment a regulator sets foot on our doorstep,” he once thundered in a call to arms to the business community, penned in 1978 at the height of his libertarian fervor. “Do not cooperate voluntarily; instead, resist wherever and to whatever extent you legally can. And do so in the name of justice.”
But during the recent legal onslaught, Charles had received a wake-up call. The world he lived in was not the libertarian paradise he wanted it to be. “It was a seminal moment in his life, because he finally began to understand the costs of what they now call public sector,” said one Koch veteran. “There’s a cost—a high cost—for not being a world-class company.
“These were learning points that turned the culture around,” he added. “They went on a multi-year crash course to overhaul the company. It was probably one of the most grandiose turnarounds ever.”
In a reversal of the defiant message Charles had once sent to business leaders, his corporate mantra became “10,000% compliance with all laws and regulations.” This meant that he expected 100 percent compliance from 100 percent of his employees. “While business was becoming increasingly regulated, we kept thinking and acting as if we lived in a pure market economy,” Charles acknowledged. “The reality was far different. The laws of economics seemed less and less relevant in a world where the uncertainty of politics had replaced the uncertainty of the marketplace.”
During this period, as the company tried to navigate its thorny relationship with the federal government, especially on environmental matters, it lured away the EPA’s assistant administrator Donald Clay. It also hired Alex Beehler, a top trial attorney in the Justice Department’s Environment and Natural Resources Division—the same section that had aggressively prosecuted the company. Meanwhile, Richard Fink, a Rutgers- and New York University–trained economist who had risen to become one of Charles’s most trusted deputies, led a dramatic reshuffling and integration of the company’s public affairs, government relations, and legal departments into a “public sector” division.
The company also began offloading large swaths of its troublesome pipeline system, eventually downsizing its network from some 40,000 miles to 4,000. Koch pivoted from some of its core businesses to focus on the far-less-regulated energy and commodities trading markets, competing with the likes of Enron.
“We’ve learned from the nineties we have to be on top of our game and that one of our biggest customers is in fact the government,” said Mark Holden, Koch’s general counsel. “We deal with them every day, so if that’s one of your customers in that sense you need to build relationships with them like you would a commercial enterprise or entity.” He added, “We learned a lot in the nineties, and if we hadn’t, I don’t know what would have happened because the road we were on wasn’t going to be productive.”
By the spring of 2001, a new era was dawning for Koch Industries. It had emerged from the hellfire of scandal and litigation as a more modern and less politically tone deaf company, though with an institutional bunker mentality forged by years of bitter legal warfare. At the same time, there was also a budding armistice in the 20-year feud between the Koch brothers. Despite his courtroom triumph, 2000 had been a tumultuous year for Bill.
Around 11:00 p.m. on July 17, 2000, a Barnstable police car pulled down the driveway at 177 Seapuit River Road and stopped in front of Homeport, Bill’s nine-bedroom Cape Cod colonial-style mansion. White with hunter green shutters, the 8,600-square-foot waterfront home was located on the private island of Oyster Harbors, one of the Cape’s most exclusive communities. It was situated on 1.5 acres and featured a deepwater dock and a gunite pool. On the front lawn sat a handful of curvaceous Botero sculptures, and Bill’s art collection crammed the interior of the home.
Bill had remarried in November 1996. His new wife, the former Angela Gauntt, was nineteen years younger. She hailed from Montgomery, Alabama, though when they met, via a mutual friend, she lived in New Orleans and worked as a fund-raiser for Tulane University. The couple had been out on only a handful of dates when Bill popped the question. Given the state of his personal life at the time they met, it was hard to imagine that Bill was in the market for marriage. He had just battled to evict his former mistress Catherine de Castelbajac—she of the not-safe-for-work faxes—and he was also expecting a child with Marie Beard, whom Bill had met when she tried out for his all-female America’s Cup team.
After their marriage, Angela added two more children, William Jr. and Robin, to his brood, which now numbered four. But soon their relationship began to unravel, particularly after Bill lost his lawsuit against his brothers over the sale of his Koch Industries stock. “It was something he could not get over—it just ate him up,” Angela said. “After that, everything just took a turn for the worse. He was depressed and despondent.” Bill already had a reputation for swilling copious amounts of pricey French wine—after contracting hepatitis in grad school, he could no longer stomach beer or hard alcohol—and Angela claimed he had developed a drinking problem. “He was not fun to be around when he drank too much,” she said.
Late on the evening of July 17, Angela frantically summoned the Barnstable police, accusing her husband of domestic violence. Wyatt, Bill’s red-haired fourteen-year-old son, was staying with them, and Angela alleged that her enraged husband had threatened “to beat his whole family to death with his belt.” She claimed Bill had also punched her in the stomach. Based on her allegations, which Bill strenuously denied, the police arrested him and charged him with domestic assault and threatening to commit murder.
Angela was granted a restraining order, forcing Bill to live in the guest quarters of their Cape compound and stipulating that he had to refrain from drinking 24 hours before visiting their children. It also included an eyebrow-raising proviso allowing Bill to be in Angela’s proximity only if the couple was entertaining.
After the incident, they attended counseling and tried to reconcile. Then Angela learned that Bill had hired a private investigator to follow her. “It was frightening, and embarrassing,” she said at the time. “At that point, I knew there was no hope of reconciling. I had become the enemy.” She filed for divorce that September. Bill approached the dissolution of their marriage in his customarily pugilistic style. According to Angela’s lawyer, he told his wife, “I’ll litigate you into the ground.” But Angela could play hard ball, too: The pace of their negotiations heated up after she attempted to have court records unsealed in Bill’s divorce from his first wife, Joan Granlund. By November, she dropped a civil suit against Bill and recanted her accusation that he had threatened to kill her and his son Wyatt, though she maintained that an assault had taken place. (Several witnesses, including Wyatt, backed Bill’s account that no physical altercation occurred.) Soon thereafter they entered into a $16 million divorce settlement.
For a time, their acrimonious split made it difficult for Bill to gaze on one of his favorite paintings, Amedeo Modigliani’s sensuous Reclining Nude, which hung in his Palm Beach living room nearby a Matisse and a Picasso. “I liked looking at it when I was happily married, right before I would go to bed with my wife,” he told a reporter wistfully a couple weeks after the divorce was finalized. “You can’t tell what she’s feeling. Is she pensive? Is she happy? Bored? Is she looking to get out of there? In a way, this painting combines the sensuality of women and the elegance of their bodies with the mystery of their souls.”
Bill had begun to do some soul-searching of his own. The Koch brothers had entered their sixties. In the time that Bill had spent battling his brothers, Charles’s children had grown up and graduated from college. David had gotten married and started a family of his own. Bill didn’t know their children; they didn’t know his. The brothers had spent a third of their lives—more if you count the explosive fights during their childhood—at one another’s throats.
In October 2000, in the midst of Bill’s messy divorce, the long-running lawsuit among the four Koch brothers reached the end of the road when the Supreme Court declined to hear Bill and Frederick’s last-ditch appeal. A few months earlier, the federal judge who heard Koch Industries’ oil theft case in Tulsa had denied the company’s motion requesting that he overturn the jury verdict. The company eventually settled for $25 million, of which $7.4 million went to Bill and the rest to the federal government. (Koch Industries also paid Bill’s formidable legal bills, estimated at $25 million.)
During the summer of 2000, as their legal travails wound down, Bill initiated a cautious rapprochement with his brothers—conveying, through his lawyers, that he was ready to begin the process of deescalating their feud. The fight between the Koch brothers—at least as far as Bill, David, and Charles were concerned—had always had to do with much more than money.
As negotiations quietly commenced, the most contentious talks had nothing to do with dollar figures, but how the brothers would divide their father’s possessions. “During the settlement discussions,” Bill recalled, “we were dealing with large sums of money but the biggest thing we argued about was who was going to get what painting out of my father’s collection. The most valuable painting he had in there was worth peanuts compared to what we were talking about. It wasn’t the money, it was the emotional stake.” He said at another point, “We ended up in a heated argument, almost fisticuffs, over my father’s art collection.”
The talks continued for nine months, persisting even after 60 Minutes II aired a story that Bill had tried to dissuade the show from running, which featured a previously taped interview in which he accused Koch Industries of “organized crime. And management-driven from the top down.”
The peace treaty that ended two decades of family warfare was signed on a balmy spring evening in Palm Beach. On May 23, 2001, a light, salt-air breeze blew off the Atlantic, as Charles and David arrived at Bill’s Anglo-Caribbean-style mansion, which evoked the plantation of some Colonial viceroy and straddled a lush, four-acre property that stretched from the ocean to the Intercoastal Waterway. The home featured an open-roofed courtyard in the center, a 35,000-bottle wine cellar with a groin-vaulted ceiling crafted from 150-year-old bricks, and room after room of the kind of art rarely seen outside of the world’s finest museums—paintings by Dali, Degas, Matisse, Winslow Homer, Frederic Remington. Bill and David, it turned out, were practically neighbors. About two miles up the road, David owned the equally glorious Villa el Sarmiento, an architectural masterpiece built in 1923 that featured a Mediterranean-style terra-cotta roof.
Bill had put together a small dinner party for the settlement signing. The agreement, in addition to dividing their father’s property and providing an undisclosed payout to Bill, included a nondisparagement clause and significant financial penalties if either side breached the peace accord.
The three brothers had not shared a meal together in nearly twenty years. During that time, almost every word that had passed between them had filtered through attorneys. The lawyers, as always, were present, as the brothers awkwardly reconnected. They chatted about their families, about their lousy knees.
David still felt a powerful kinship with his twin, even though he had made his life hellish for years. Charles was cordial, but there was a limit to what he could forgive. Bill and he were no longer mortal enemies, but that was the extent of their détente. The brothers did manage a few laughs, as they told old stories. Everyone chuckled at the memory of when Bill, always the hothead, had subbed in for David during an MIT basketball game, only to get ejected within seconds for brawling with the opposing team.
“My dad used to say it takes two to fight,” Bill reflected after the settlement. “So many punches get thrown, you lose track of who threw the first one. No one in this whole event wears the white hat, and nobody wears the black hat.”
He added, “There’s nothing more explosive or worse than blood and money.”
Not too long after the brothers formally ended their feud, Julia picked up her son, David Jr., at his Palm Beach preschool. (Before their children were elementary school age, Julia, not a fan of the cold weather, spent much of the winter with their kids in Florida.) She noticed David Jr. with his arm around another child. This was his new best friend, David Jr. informed his mother. Out of all the other children at the preschool, the blond-haired toddler had befriended his cousin William Jr.
In time, David and Bill began to rebuild their relationship. By now Bill had a new woman in his life. After divorcing Angela, he began dating Bridget Rooney, the granddaughter of the late Art Rooney, the founding owner of the Pittsburgh Steelers football franchise. A prominent socialite on the Palm Beach–Aspen circuit, Rooney had previously been romantically linked to actor Kevin Costner, with whom she had a son named Liam. She would later become Bill’s third wife, and in 2006 they had a daughter together, Kaitlin.
Rooney, along with David’s wife, Julia, paved the way for the brothers’ cautious reconciliation, according to John Damgard, David’s longtime friend. “I give a lot of credit to those wives for bringing those boys back together,” he said. Bridget and Julia were around the same age, as were the brothers’ children. Both owned homes near each other in Palm Beach and Aspen. The couples and their kids began getting together.
In May 2002, Bill and Bridget invited David and Julia to a joint 1970s-themed birthday bash they threw at Bill’s home, where men in powder blue tuxedos and women with teased-up hair dined on new potatoes stuffed with caviar and lamb wrapped in phyllo dough. (Bill was turning sixty-two, Bridget forty.)
The following year, David and Julia hosted Bill and Bridget at Villa el Sarmiento for a party over Thanksgiving weekend. “Welcome to El Sarmiento,” five-year-old David Jr. greeted guests, with a flourish of his hand, as they pulled up to the oceanfront home.
Kent Groninger, a fraternity brother of the twins and one of their teammates on the MIT basketball squad, recalled attending a more intimate gathering with the brothers a couple years later. David, who remains close with his MIT teammates, periodically hosts reunions of the squad in Aspen. During one of these get-togethers in the mid-2000s, Groninger and about five other members of the team attended. “David had asked Billy to come by, and we were all a little nervous about that,” he said. “And Dave was so deferential to Billy. I mean, Dave was actually subdued that evening. He just let Billy do the talking. And Billy was talking a little bit about his America’s Cup experience. And I could just see that Dave was tiptoeing around Billy. It was kind of a big moment where the two were in the same room and Dave for once was stepping back and letting Billy be the center of attention.”
“There were friends of both of them there,” Groninger added. “And they kind of made up, shook hands.”
When Bill married Bridget in February 2005, he asked David to be his best man. At the rehearsal dinner, where guests dined on New Zealand elk and sipped $500-a-bottle 1996 Château Latour, David warmly toasted his brother. “Who would have thought 10 years ago that we’d be friends,” he marveled, “much less that I’d be the best man at my brother’s wedding.”
Years after their improbable reconciliation, Bill calls David his “very best friend.” His relationship with Charles, however, never recovered. Only in recent years has there been the mildest of thaws. A turning point came in May 2010, when Julia threw a lavish seventieth birthday party for David at the Everglades Club in Palm Beach.
Located at the west end of Palm Beach’s main commercial drag, Worth Avenue, the club doesn’t look like much from the street. But once visitors step inside, they are transported back in time, strolling through a reception hall that looks as if it belongs in a Spanish castle. A courtyard leads to a golf course and striking views of the Intercoastal Waterway. The Addison Mizner architecture is a stark contrast to the starched, Waspy membership: A member was once reportedly rebuked for hosting Estée Lauder (a Jew) on the premises.
The party was held in the club’s orange tree–lined ballroom, known as the Orange Garden, which features a retractable roof. On this evening, it had been opened to the sky, so guests could dine and dance under the stars.
Friends and family, including Charles and Liz, flew in from around the country to attend the Wizard of Oz–themed bash—“Come to the Emerald City,” the invitation read. A yellow brick road and actors in costume greeted them when they arrived. What guests remember most, other than the performance by Lionel Richie and the massive birthday cake fashioned into a fairytale castle, were the speeches—Bill’s in particular.
Bill had asked Julia if he could toast his brother, and she in turn had consulted Charles, who was in charge of the speaking agenda, according to a family friend. The family politics, even after nearly a decade, remained fraught. “I think Julia just knew that this could be an ugly moment and that Billy’s kind of unpredictable and he might get up there and put a turd in the punch bowl,” a family friend said. “So I think it was Charles’ decision, in Julia’s view, of whether this would be good or not.” Charles, the family friend said, gave his permission, but, he added, “I’m sure he was holding his breath the whole evening about what Billy was going to say in front of all their friends.”
When Bill took the microphone, a mild air of apprehension gripped those who knew the brothers best. For better and for worse, Bill had always been guided by emotion and he quickly entered sensitive terrain, but only alluded to the brothers’ twenty-year battle in the vaguest of terms. Instead, Bill spoke of his childhood jealousy of his handsome and talented twin. David had always scored the most girls, the most points on the basketball court. “He said,” according to John Damgard, “ ‘I consider David, and always have, my closest and best friend, not just my brother and I am so pleased we are now able to treat each other in a more civilized manner.’ It was very, very touching.”
During his emotional speech, Bill burst into tears. “I actually shed tears listening to this, as did a lot of people in the room,” said Kent Groninger. “There were a lot of wet eyes.”
After his speech, Bill returned to his table, where he was seated with a half-dozen of the twins’ fraternity brothers. Groninger, still choked up, clapped Bill on the shoulder. “That was a wonderful speech,” he said. A few minutes later, Charles appeared next to Bill at the table. Bill stood up, rising a couple inches taller than his brother, and they chatted quietly. “We were all trying to keep our eyes off of it,” Groninger remembered. “It was such an awkward moment. They were kind of kissing and making up, I think. Charlie was quite taken by what Billy had said.” The following day, Charles and Liz accepted a brunch invitation at Bill and Bridget’s home.
While the brothers may have shared a moment of warmth in Palm Beach, the scars of the past run too deep to fully heal, Charles’s close friends say. “I don’t think he necessarily wants to rekindle whole relationships. I think he just wishes [it] would go away,” one of them said.
“In Palm Beach,” said Nestor Weigand, “[Charles] was very respectful to Billy. He didn’t ignore him. He didn’t punch him, but he was there, then he was gone. I don’t think that there’s a tremendous amount of conversation between times.” He added, “They’re definitely not friends.” Charles seems to have difficulty even uttering Bill’s name, let alone calling him a brother. He referred to Bill in one 2012 interview as “the brother of the twin.”
Bill describes his relationship with Charles as one of “peaceful coexistence.” But the peace between the brothers remains a delicate one. Bill’s longtime spokesman, Brad Goldstein, mixing military metaphors, suggested that it would not take much—an errant interview perhaps—to reignite “the war between the north and the south” or provoke a “nuclear escalation.”