Spring 1996 was a bitter time for Rene Henry Gracida. One moment, the 73-year-old Catholic bishop of Corpus Christi was savoring his imminent retirement. The next, Gracida was fending off three legal assaults on the $250 million foundation that he chaired.
Two groups of litigants claimed that the foundation’s principal assets, underground oceans of oil in south Texas, actually belonged to them, at least in part.
But it was the third challenge that personally affronted Gracida. His fellow Texas bishops, frustrated by the Corpus Christi prelate’s unwillingness to share more of the foundation’s largesse with other Texas dioceses, had taken their case to Texas state attorney general Dan Morales.
At the same time, Morales also heard from Richard Hatch, the foundation’s erstwhile general counsel, who was raising his own questions over Gracida’s stewardship.
Prodded into action by the bishops and Mr. Hatch, Morales filed suit on May 2, 1996, alleging Gracida had misallocated foundation funds, violating “the spirit, intent and language” of two legal agreements that governed foundation policies. Morales also sought to remove the entire seven-member board, including Gracida, who was president. The suit further sought repayment of unspecified sums from the diocese to the foundation.
Not only did the action reignite one of the most colorful and convoluted foundation battles in Texas history, it also impugned Gracida’s honor. “I was very hurt, very angry,” he says. “It was a tremendous strain.” In response, Gracida counter-sued, alleging that Morales was the one trying to twist the foundation’s mission. Gracida also recruited his own heavy hitter into the fray, New York powerhouse John Cardinal O’Connor.
“I said, ‘John, I need your help,’” Gracida recalls. “Well, you know the story about the camel getting his nose under the tent. Once O’Connor saw the opportunity, he said, ‘I’m going to get control of that foundation.’”
Meeting Brother Leo
The late cardinal was only the latest in a long and colorful parade of characters who have coveted control of the fortune since 1960, when Sarita Kenedy East established the foundation in her parents’ honor. Past litigants included eight Texas attorneys general, two prior bishops of Corpus Christi, innumerable members of the Kenedy family, and a handsome and charismatic Trappist monk known as Brother Leo, who says he first suggested the idea of a foundation to Mrs. East.
The Kenedy fortune dates to the early 19th century and the arrival on the Rio Grande River of Captain Mifflin Kenedy, a steamboater from Pennsylvania. Kenedy had a keen eye for the main chance. He and his younger friend, Richard King, prospered as freight haulers on the river, then invested their profits in vast acreages up the Texas coast toward Corpus Christi in a parched expanse known as the Wild Horse Desert. King founded the enormous King Ranch; Kenedy built his own 400,000-acre spread, La Parra, next door.
The rich captain married a Mexican widow named Petra Vela, who bore Kenedy six children. Only one of them, John Gregory, produced grandchildren. His first-born, John Gregory Jr., known as Johnny, was left sterile by mumps. Johnny’s younger sister, Sara, known as Sarita, similarly was left barren by undulant fever. After her husband Arthur’s death in 1944, Sarita, a devout Catholic, retreated into her faith and a more-than-occasional tumbler of scotch to soothe her loneliness and sorrows.
Then came the day in 1948 when Sarita, out tending her brother Johnny’s new grave in the family cemetery at La Parra, looked up to greet a visitor, the monk known as Brother Leo. He was young enough to be the son Sarita never bore, and there was immediate chemistry between them.
Leo animated a dormant spirit in Mrs. East. He visited La Parra regularly, and they traveled together extensively. Sarita donated generously to the Trappists, and Leo opened her eyes to the enormous needs of the poor throughout the world, particularly in Latin America.
The monk and his friend and mentor, the industrialist J. Peter Grace, worked together to persuade Mrs. East to establish the John G. and Marie Stella Kenedy Memorial Foundation. A year later, in 1961, Sarita died from cancer in a New York City hospital.
Decades of wildly complex legal warfare ensued (see sidebar) for control of the foundation, culminating in 1984 when Rene Gracida, the newly-installed bishop of Corpus Christi, boldly grabbed the foundation’s reins from a South Texas bank. It appeared that the tough-minded bishop, a former World War II bomber pilot, had finally trumped the field.
The October of Discontent
The Kenedy Foundation had previously distributed about $30 million to Catholic causes around Texas. These grants were divided between Corpus Christi and the state’s 13 dioceses. But the funding balance began to shift once the new bishop took over. “The board felt charity begins at home,” Gracida explains. “So you know, they were going to treat South Texas with a higher priority.”
According to calculations by the attorney general, between 1984 and 1996, the foundation gave the Corpus Christi diocese about $100 million in grants, funding everything from new schools to a television station. In the same period, approximately $23 million was allotted to the rest of the state.
Gracida’s brother bishops were not pleased. “I could detect signs of discontent,” he recalls. “I kept reminding the bishops at our semi-annual meetings, ‘You know, the Kenedy Foundation isn’t the only foundation in this state. Why do you expect the Kenedy Foundation to supply all your needs?’”
The flashpoint came in the wake of a double hit to the foundation exchequer: oil prices plummeted to less than $10 a barrel and, in October of 1987, the stock market collapsed. “The foundation lost $5 million in one day,” Gracida remembers.
Although there is some dispute over how badly the foundation really was hurt—Bishop John McCarthy of Austin would later claim that its revenues actually increased during this period—there’s no debate over Gracida’s next move. The Kenedy Foundation board voted in 1990 to temporarily restrict all new grants to the diocese of Corpus Christi. Everyone else would have to wait for the economy to improve.
Just then, Bishop Leroy T. Matthiesen of Amarillo made what he believed was a routine request: $6,000 for a Spanish-language evangelization project. It had been four years since Matthiesen’s last application—$60,000 for a diocesan renewal center—was granted, so he assumed approval of the much more modest amount would be relatively pro forma.
Gracida, however, turned him down, and a clearly miffed Bishop Matthiesen went public with his disappointment. Speaking for himself and the other Texas bishops to a reporter for an East Texas diocesan newspaper, Matthiesen said, “We all consider Bishop Gracida a friend, and we want to maintain friendly relations, but this looks [like] pretty high-handed stuff to us.”
The story was picked up by the Catholic News Service, which gave the quote from Bishop Matthiesen national distribution. “That nearly sent me into orbit,” says Gracida. “I said, ‘How could you do that? How could you say something like that to a reporter, knowing that in all probability she was going to print it? And she did!’ He apologized, but of course the damage was done.”
In late February of 1993, a group of Texas bishops sat down with the Kenedy Foundation board to make their case face-to-face. Four months later, when there was no apparent change in foundation policy, Bishop McCarthy of Austin fired off a stinging note to Kenedy board members.
“Let me be rather direct,” McCarthy wrote. “We believe that the resources of the foundation are being seriously mishandled. We believe that there is serious abuse of the fiduciary responsibility of those who are responsible.”
McCarthy closed with a warning: “Unless there is a dramatic change,” he wrote, “the Bishops of Texas have no alternative but to go elsewhere for a solution.”
The FedEx Bill That Roared
The following year, Archbishop Patrick Flores of San Antonio, the senior Catholic prelate in Texas, dispatched an equally explicit threat to the board. Flores wanted a Texas bishop placed on the board, a move that he said “would go a long way toward eliminating the danger of any scandal or involvement with the Attorney General.”
Approximately a month later, Enrique San Pedro, the bishop of Brownsville on the Texas-Mexico border, was elected to the board. He died of cancer four months later. In August 1994, Placido Rodriguez, the new bishop of Lubbock in the Texas panhandle, was appointed to the board.
But Gracida’s critics were not satisfied. Although the moratorium on new grants had been lifted in June and a bit more money began to flow out of Corpus Christi into the poorer dioceses, there was no fundamental shift in foundation philosophy.
Dissent also began to stir from within. Over time, foundation attorney Richard Hatch Sr. had come to believe that Gracida was overstepping his authority. Although Hatch had previously assured the bishop in writing that his policies were “not only legal, but appropriate considering the historical background surrounding the creation of the foundation and subsequent litigation for control,” he was clearly disaffected by 1995.
“The Bishop of the Diocese of Corpus Christi has now accomplished what his predecessor in office could not accomplish by years of litigation,” Hatch wrote the board shortly after he left their employ. “The Foundation is now but a subsidiary of the Diocese of Corpus Christi.”
Gracida says his first clue to Hatch’s intent came after the attorney left the foundation, when foundation officials discovered a FedEx charge for materials he had sent to the state attorney general’s office in Austin. “We confronted him on it,” the bishop recollects, “and all he would say was, ‘A man’s got to do what he’s got to do.’”
Not long thereafter, says Gracida, Morales’ office notified the foundation that it was under investigation.
In November of 1995, Bishop McCarthy sent a two-page typewritten letter to Jan Soifer, the assistant attorney general in charge of the case. “We are very regretful,” wrote McCarthy on diocesan stationery, “that we have not been able to work this matter out internally and we now feel it is necessary for your office to become involved.”
In January of 1996, Bishop Joseph Delaney of Fort Worth sent his own letter to the AG’s office. “It is truly discouraging,” wrote Delaney, “that after years of quite notorious litigation we have had to resort to requesting that the Attorney General’s office look into the matter again.”
For Catholic bishops to air internecine issues before a civil authority is unusual; Gracida claims, perhaps with some exaggeration, that nothing like it has occurred in the Church since medieval days. He describes the actions of his fellow bishops as “scandalous,” but was particularly inflamed by their public comments, which generally characterized the lawsuit as the regrettable consequence of failed private diplomacy.
Calling in the Big Guns
Gracida read the bishops’ words and actions as nothing less than an attempt, via the attorney general’s lawsuit, to engineer a foundation coup, oust him, and install their own trustees. To counter them, he turned to a trusted friend, the most powerful Catholic in the United States. “I said, ‘John, here are some clippings of what the bishops are saying about me. I need you to silence them. I’m not asking you to interfere in the litigation. Just tell them to shut up. You can do that.’”
O’Connor did that and more. Gracida recalls that the public turmoil did quiet down, but he soon became convinced that O’Connor had more in mind than simply mediating the dispute. “Our attorney flew to New York and met with O’Connor in his living room,” he says. “He came back from that meeting and told me, ‘You’ve got to know who you’re fighting here. He’s going to try to take over the foundation.’” O’Connor died last year, apparently without making any public comments on his role in the Kenedy controversy.
Cardinal O’Connor was named head of a Papal commission charged with mediating the foundation fight before it actually got to court. His two co-mediators were Bernard Cardinal Law of Boston and Bishop Raymond Burke from Wisconsin. Gracida says Burke later told him that O’Connor and Law froze him out of their deliberations, which to the Corpus Christi bishop seemed directed more toward wresting the foundation away from him than exploring a middle ground in the dispute.
O’Connor could not have seized power directly—the law was too plain on that issue—but Gracida surmises that the Cardinal certainly would have enjoyed a great deal of indirect influence on foundation matters had he delivered it into the Texas bishops’ control.
The Cardinal pressured him to capitulate, Gracida says, invoking his extraordinary influence both in the United States and, more importantly, in Rome, but the Corpus Christi bishop would not budge. Gracida also distrusted his co-adjutor and anointed successor as bishop, Roberto Gonzalez (now Archbishop of Puerto Rico), who had risen through the Catholic hierarchy as a protege of both O’Connor and Law. He did not want Gonzalez—or any bishop—succeeding him as president of the foundation, and therefore presented as his non-negotiable demand that there could be no settlement unless the majority of any new Kenedy board were not clerics.
In the end, that’s what he got. On March 10, 1997, the attorney general’s office and the foundation issued dueling press releases, announcing that all pending litigation had been settled. Morales noted in the first sentence of his release that the settlement “increases the number of independent voices” on the board, and he was right.
The number of directors was expanded from seven to 13; by stipulation, nine of the new directors would be lay members and the other four bishops. Under no circumstances could clerics ever make up a controlling bloc on the board, nor could a member of a religious order, like Brother Leo, ever again become foundation president. Ex-officio cleric-directors would be the bishop of Corpus Christi and the archbishop of San Antonio. The other two prelates would serve one-year terms.
At the time, Gracida called the agreement “a total personal vindication for me and for the foundation board,” and he was right. The board—his board—remained intact, and the diocese was not obliged to repay any monies it had received from the Kenedy Foundation.
Coming out of the Woodwork
On April 1, 1997, Bishop Gracida finally did retire, proud of his successful defense of the foundation. But his victory did not mean that the battle for the Kenedy fortune was over. One of the other legal challenges filed during Bishop Gracida’s tenure on the board was brought by descendants of Carmen Morell, whom Captain Mifflin Kenedy had adopted following his wife’s death in 1885.
Morell’s heirs claimed that Sarita’s father, John Gregory, euchred his adoptive sister out of her share of the inheritance, and they say they have documents to back up their claim. The Kenedy Foundation board settled the case for an undisclosed amount.
Then came the Balli family. This large clan dates back at least to the early 1800s in the Wild Horse Desert, where they held Spanish land grants. The Ballis claim that Mifflin Kenedy leased his land from them, but never actually bought it. They, too, have documents they say will prove their point. One in particular is a 50-year lease, allegedly approved by Sarita East in 1948. The Balli claim is now working its way through the South Texas courts.
Bishop Gracida claims today to have put these sorts of concerns behind him. He divides his time between a gulfside bungalow near Corpus Christi and a country “ranchito” called Rancho Milagro, where he runs a few head of cows and generally enjoys the outdoors and his solitude.
Content to pass defense of the foundation to new and younger hands, Gracida also has come to accept what seems inevitable about the Kenedy fortune. “There’ll always be people coming out of the woodwork,” he says, “trying to get those millions.”
Stephen G. Michaud and Hugh Aynesworth are the authors of If You Love Me, You Will Do My Will, about the Kenedy Foundation.