Court Ruling : Barron Hilton Wins Round in Stock Fight

Barron Hilton, chairman and chief executive of Hilton Hotels, has won a legal victory in his effort to buy the controlling block of the firm’s stock from his father’s estate.

The hotel company said Friday that a federal judge in Los Angeles overturned one of two key Internal Revenue Service rulings thwarting the company chairman’s bid.

Those rulings have helped block Barron Hilton’s acquisition of the 27.4% interest claimed by the Conrad N. Hilton Foundation under the late hotel chain founder’s will, which left most of the senior Hilton’s fortune to charity.

The foundation is expected to appeal the new decision by U.S. District Judge Francis C. Whelan, and a prolonged legal battle over the entire case in both state and federal courts is expected. In his decision, Whelan threw out an IRS ruling that the foundation qualifies as a so-called support organization for aiding charities under tax law.

As a support organization, the Hilton Foundation might be able to to transfer about half of the 27.4% stake, a block of 6.7 million shares, to a new private foundation. That would allow the Hilton Foundation to escape a tax regulation limiting a foundation’s holdings to 20% of a corporation’s stock.

Whelan has yet to rule on the companion IRS ruling that allowed the stock transfer.

Barron Hilton’s suit contended that the IRS had sought to help the foundation block his option, under his father’s will, to purchase the disputed 6.7 million Hilton Hotels shares.

In addition, Barron Hilton has an appeal pending in the California State Court of Appeals. It stems from a probate court’s decision in April, 1986, that the Hilton Foundation had a right to the stock under Conrad Hilton’s will.

Barron Hilton “has to win every one” of the court battles in order to prevail, said Myron Harpole, attorney for the executor of Conrad Hilton estate. He said arguments in the state appeals court are about four months away.