Heartbreak Hotel

Only a few years after J. W. Stevens opened his grand Michigan Avenue hotel, the Depression devastated his family, inducing a series of calamities that included suicide, bankruptcy, and criminal charges. But from the debacle of the Stevens Hotel (now Chicago Hilton and Towers) emerged a young man who today, at 86, sits on the U.S. Supreme Court

When the Stevens Hotel opened in 1927, the news papers wrote of a new Versailles rising on South Michigan Avenue. The colossal building soared 28 stories and occupied an entire city block between Seventh and Eighth streets. With 3,000 guest rooms, it was the biggest hotel in the world-and possibly the most opulent. Its brick-and-limestone walls, decorated inside with hand-painted frescoes, contained fine restaurants, exclusive shops, and vast ballrooms. There was a bowling alley, a hospital, and a special private room for pets. The Stevens could produce 120 gallons of ice cream per hour. On its roof, you could play miniature golf at the High-Ho Club. “What a grand realization of an ambition and an ideal . . . is this great caravansary,” gushed Hotel World magazine, “this magnificent palace of hospitality dedicated to Chicago and the world!”

photograph: courtesy of Chicago Hilton

Eighty years ago, construction continued on the Stevens Hotel.

No one had seen anything quite like it before. Yet, just five years after the first two guests-Vice President Charles G. Dawes of the United States and President Gerardo Machado of Cuba-registered, the Stevens Hotel plunged into a disaster as grand as its founders’ ambitions. The hotel went bankrupt, and the State of Illinois charged its owners with financial corruption. One of them was crippled by a stroke; another committed suicide. In newspapers across the country, the crisis of the Stevens Hotel competed for column inches with Al Capone’s imprisonment and Franklin D. Roosevelt’s first 100 days in the White House. And when it was over, the Stevens business empire, once one of the most prominent in Illinois, was gone.

Few, if any, of the thousands who pass through the cavernous Chicago Hilton and Towers, as the Stevens is called today, know the dramatic episode of Chicago history that unfolded there. But it is not just the tale of a gaudy Jazz Age venture laid low by the Depression. It is also the story of a remarkable Chicago family-a family that paid dearly when its reach exceeded its grasp, but attained new heights in the next generation. The youngest Stevens heir was seven years old when the hotel opened, and barely a teenager as the business crumbled around him. But John Paul Stevens would go on to become a justice of the Supreme Court of the United States, the office he still holds at the age of 86.

Justice Stevens has embraced his family history. He loves to tell stories about the happy early days of the hotel-when he met celebrity guests such as Charles Lindbergh and Amelia Earhart. His daughter, Elizabeth, held her wedding at the Hilton and Towers in 1984. In a brief conversation last year, Stevens told me of his pride in the hotel, calling it “one of my dad’s contributions to the city.” Yet even those closest to him know little of the family traumas that cast a shadow over Stevens’s early years. (Justice Stevens generally does not give on-the-record interviews, and he made no exception for this article.)


 

The Stevens Hotel was in large part the brainchild of Justice Stevens’s grandfather James W. Stevens. A native of Colchester, Illinois, where he had been a village merchant, “J. W.” migrated to Chicago in 1886. A born financier, J. W. made a fortune in insurance and ruled his companies with a firm hand. In due course, he brought his sons, Raymond W. and Ernest J.-Justice Stevens’s father-into his businesses. Raymond, an affable but cautious man, helped J. W. run his insurance company, Illinois Life. Ernest, ten years younger than Raymond, ran the LaSalle Hotel, which the Stevenses opened at the northwest corner of LaSalle and Madison streets in 1909. The LaSalle was for a time Chicago’s largest hotel and, under Ernest’s management, one of its most successful.

But the Stevenses dreamed of more. They believed that Chicago, the booming hub of the Midwest, needed a state-of-the-art destination for travelers and conventioneers. It needed the biggest hotel in the world. The projected price, more than $28 million, was a fantastic sum in the 1920s-ten times what Yankee Stadium had cost a few years earlier. J. W. thought a bond issue could easily finance the venture. Though Raymond balked, Ernest backed his father. And so, in 1925, the family launched the Stevens Hotel Company, betting their future on Chicago’s.

At first, everything went according to plan. The bonds sold well, having been declared safe by the financial press based on J. W.’s prediction of $2.8 million in after-tax annual revenue. The Stevenses sold their relatives some $350,000 worth of bonds. And why not? Illinois Life itself had bought $3 million worth.

The Stevenses laid the cornerstone at Michigan Avenue and Seventh Street (now Balbo Drive) on March 16, 1926. Buried in a copper box alongside the massive block was a Chicago Tribune editorial praising the venture. At a flag-raising ceremony on the site in May, Ernest passed out cash bonuses to the workers, a token, he told the men, of the “part you played in the construction of the largest and finest hotel in the world.” When a rival group announced plans for a 25-story hotel next to the Stevens site, J. W. bought the land out from under them for $1 million.

Ernest planned the building inside and out. Justice Stevens’s 89-year-old brother, Bill Stevens, told me that he could still recall watching his father study the blueprints at night on the family dining table. Adapting one of the innovations pioneered by the hotelier Ellsworth Statler, Ernest equipped each of the hotel’s rooms with its own bathroom-and added a mirror flanked by “two brilliant light globes so that a man can see to shave both sides of his face without guessing,” as the Chicago Daily News noted. Ernest asked three of his four sons-John included-to pose for bronze statues that would later stand in the lobby. Meanwhile, seven freight cars of glassware for the hotel came from Pennsylvania; ten carloads carrying 300,000 pieces of china arrived from a New Jersey factory. The dinner plates bore silhouette images of Ernest’s wife, Elizabeth; on the reverse side was Ernest’s tribute: “Her silhouette in profile is pleasing to the eye but her own dear self in person makes my home a paradise.”

 

 

Photography: courtesy of Hilton Chicago.

The Stevens family presides over the hotel’s grand opening

The Stevens opened on May 2, 1927. That night, 3,000 guests drawn from the Supper strata of Chicago society dined and danced to the strains of the Stevens Hotel orchestra. Two days later, some 3,000 Hollywood personalities, including Cecil B. DeMille and Victor McLaglen, attended the Motion Picture Association Ball in the hotel’s ballroom. Star-struck flappers nearly rioted when they caught sight of the Chicago-born leading man Milton Sills. On August 13th, the City of Chicago hosted a dinner at the Stevens in honor of Lindbergh. Seven-year-old John got to shake the Lone Eagle’s hand-and to take home a pet dove, “Lindy,” presented to the family by the aviator.

Though almost fully booked at first, the hotel operated in the red, losing $1 million in 1928 and another half million in 1929. This was, perhaps, predictable for a hotel start-up, and there was enough cash flow to cover interest on the bonds. But the highly leveraged, high-maintenance behemoth was vulnerable to the business cycle-not to mention the Great Depression, which began in October 1929 and eventually drove 81 percent of the hotels in the United States into bankruptcy.

Soon beds at the Stevens lay unoccupied, and a hush fell over the ballrooms. But J. W. and Ernest refused to let their baby die. In 1931, J. W. loaned the hotel $522,000 of his own money, and Ernest paid $39,000 in cash for more hotel bonds. Finally, J. W. and his sons turned to Illinois Life, the family insurance company, which had 80,000 policyholders. The Stevenses authorized hundreds of thousands of dollars in loans from the company to the hotel, secured only by the hotel’s increasingly dubious paper assets. This covered interest payments through January 1932, when the insurance company loaned the hotel its last reserves: $600,000 in World War I Liberty Bonds.

But the economy only worsened. Between February and May 1932, 13 banks failed in Chicago; in June, 40 more collapsed. The whole city was running out of cash. Across Michigan Avenue from the Stevens, the homeless unemployed camped out in Grant Park. That summer, a local dairy asked a court to order the LaSalle and the Stevens into receivership, claiming that the two hotels owed it $8,000 in unpaid bills. Instead, the family filed for receivership itself. Illinois Life crashed soon thereafter. When federal agents and a court-appointed administrator inspected J. W.’s books, they found that the insurance company had $13 million tied up in the distressed hotels.


Photography: courtesy of Hilton Chicago.
Ernest’s son James enchants four young socialites in 1929

On January 31, 1933, a Cook County grand jury indicted J. W., Raymond, and Ernest for allegedly illegally looting Illinois Life. State’s Attorney Thomas B. Courtney sought the indictments when he learned that Ernest had acquired passports for himself and his family. Perhaps Courtney thought Ernest was planning to imitate Samuel Insull, the much-reviled utilities magnate who had decamped to Greece after his business’s collapse in 1932. Ernest later denied under oath that he had intended to flee, and today Bill Stevens says “there was no talk at home about going abroad.” But, he adds, getting passports was “a dumb thing to do.”

The family’s luck turned worse. In the early evening of February 11th, armed men invaded Ernest’s house on 58th Street, near the University of Chicago, demanding that he hand over the hidden millions they had read about in the papers. John and Bill were home at the time, and the men threatened to take the boys hostage-then left with about $1,300. Ernest moved his family into the hotel for their safety. Meanwhile, the court-appointed receiver of Illinois Life demanded $200,000 from Raymond.

J. W. lapsed into a “state of constant worry and distress,” as his wife, Alice, later told the Chicago Tribune. On March 18th, the 79-year-old patriarch suffered a massive stroke. Intermittently comatose, J. W. would never fully recover-though that didn’t stop creditors from seizing his Lincoln, his Cadillac, and his two Rolls-Royces. He died in 1936.

For Raymond, 59, the emotional stress must have been excruciating. He had been skeptical of the hotel venture. Now he faced disgrace, financial ruin, and prison after his doubts had proved valid. On a Sunday in late February, he appeared at the South Side mansion of his 76-year-old mother, Jessie Smith Stevens, who had lived there since her divorce from J. W. in 1903. Raymond wept and told her he wanted to go away and never be seen again. “I said, ‘Son, you couldn’t do a thing like that,’” Jessie Smith Stevens later told the Tribune. “But he just cried some more.”

After his father’s stroke, Raymond retreated to The Meadows, his 24-acre estate in Highland Park. He made the Illinois Life receiver a last-ditch offer: The Meadows in exchange for debt relief. On March 23rd, the receiver’s answer came: no deal. After lunch, Raymond said he was tired and went up to the library. An encyclopedia lay open to an article on ornithology, his hobby. Raymond sat in a chair before the fireplace, put a .38 caliber revolver to his temple, and pulled the trigger. His wife and son, hearing the shot, rushed to his side. It was too late. Twenty carloads of mourners, led by Ernest and Elizabeth, attended Raymond’s funeral in Highland Park. It took a truck to carry all the flowers. No one told J. W. the news for fear that it would kill him.

Jessie Smith Stevens skipped the funeral, pleading frailty. But, in the Tribune, she sounded a mordant note about her older son’s death. She had agreed with Raymond that the hotel was too risky, “but Ernie and his father were set for it,” she told the paper. “They wanted to see their name up in the sky. Well, they saw it. Now maybe they see that I was not so foolish.”

 

 

Photography: Chicago Tribune File Photos
Raymond (above, left) and Ernest Stevens: the Meadows, Raymond’s Highland Park home
 

Ernest Stevens stood trial alone. As his mother’s comments suggest, the public was not in a forgiving mood. Many Chicagoans had suffered financially when the Insull utility group went under, or when banks linked to the real-estate speculator John Bain had failed. They connected the Stevens case with those debacles. The policyholders of Illinois Life, many of whom had asked the company in vain for loans as the banks crashed, were not happy to learn the Stevenses had bailed out the hotel instead of them. Even Ernest’s first cousin Bert J. Stookey, the former treasurer of Illinois Life, agreed to testify for the state.

The trial opened on September 25, 1933. Under Illinois embezzlement law, the state had to prove Ernest had “fraudulently” converted company funds “to his own use.” Prosecutors argued the loans from Illinois Life to the Stevens Hotel met that standard, since, in propping up the hotel, the Stevenses were propping up their own portfolios. They knew its collateral was worthless, the state argued. Witnesses testified Ernest got a whopping $72,000 per year for managing the hotel-which he would lose if it went under. A high point of the prosecution’s case came when Bert Stookey “turned a frigid gaze on the defendant,” as one newspaper put it, and said that his cousin Ernest had overruled him when he protested the hotel bailout.

But Stookey admitted on cross-examination that he had never said the loans would be illegal, just inappropriate. And when his turn on the stand came, Ernest swore his only intention was to help both the insurance company and the hotel ride out the Depression, which he, like many others, had expected to end after three years. The 1932 bank panic blindsided him and J. W. “There was crash after crash that we had not anticipated,” he testified. “No one did.” He insisted that the hotel could still make money, especially once the repeal of Prohibition eliminated competition for dinner guests from Chicago’s 5,000 speakeasies. “They will come back to the hotels and dine properly instead of in some old barn,” he testified.

“Did you at all times have faith in the Stevens Hotel?” Ernest’s attorney, the former state judge Franklin J. Stransky, asked him.

“I certainly did,” the defendant replied. “I know it is going to be the greatest hotel in the world, although it is having temporary interference.”

Stransky called a parade of prominent character witnesses, including former governors of Illinois and leaders of the business community. The defendant was visibly moved as old friends swore to his integrity. Given the mood of the times and the class composition of the jury, however, their testimony might have backfired. Earle C. Hurley, an assistant state’s attorney, mocked Ernest’s claims of civic virtue, telling the jury that “it was not for philanthropic reasons nor for love of Chicago that money was pumped from the insurance company to the hotel, as Stevens would have you believe. It was for private greed.”

The jury believed Hurley. On October 14, 1933, after five hours of deliberation, they found Ernest guilty of embezzling $1.3 million. On November 27th, Judge Michael Feinberg sentenced him to a term of one to ten years in prison. Fidgeting with some keys in his pocket, Ernest stood before the court and declared, “A terrible injustice has been done to me.” Up to that point, Ernest and Elizabeth had “kept their cool,” Bill Stevens told me. But, he recalls, the conviction came as a “terrible shock.” They had simply not been able to imagine Ernest could be found guilty.

Ernest lost the family businesses. Illinois Life was liquidated by a federal judge; a Des Moines company stepped in to reinsure policyholders. The same Iowa company bought the LaSalle from a receiver in 1935, for just $337,000. It has long since succumbed to the wrecking ball. The Stevens Hotel actually made money in 1933, thanks to the Century of Progress Exposition, the world’s fair held along the lakefront. Then it limped along in receivership until World War II, when the U.S. government bought it for $6 million to use as military housing.


Photography: Chicago Tribune File Photos
Raymond, Ernest, and J.W. Stevens (left to right) appear at their 1933 indictment.

But Ernest Stevens did salvage his good name. In 1934, almost exactly one year after the guilty verdict came down, the Illinois Supreme Court unanimously ruled on appeal that he had been wrongly convicted. To prove embezzlement, the court explained, the state had to show that the accused had siphoned funds without his company’s knowledge. In this case, Ernest (together with his father and brother) was the company. Additionally, there was no proof that any of the three had intended to line his own pockets. The money loaned to the hotel went to its bondholders as interest.

“In this whole record, there is not a scintilla of evidence of any concealment or fraud attempted,” Justice Clyde E. Stone wrote. “It may have been an exercise of bad judgment . . . to have loaned this money and we in no wise commend these loans, but . . . it is a far cry from a mistake in investment made in good faith to a felonious, fraudulent investment made for the purpose of converting the funds of the lender to the use of the accused.” The Illinois high court’s unanimous rebuke of the prosecution supports the view that the charges against the Stevenses were, at least in part, politically motivated-an elected prosecutor’s effort to pin a city’s misery on the supposed perfidy of a privileged few. “I am very, very happy,” Ernest told the Tribune.

But he was wiped out financially. “His personal fortune was almost completely invested in the hotel,” Bill Stevens recalls. “It was worth a great deal at one time, and then went to zero.” Ernest quit the South Shore Country Club and the Quadrangle Club. He took a job managing the Sherry Hotel, near the University of Chicago-a position he would hold for many years thereafter. “There was no real money for extras,” Bill Stevens recalls. “When John and I went to law school after the war, we didn’t get a penny from our family.” They relied on the GI Bill instead.

In the meantime, Ernest was his old, easygoing self, except on the anniversary of Raymond’s suicide, when, according to his grandson William J. Stevens, 66, he would sometimes seem “morose.” Ernest J. Stevens died in 1972, at the age of 87.

His legacy included the successful careers of four sons: Ernest S. Stevens, who went on to become an expert in municipal finance and a member of the Fort Myers, Florida, city council; Richard James and Bill, both prominent lawyers; and, of course, Justice Stevens. With top grades from Northwestern University School of Law, John Paul Stevens became a Supreme Court law clerk and a specialist in antitrust law. In 1969, he led an official investigation of corruption in the Illinois Supreme Court. In 1970, President Richard M. Nixon made him a federal appeals court judge, which set the stage for his appointment to the high court by President Gerald R. Ford in 1975.


It is perhaps natural to search the history of the Stevens Hotel for the origins of Justice Stevens’s current role as a liberal stalwart on the court. Could it be that his concern for the rights of the accused comes from seeing his own father arrested and put on trial by an aggressive prosecutor? Or that his empathy for the disadvantaged comes from living through his family’s sudden loss of a fortune that had taken a generation to build?

If any of that is true, the justice has kept the evidence deep inside, revealing it not even to those of his close friends that I consulted. Instead, those who know him best emphasize the resiliency and positive attitude that he and his family displayed both during and after the crisis. Bill Stevens says they followed Ernest’s oft-repeated admonition “to always try to brighten our own little corner.” But otherwise, the justice’s brother notes in an e-mail message, “the Stevens Hotel and the family troubles during the Great Depression . . . had no significant effect whatsoever on John’s approach to life or the law; nor does John bear any stamp of the family’s experience with the hotel enterprise.”

The city, though, bears an indelible impression. Ernest Stevens’s predictions for his hotel ultimately came true. The War Department sold it to a private businessman in 1943. After the war, Conrad Hilton bought it and named it for himself. The streets outside the Conrad Hilton were the scene of a battle between Mayor Richard J. Daley’s police and antiwar demonstrators during the 1968 Democratic National Convention. Completely renovated and reconfigured in the mid-eighties, at a cost of $185 million, the hotel still features the two-story entrance hall with grand staircases on either side that so astounded visitors in the Roaring Twenties. But the High-Ho Club is long gone; strong winds made rooftop miniature golf impractical. The original 3,000 rooms have been consolidated to 1,544, so the hotel is no longer the biggest in the world. Even in the city it ranks third behind the Hyatt Regency Chicago, which has 2,019 rooms, and the Palmer House Hilton, which has 1,639. Still, for all the trouble and even tragedy that attended its early years, the landmark has endured, vindicating the dream the Stevens family envisioned so many years ago.

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