By Mark Gutglueck
M. Penn Phillips is considered by many to be the father of modern Hesperia, and is credited with transforming that community from a sprawling expanse of desert into what is today the second largest municipal entity geographically in San Bernardino County, There were, nonetheless, elements in the way Penn conducted business that have left a less-than-sterling legacy for the City of Progress, ones the community has struggled for years, and continues to struggle, to overcome.
Born Marion Penn Phillips on June 13, 1887 in Parsons, Kansas, he was the founder of the M. Penn Phillips Company, which was later a subsidiary of Holly Development Corporation. He operated in the Western states from the 1920s through the 1970s. Starting in the 1920s, he undertook the development of Clear Lake Highland, and completed Frazier Mountain Park near Bakersfield in 1924, and a development known as the Avocado Farms near Vista in 1926. He developed large tracts in the Las Vegas basin in 1927, the development of 5,800 lots and 18,000 acres of land in the area around Coos Bay, Oregon between 1929 and 1933, and had built, in association with former World Heavyweight Champion Jack Dempsey the famed Hotel Del Pacifico in Ensenada Mexico in 1931. From 1929 to 1932 he bought and sold more than 60,000 acres of undeveloped land in the Colorado River basin.
During the Second World War, Phillips was executive vice-chairman of the U.S. Treasury Department War Finance Committee for Southern California and following the war he developed and sold thousands of acres in Palmdale, Lancaster, Victorville, Apple Valley, Barstow and Newberry Valley.
He was serving as the vice-president and director of Standard Federal Savings and Loan Association of Los Angeles when on April 22, 1954, what was billed as the largest private land sale in Southern California in 35 years was consummated with the Omart Investment Company’s purchase of a 36-square mile tract seven miles south of Victorville, representing roughly 90 percent of the entire township of Hesperia, for $1.25 million from the Appleton Land and Water Company and the Lacey Estate, which had owned the land jointly since 1888. Phillips, as the president of Omart, signed the land transfer documents at Pioneer Title and Insurance Company in San Bernardino.
Phillips simultaneously announced his intention to spend $8.25 million through the Hesperia Land Company, a subsidiary of Omart Investment Company, to prepare the property for development, indicating 1,000 acres of the property was to be allocated to industrial development, 8,000 acres for agriculture and that 5,000 homes would be built along with a two-and-one-half mile-long-and-one-quarter-mile-wide artificial lake, and a resort section.
Involved with Phillips in the Hesperia venture were Jack Dempsey as well as Charles Allen, vice-president of E.F. Hutton and Company of New York City; Fresno-based attorney Milo E. Rowell, Nat Mendelsohn of Riverside; Philip J. Farrar of Fresno; along with Los Angeles investment brokers, Dan Christy and Henry Paul Willis.
Within a week Phillips and Dempsey announce plans to renovate the Hesperia Hotel, which had been dormant since 1926.
He created the Hesperia Land Development and Hesperia Sales Corporation, which worked to promote his concept of the U-Finish Home, mass-produced housing units that were completely finished on the outside, leaving the buyer to complete the interior. He secured water rights to support this community through the newly created Mojave Water Agency, of which he was a founding member.
The formula Phillips applied in Hesperia was much like the one he used with his developments elsewhere: secure land, build homes on it, put in the minimal amount of infrastructure to make the homes habitable, bring in a population that creates the basis for a community that includes momentum for establishing some form of a jurisdictional governmental agency, sell all of the parcels acquired, take a profit and move on to the next development elsewhere.
Phillips built roads for Hesperia that were of a decidedly low standard, consisting of a mixture of desert sand used as aggregate and bitumen to create a road that was no more than one-and-a-half inches thick. The roads, when new, looked good, but under the withering sun and use, began to deteriorate within three to four years. The flash floods the desert is prone to further washed out these roads over the following decades, leaving many of Hesperia’s streets in poor condition, including some that eventually returned to being nothing more than dirt roads.
Phillips was equally irresponsible in the creation of the town’s water system. Though he started with the tremendous advantage of Hesperia being blessed with a world-class water supply, he squandered that asset in his head-long pursuit of a profit. Hesperia lies near the headwaters of the Mojave River, the watershed area north of the San Bernardino Mountains, a pristine and perpetually recharged water supply created by melting snow and overflowing rainwater from the heights southeast of Hesperia. The water system Phillips created for Hesperia consisted in large part of pipes cannibalized from a petroleum conveyance operation from depleted oil fields. Thus, the Hesperia Water Company, capturing water at the foot of the mountain before it rushed forward to become the Mojave River and wend out into the desert, used substandard pipes, which compromised the quality of the product provided to Hesperia for domestic use.
Raymond Pryke, who was later a major land owner in Hesperia and elsewhere in the High Desert, originally came to Hesperia as a salesman working for the Hesperia Sales Corporation. Pryke used some of the proceeds from the commissions he earned to invest in undeveloped Hesperia property, which he intended to, and actually later did, develop or sell. At one point, Pryke recalled in 2005, Phillips chided him, telling him “Your problem, Ray, is that you fall in love with the property. You need to learn that what you do is buy the land, build on it, sell it and get out.” Pryke said he responded by telling Phillips, “I think the Victor Valley has great potential, Mr. Phillips.”
True to form, within three years of his purchase of the Hesperia Township, Phillips was turning his attention elsewhere, in this case to the “Salton Riviera” resort on the west shore of the Salton Sea. For that ambitious undertaking, he hired urban planner Albert Frey, who drew up designs for a business district, schools, churches, parks and civic buildings, an 18-hole golf course, a half million dollar luxury hotel, a marina and a yacht club. He laid out 25,000 residential lots and got builders working with him to pave more than 250 miles of roads, and installed supporting electrical power, water, and sewage infrastructure.
The sheer size of his project in Hesperia, however, meant that it would be years before all of the property he had there would be sold, and he and his companies remained involved there despite the distraction of the Salton Sea.
In May 1960, 71-year old Penn Phillips’ world, and that of those around him, was rocked when Henry Block, a deputy real estate commissioner with the state of California, charged Phillips with fraud and suspended his real estate license while declaring the intention of having it permanently revoked.
The charges against the M. Penn Phillips Company by the state division of real estate covered two broad areas of allegations.
The first was that in 18 specified instances starting around May, 1958, land in Hesperia was sold by fraudulent misrepresentations, deception and dishonest practices. It was further alleged that the sales were part of a scheme and plan fully known to Penn Phillips, the company president, as well as Faraon Jay Moss, second vice president, and Arthur A. Miller, secretary. Block asserted that Phillips, Moss and Miller “had full knowledge of allegedly false promises of certain salesmen and condoned… assisted, aided and abetted them in carrying on said common plan of fraudulent misrepresentation, deceit and dishonest practices.” Among the specific allegations was a charge that salesmen had sold land on the promise that the Phillips organization would build income-producing units on them when, in fact, a restricted covenant prohibited rezoning the land for business use until 1985.
The second charge was that the company had not properly notified the state real estate division that the public utilities commission had claimed that the water system supplying 66 tracts in Hesperia was inadequate and a possible health hazard.
The state issued a cease and desist order forbidding the company to sell or transfer any of its Hesperia holdings until it was demonstrated that an adequate supply of potable water and an adequate distribution system was available.
Others named with Phillips in the suit were the M. Penn Phillips Co., formerly known as Omart Investment Co. Ltd.; Carlo Peter Giuntini, Phillips son-in-law; Moss; Miller; Katherine Agnes Kelly, Richard Kimball Thayer, Phillip Oliver Washington, Milton Samuel Frankfort, Daniel Keiserman, Edward Eli Singer, David Rudin, Leon Schwartz and Lester Alden McGuire.
Block accused the company of “pretending” to have discontinued the formal employment of one salesman, Milton Frankfort. Frankfort held only a restricted broker’s license, having been convicted in 1951 of criminal conspiracy to cheat and defraud by criminal means and to obtain money by false pretenses and by false promises and to commit grand theft, a felony.
The state’s case against the M. Penn Phillips Company consisted of evidence of misrepresentations by its salespeople, most notably Frankfort. Cited in some detail by Block and real estate commissioner W.A. Savage was the experience of a Hesperia couple who already owned two lots and agreed in June 1958 to contract to purchase another lot for $4,990, putting $490 down and making monthly payments of $55 thereafter, based on promises Frankfort made. Those promises included that the company was going to, according to Savage and Block, “build a series of income units along the airstrip in that tract; that there would be a lot of air traffic and a great demand for rentals; that a recreation area would be developed near the airport; that there would be a club known as the ‘Holiday Club’ and that said purchasers would be given a free membership in said club; that said purchasers would receive 20 percent discount on all activities thereof; that no member of the Phillips companies would develop any of the property in that vicinity in competition thereto; and that the company would construct income rental units on each of the said lots for the purchasers; would finance them; would manage them for a charge of 15 percent of the rentals; and that said purchasers would make between $7,000 and $9,000 per year as a result of income derived from said rental units.”
Savage charged these representations were false “because in truth and in fact the company had not planned to build units for lot purchasers along said airstrip; that respondent Frankfort had no reasonable ground for stating that there would be a lot of air traffic and a great demand for rentals; that no recreation area was planned or was ever thereafter developed near said lot…; that it was never intended that purchasers… be given a free membership in a club known as the Holiday Club or a free membership to any other club or that said purchasers… would receive a 20 percent discount on all activities thereof; that in truth and in fact several months thereafter one Harry Stanford of Phillips Company constructed a 16-unit motel on said airstrip…; that it was then untrue that said Phillips Company or any other affiliated company would build and finance and service rental units on said lot and that said purchasers would make between $7,000 and $9,0000 per year therefrom; that in truth and in fact no multiple income rental units could be built on said lot as the same was zoned for single residences only and that it was subject to a recorded restricted covenant until 1985 to that effect.”
Block further charged that some time before July 1, 1958, the Phillips Company “modified and changed said plan and scheme and sales program by pretending to discontinue the formal employment of respondent Frankfort and to pretend to sell lots to Capital Controls Corporation,” which Block described as Frankfort’s alter ego.
Setting up this purported corporation which, Block claims, was owned, controlled and operated by Frankfort, was done to insulate Phillips and other company executives from responsibility for any further or future fraudulent misrepresentations and false promises to be thereafter made by Frankfort, the state alleged.
In late May 1960, Lorne Pratt, a vice president of M. Penn Phillips Co. and Penn Phillips’ chief spokesman, working with a legal team, convinced a court to lift the sales ban on the Phillips firm. But in June 1960, Deputy California Attorney General Lee Stanton persuaded Superior Court Judge Joseph W. Vickers to reinstate the order as issued by Savage.
Ultimately, Frankfort was banned from the real estate profession altogether and Phillips was hit with a 160-day license suspension that was lifted in 1961. At that point, Phillips ceased being a player in Hesperia and San Bernardino County.
Phillip’s exodus from San Bernardino County corresponded with his departure from the Salton Sea real estate venture, one which sullied his reputation as much or more than the go-round in Hesperia.
After purchasing 19,600 acres on the periphery of the Salton Sea for under $2 per acre, Phillips promoted the community he said he was going to establish there as a “Riviera.” He invited the likes of Guy Lombardo, Jack Dempsey, Graucho Marx, Jerry Lewis and Frank Sinatra to boat races on the sea that were billed as the on-water equivalent to the Indianapolis 500 that attracted a seemingly large crowd. Nearly half those in attendance were real estate salesmen.
On the opening day for sales, May 21, 1958, Phillips, selling the same acre lots he had purchased for under $2 for $3,000 each, made $4.25 million in less than 24 hours. Within three years, Phillips sold all of his remaining interest in the Riviera to another development company. The grand shoreline community with the marina, yacht club, luxury hotel and golf course never materialized. By 1966, some 200 modest residential units would be built. Within another 20 years, all of those but a handful would be abandoned.
Just as he had sold his interest in the Salton Sea and the suspension of his California real estate license ended, Phillips departed California for another venture in Oregon, this one in that state’s Lake County. The Penn Phillips Company purchased over 72,000 acres around the desert area known as Fort Rock/Christmas Lake. Penn constructed a $100,000 A-framed lodge as well as a nine-hole golf course, an airstrip, and a small artificial lake on the land and initiated an aggressive sales campaign, targeting the sale of parcels and lots to retirees in the Los Angeles area, advertising the land as perfect for small farms. Phillips’ salespeople confidently predicted the population of Christmas Lake would zoom to 5,000. That never materialized and by 1966 he was embroiled in a dispute with the state of Oregon over property tax valuations. Christmas Lake’s population topped out at 150 by the time construction there ended.
As in California, Phillips would eventually be charged with misrepresentation by the state of Oregon. He was sued by discontented purchasers, The M. Penn Phillips Co. ended corporate operations in 1970. On May 24, 1979, Penn Phillips died at the age of 91, in great wealth and comfort, in Sierra Madre, California.
By Mark Gutglueck