Heiress’ Opposition to Contracts Recalled : Favoritism Concern Was Unfounded, Irvine Co. Chief Testifies

When she was a director of the Irvine Co., Joan Irvine Smith opposed the firm’s practice of entering into business contracts with other board members, Irvine Co. Chairman Donald Bren testified Thursday.

Under questioning by Smith’s attorney, Howard Friedman, Bren acknowledged that Smith had objected to a contract under which his firm, the Bren Co., continued to build homes on Irvine Co. property after an investor group including Bren bought the company in 1977.

Bren also said Smith was concerned that some of the Irvine Co.’s agricultural produce was marketed by a firm owned by Irvine Co. director Howard Marguleas and that former Irvine Co. Chairman A. Alfred Taubman was under contract to manage the Fashion Island shopping center in Newport Beach and to develop and manage a major regional shopping mall planned in Irvine.

‘Sense of Paranoia’

While Friedman argued that Smith was worried about potential conflicts of interest, Bren said he considered her concerns unfounded.

“She was always suggesting that some kind of strange, unusual situation was taking place that I frankly never understood,” Bren said.

He said all contracts with board members were handled “on an arm’s-length basis,” without any favoritism.

He added that Smith’s attitude reflected “some sense of paranoia.”

“I didn’t ask for a psychoanalysis,” Friedman interjected, after which trial referee Robert Webster agreed to strike Bren’s “paranoia” statement from the court record.

In his second day of cross-questioning, Friedman suggested that Bren has acted in ways that gave Smith reason to distrust him.

Smith’s rationality has become a key issue in a trial that will determine how much Bren must pay Smith and her mother, Athalie Clarke, for the 11% interest they held in the Irvine Co. before Bren acquired a controlling interest in the company in 1983.

Smith and her mother are demanding $500 million for their stock, while Bren is offering to pay them $88 million.

Friedman’s line of questioning Thursday seemed designed to rebut contentions that Smith’s opposition to Bren’s 1983 buyout was consistent with a continuing pattern of automatic opposition to actions approved by the Irvine Co. board.

Letter Put in Evidence

In raising the conflict-of-interest issue, Friedman offered no evidence that the actions of those directors who did business with the Irvine Co. were not in the best interest of the company.

In a Jan. 11, 1978, letter sent to Taubman by Smith, she said she had “nothing specific in mind” in raising questions about the company’s contracting policy.

“I think the principle is important because of the wide-ranging impact that the company’s activities have in the entire Orange County area, and for that reason, I think we must be exceedingly careful to avoid both the appearance of and the reality of conflicts with respect to those to whom we look for professional counseling and advice,” Smith said in the letter, which was submitted as evidence by Friedman.