After 17 Months, Irvine Co. Trial Boils Down to Final Arguments

BLOOMFIELD HILLS, Mich. — After 17 months of litigation in two states, the interminable Irvine Co. trial is finally nearing an end. Maybe.

Lawyers for the county’s largest land company and an Irvine family heiress will deliver closing arguments today and Thursday as the high-stakes trial resumes in Michigan, where the Irvine Co. is incorporated.

Each side will take about 5 hours to wrap up in a Bloomfield Hills office, which has been fashioned into a temporary state courtroom. Then it’s back to California to wait for the final decision, expected to be delivered in the spring. The ruling by the court-appointed referee, Robert Webster, will most likely be appealed.

At issue is whether Joan Irvine Smith, the 56-year-old granddaughter of Irvine Co. founder James Irvine II, was cheated out of hundreds of millions of dollars, plus interest, by Irvine Co. Chairman Donald L. Bren. The trial will determine the value of her shares when Bren bought out most company stockholders in 1983.

At that time, Bren offered Smith $110 million for her 11% share stake in the company, half of which is in a trust from which her mother, Athalie Clark, draws interest.

Smith agreed to sell her shares but rejected the price offered by Bren. Smith insisted that she would take no less than $330 million. With interest, she contends, her stake would now be worth $500 million.

Bren, meanwhile, has reduced his offer to $88 million.

To resolve the dispute, the Irvine Co. was required to sue Smith to determine the company’s value.

During the trial, lawyers for Smith alleged that Bren deliberately tried to buy out Smith and other stockholders for less than their shares were worth. They alleged that the company was worth about $3 billion at the time. Bren estimated that figure at $1 billion.

Company lawyers alleged that the other stockholders thought they received a fair deal and that Smith is just using the lawsuit to continue an ongoing feud with Irvine Co. management over company direction.

In testimony earlier this year, Bren alleged that it was necessary to gain control of the company to give the firm a clearer strategy. Smith did not testify.

Among the company’s 34 other major stockholders were Detroit shopping mall magnate A. Alfred Taubman; oilman Max Fisher; New York financier Herbert Allen Sr.; retail entrepreneur Milton Petrie, and automobile baron Henry Ford II. They accepted Bren’s $1-billion valuation, which was endorsed by First Boston Corp., an investment banking firm, and other consultants.

It was Taubman, in fact, who led a group of investors who bought the Irvine Co. in 1977 to keep it out of the hands of Mobil Oil Corp. Bren was a member of that original group before becoming chairman.

Irvine Co. attorney William B. Campbell argued that the investors were all shrewd business people who could not have been duped out of millions.

To buy out those stockholders in 1983, Bren had to borrow $560 million to boost his ownership from 34% to 86%. To repay it, he mortgaged company-owned buildings and cashed certificates of deposit.

Smith and her mother, Clark, tried to block the buyout, which allowed Bren to transfer that $560-million debt to the Irvine Co. The mother and daughter filed a $5-billion damage suit, but Orange County Superior Court Judge Phillip A. Petty denied Smith’s request for an injunction.

Because she was unsuccessful in that attempt, Smith said last year that she was tired of playing watchdog to protect her financial interests. That is the apparent reason she is eager to take the money she alleges she is owed and sever ties with the Irvine Co.

The Irvine Co., founded by Smith’s grandfather in 1865, once owned more than 98,000 acres. It now owns 68,000 acres, about one-sixth of all the land in Orange County. The company also owns many of the county’s largest industrial parks and offices, including Newport Center and the Irvine Spectrum.

Last spring, Irvine Co. lawyer Campbell estimated that the lengthy trial had been costing the company $20,000 a day in legal fees since it began in August, 1987. That would be about $10 million by now.

During that time, Campbell also estimated that the trial might take up to a year to complete. He was just about on track.

“Of course, this trial is running on longer than any of us could have imagined,” he said. “And yes, flying back and forth between California and Michigan for all these months has taken its toll on our lives, both professionally and personally.”

One of the reasons the trial has been prolonged is because of a long list of witnesses who offered technical testimony, including real estate accountants and consultants.

In a bid to expedite the proceedings, Campbell filed a motion in March for the Irvine Co. that sought to prevent Smith’s attorney, Howard I. Friedman, from presenting those consultants and accountants, who testified that the assessment of the Irvine Co.’s worth in 1983 was far greater than what Bren paid for it.

In his motion, Campbell argued that their valuations were worthless because the actual value of a business is what someone is willing to pay for it on the market. But that motion was rejected by a Michigan Circuit Court judge.

During the trial, Campbell said the case would be a legal trailblazer in Michigan, where there has been little precedent for determining the fair market value of a privately held company.