7-Year Irvine Co. Dispute Settled : Ruling: A Michigan court referee decides that heiress Joan Irvine Smith should be paid $35 million more than she was offered for her shares in 1983.

A Michigan court referee ruled Monday that Joan Irvine Smith, the Irvine Co. heiress, should be paid $149 million plus interest for her stock in the company--$35 million more than she was offered in 1983.

The decision, in one of the largest such cases on record, may end a bitter 7-year-old dispute that pitted two of Orange County’s wealthiest and most private residents against each other. The nasty public battle revolved around whether Smith had been fairly compensated for her shares in the company when Irvine Co. Chairman Donald L. Bren bought most of it.

The high-stakes trial was the stuff of a television miniseries: On one side was Bren, an intense, reserved billionaire with enough land and power to impose his own architectural vision on a huge slice of Southern California. On the other was Smith, a feisty member of the horsy set whose family traces its money and its toughness to the cattle ranching days of 19th-Century California.

And the stakes were huge indeed: The Irvine Co. owns nearly one-sixth of Orange County’s land.

Although Smith had demanded a much larger sum--$330 million plus interest--she and her attorney claimed victory Monday. Bren had offered to pay her $114 million. The amount of interest and the court costs--which could add up to millions more--must still be resolved.

“The ruling is closer to the company’s estimate, but we’re quite pleased,” said Howard I. Friedman, Smith’s attorney. “The bottom line is that Mrs. Smith gets approximately a 35% increase over what Mr. Bren was offering her.”

Said Smith, who with her mother Athalie Clarke owned 11% of the company: “I understand the Irvine Co. is saying this is a great victory. But I am not unhappy. It is still a lot of money.”

Smith--who, in deciding to sell to Bren, broke almost all the family’s links to the company--said she is going to take some time before she decides whether to appeal.

The Irvine Co., however, said it is pleased with the ruling because it “essentially rejected the entire basis of Mrs. Smith’s case,” said Gary H. Hunt, Irvine Co. senior vice president. After subtracting millions of dollars in legal costs, “the bottom line is that Mrs. Smith and her mother will receive only modestly more than she would have received on the day the merger was approved in 1983.”

Hunt said the company is unlikely to appeal. Bren, who is one of the nation’s richest men, was visiting Italy Monday and could not be reached for comment.

Development officials in the county said they expect the outcome to have little impact on the Irvine Co.’s various local projects.

There are still some issues to be determined by referee Robert B. Webster, a retired Michigan judge who presided over the case.

The biggest will be the subject of a hearing to determine how much interest Smith will get on the $149 million. Smith’s attorney estimates that the interest could add as much as $26 million more to the total over the seven-year life of the case. Irvine Co. attorneys said it would probably be considerably less.

The referee may also decide to award attorney’s fees to one side or another. The Irvine Co. estimates that its legal expenses total $15 million over the seven years and that Smith’s costs are probably about the same.

Webster, who was appointed to hear the case so that it would not tie up a courtroom for years, said he would leave the issue of attorney fees up to the Michigan Circuit Court, which must approve his ruling. The trial was held in Michigan because the company is incorporated there.

The company said it was long prepared to pay as much as $200 million--far more than the referee awarded--and that it is able to pay the award through lines of credit already established with lenders. The amount is not payable until the issues of interest and attorneys’ costs are resolved.

Smith had been asking for $330 million plus interest, or about $500 million, an amount that might have seriously hurt even a landholder as large as the Irvine Co.

Bren, 57, bought out his fellow shareholders in 1983 for a whopping $200,000 a share. The group had bought the shares just six years before at $6,000; they reaped a 3,400% return on their investment.

Smith, 57, whose grandfather founded the Irvine Co. in 1894, also agreed to sell her 550 shares, but she demanded three times more, or $600,000 a share. Thousands of acres in Orange County’s most desirable neighborhoods, she insisted, were worth that much. (With Monday’s ruling, she wound up with $271,000 a share.)

When the two could not agree, the company had to go to court and ask a judge to set a fair price. Smith had the right to insist on a court hearing under state laws that protect shareholders of privately held companies from being squeezed out at unfair prices.

The subsequent trial, held in a rented office outside Detroit, dragged on through 150 days in the courtroom between 1987 and 1989. It covered 27,000 pages in trial transcripts and pleadings, chewed up an estimated $30 million in legal fees and left both sides with tarnished images.

Smith painted Bren as a conniving schemer and Bren’s attorneys portrayed her as a greedy, litigious eccentric. She contended that Bren exaggerated the company’s problems in order to frighten and mislead shareholders and railroad them into selling at a low price.

Ridiculous, said Bren, pointing out that other shareholders who sold to him at $200,000 a share were among the most astute investors in the nation--Wall Street investment bankers and executives of large corporations such as auto chief Henry Ford II and shopping center developer A. Alfred Taubman. It was unlikely, Bren argued, that these men would underestimate the value of their stock by $400,000 a share. Therefore, he said, the court should accept that price as fair.

The referee in his ruling Monday rejected Bren’s contention that the 1983 sale price was the best representation of the company’s value. But he also rejected the opinions of three experts Smith put on the stand, who put the company’s worth at more than $3 billion in 1983.

The referee did largely accept the testimony of the company’s own experts, who appraised the company at $1.22 billion. The referee adjusted that estimate slightly to come up with his $1.36-billion estimate of the company’s worth.

Cases such as these are complicated because it is hard to value the stock of a privately held company, which the Irvine Co. is. Unlike that of a public company, the stock is not traded openly on an exchange, where the price is determined by public demand and can be easily tracked in newspaper stock tables.

The Irvine Co. is especially hard to value because there is nothing to compare it to: It owns a stretch of immensely valuable Orange County land 22 miles across and 9 miles deep in some places, a stretch squarely in the path of growth moving south from Los Angeles. Some of the 64,000 acres it owns have sold for more than $1 million. It is, in fact, the largest private owner of land in any of the nation’s metropolitan areas.

The case breaks some new legal ground, said William B. Campbell, an attorney representing the Irvine Co. Campbell said the referee, in rejecting Smith’s estimate of the company’s value, also rejected a legal doctrine known as the “Delaware block,” which rigidly prescribes the way a company is valued for legal purposes.

The referee, Campbell said, rejected that method as old-fashioned. Courts had been chipping away at the doctrine, he said, but so far none had rejected it out of hand.

The bright side for Bren is that he has not had to pay a dime to Smith in the meantime. The Irvine Co. has been able to keep and use millions of dollars it would otherwise have had to pay Smith in 1983 if she had agreed then to Bren’s offer.

Forbes magazine estimates Bren’s net worth at $1.8 billion, making him one of the 20 richest people in the nation--wealthier than much better-known tycoons such as Ted Turner, Donald J. Trump, Harry Helmsley, Rupert Murdoch and August Busch.

But Bren does not like to talk about his wealth. The profiles in national publications make him downright uneasy. That is partly because he loathes publicity and partly because speculation about his wealth riles California’s powerful slow-growth movement and irks environmentalists who question why Bren needs to develop more vacant land when he is already a billionaire.

Bren and Smith represent two antagonistic California cultures.

Bren, the son of a Hollywood producer, grew up in classic California new-money style. He began amassing his fortune in the building boom that began in California after World War II.

Smith grew up riding horses over the vast family holdings, a scion of a family that had already been rich for two generations by the time she was born and that saw the ranch as its barony. Smith now stages horse shows at her stables near San Juan Capistrano.

Smith has been fighting with Irvine Co. management since taking a seat on the company’s board at age 24 in 1957, when women were expected to defer to male business judgment. She had 22% of the stock; her grandfather had put most of the rest in a trust, run by a foundation, in order to lessen inheritance taxes and prevent the ranch from being sold.

Some of her fights were more or less public-spirited; she pressured a reluctant company to donate land to build the University of California at Irvine. Some were more pragmatic; she continually complained about the small dividends on her stock.

In 1977, Smith forced the foundation to sell the company for $337 million. Buying was a group of heavyweight investors led by Taubman, a Detroit real-estate magnate estimated by Forbes to be even richer than Bren. The group took in Smith, who sold them her 22% of the shares for $72 million and then bought half of it back--11%--for $3.3 million. The largest investor by far--he bought a third of the shares--was Bren, by then a millionaire California home builder.

The company prospered until the recession of the early 1980s, when Bren began to complain that the company was selling far too much land to accumulate short-term profits and was not planning adequately for the future.

After arguing with Taubman, who was the chairman, Bren offered to buy the company in 1983. For the purpose of putting a price on the shares, he valued the company at $1 billion. Most of the investors sold, including Smith-- who argued that the company was actually worth $3 billion.

Times staff writer Leslie Berkman contributed to this report.

THE COURT CONFLICT

The battle over the value of the Irvine Co.’s stock centered on several issues that were aired in a lengthy trial in Michigan in 1987-88. Those issues and the stance of the opposing parties are outlined below: DONALD L. BREN’S ARGUMENTS:

He says the Irvine Co. was worth only $1 billion in 1983. So Smith’s stock was worth only about $114 million that year and--after other shareholders sold--only $88 million since Bren no longer needed her shares to control the company. Here are his reasons, according to Bren’s lawyers:

It’s unlikely that the other shareholders--some of the most experienced investors in the nation, under no pressure to sell and intimately familiar with the company--would underestimate the worth of their own stock by two-thirds, as Smith insists they did.

Smith is merely seeking a windfall from her stock without sharing any of the risks faced by the company over the last seven years.

Smith’s own experts couldn’t agree on whether the company was worth $2.6 billion or $3.3 billion, a sizable difference of $600 million. She’s essentially asking a judge to “pick a number” out of the air.

The company’s own hired appraisers consistently came up with a value of around $1 billion.

If Smith thought the company was so valuable, why--instead of selling--didn’t she accept Bren’s alternative offer to double her shares in the company at no extra cost? The explanation: She must have thought the company was worth less than $1 billion. JOAN IRVINE SMITH’S ARGUMENTS:

She says the Irvine Co. was worth about $3 billion in 1983, when Bren bought it based on a valuation of only $1 billion. So her 11% of the company’s stock should be worth about $330 million instead of the amount Bren offered, she says. Here’s why, according to her lawyers:

Since the privately held company wasn’t shopped around to a lot of other buyers who might have made higher offers, it’s impossible to know whether the $1-billion value Bren set on the company is a fair price. One sale--to Bren--isn’t enough to determine a fair price.

The company seriously underestimated its worth and overstated its taxes at the time of the sale.

By painting a bleak picture of the company and then stirring up dissension in 1983, Bren duped fellow investors and pressured them into selling.

Smith also rejected an alternative offer to double her stock in the company at no cost because she feared that Bren would ruin the company by loading it with debt once he was in control.

The other shareholders may have been extremely successful business people, but because the Irvine Co. is so large as to be virtually unique, they had no other companies to compare it to and thus didn’t realize its full value. Source: The Irvine Co. and attorneys in the case

The Irvine Co.’s major projects The Irvine Co. still owns more than 64,000 acres in Orange County. The following is a list of the company’s major projects that are under development or are being planned: The Newport Coast: After years of fighting with environmental groups, The Irvine Co. scaled back its plans for the stretch of barren coast between Newport Beach and Laguna Beach. Once called the Irvine Coast, the company changed the name recently to the snazzier Newport Coast. The company has approval from the county and the Coastal Commission to build three hotels, two golf courses and up to 2,600 homes on the hills’ 9,400 acres, 7,200 of which will be open space. The first 50 or so lots for houses will probably go on sale later this year, the golf courses open next year, and the hotels open in 1993. Laguna Laurel: The company has approval from county government to build what’s essentially a small town of 3,200 homes with its own golf course, school and shopping center on 2,150 acres in Laguna Canyon, which stretches inland from Laguna Beach. But a massive demonstration last year persuaded the company it had better delay construction, despite the fact that at that point it needed only minor technical approvals from the county. The project is on hold while Laguna Beach, the company and environmentalists study putting a bond issue on the ballot to buy the land from the company with public funds. Irvine housing: The company is finishing up two residential neighborhoods, Westpark and Turtle Rock. It had requests before the city to build more houses in Westpark and the Northwood neighborhood but withdrew them recently while it waits for the city to decide how much affordable housing it will require developers to build. Jamboree Center: At the San Diego Freeway and Jamboree Road in Irvine, the company is building the last two of five mid-rise office buildings. Jamboree Center has landed more large tenants recently than any other office project in the county, allowing the company to construct the buildings ahead of schedule. Irvine Spectrum: At the intersection of the San Diego and Santa Ana freeways in Irvine, the company is building what it says is the largest business park in the world. The company is selling some of the 2,600 acres at Spectrum and keeping others to build its own portfolio of industrial and office buildings. A mall is also planned, although the company has had trouble signing up major tenants. Spectrum is about two-thirds completed. Tustin Ranch: About 1,500 homes have already been built on 1,740 acres the company owns in unincorporated part of the the county abutting the city of Tustin. A total of 9,000 are planned and approved. Orange: The company’s East Orange development covers 7,00 acres just east of the city of Orange but within the city’s planning jurisdiction. The company proposes to build up to 12,350 houses here, and the city in December approved the company’s rough plans for the first 1,500 acres. It’ll be another 18 months before the company refines it’s plans enough to begin construction. Anaheim Canyon: East of the city of Anaheim in the canyons at the furthermost reach of the company’s landholdings, the company proposed recently to build 10,000 homes, although no official application has been made to the city yet. An outcry from environmentalists and others made the company reconsider its plans, which it now says will be “scaled back significantly.” Source: Los Angeles Times file and The Irvine Co. Irvine Co. Coverage A LOOK AT SUCCESS--Donald Bren has literally changed the geography of a good part of Orange County, but he’s a private man. A20 HEIRESS’ FIGHT--Some believe Joan Irvine Smith enjoys tweaking the Irvine Co.’s nose as much as increasing her fortune. A20 UNDENTED--Most observers agree that the ruling in the lawsuit won’t affect the giant company much, if at all. A21 ISSUES--Arguments of Donald Bren and Joan Irvine Smith. A21