Referee to Rule on Interest Due in Irvine Co. Suit : Litigation: More than $100 million is riding on which of several formulas will be used to calculate interest owed to Joan Irvine Smith.
A court-appointed referee will conduct a hearing Sept. 25 in Detroit to decide how interest owed to heiress Joan Irvine Smith and her mother for their $149-million stake in the Irvine Co. should be calculated.
Referee Robert B. Webster also will consider arguments on the payment of costs associated with the 7-year-old dispute between Smith and the company. In addition, he will hear arguments from Smith’s attorneys that he made clerical errors and oversights that lowered the amount he awarded Smith and her mother for their stock.
“There is a lot of money at stake,” said Donald Morrow, an attorney for Paul Hastings, Janofsky & Walker, the law firm representing the Irvine Co.
The method of calculating the interest that has accrued during the legal battle is considered important. Assuming that the interest would be figured on a simple or compound basis and range between 6% and 12%, it could total $59.7 million to $168.8 million, Morrow noted.
The case goes back to 1983, when Smith and her mother, Athalie Clarke, refused to accept the $114 million that Irvine Co. Chairman Donald L. Bren offered for their stock. They claimed that their 11% stake was worth $330 million.
The dispute forced the firm to file a lawsuit in Michigan, where it is incorporated, to have the court determine a fair market price for the stock.
On June 25, Webster ruled that Smith should be paid $35 million more than she was offered seven years earlier. Both sides claimed that the decision was a victory.
The question of the interest due and who will pay about $30 million in legal costs stemming from the court hearings will center on an October, 1989, change in a Michigan law. Under the old statute, the court would have broad discretion to determine an “equitable” interest rate, while the new law specifies that it should be calculated using a formula tied to a company’s average corporate borrowing rate.
Howard Friedman, Smith’s attorney, will argue that the new statute was not intended to apply retroactively. William Campbell, lead attorney for the Irvine Co., said the firm will maintain that the new statute should be used to determine the interest.
Morrow said that while the company is still refining its calculations, the average interest it paid its bank lenders during the period of the lawsuit was about 9.5%. Applied to Smith’s award, that would yield about $94 million in simple interest and $124.2 million in compounded interest.
Friedman said that while he does not believe that the statute chosen to govern the shareholder lawsuit will have much impact on the amount of interest that will be paid, he believes that it could have an important influence on the awarding of court costs.
Each side is trying to get the other to pay its legal bills, estimated at about $15 million each. The Irvine Co. believes that it would be favored more by the new statute, while Friedman agrees that the old statute is advantageous to Smith.
Friedman said Webster has also agreed to hear arguments about allegedly “inadvertent” mistakes made in determining Smith’s award. “We think there are some arithmetic and clerical errors,” he said. “Also, we think there are some assets (of the Irvine Co.) that he hasn’t seen.”
In addition, Campbell said that at the Sept. 25 hearing the Irvine Co. will demand compensation from Smith for costs associated with a 60-day delay in the trial that occurred when her lawyers ordered some studies of the company’s value to be redone. He said the extra work involved in analyzing the new studies cost the company about $700,000.
