Irvine Co. Case Turning to Issue of Interest Payment

Two squads of California lawyers unpacked their pin-stripe suits and legal briefs here Monday and prepared to do battle this morning over as much as $180 million in interest due from the 1983 sale of stock in Irvine Co.

The confrontation is the latest chapter in a seven-year legal fight that pits Joan Irvine Smith, whose grandfather founded the sprawling Irvine Ranch, and Donald L. Bren, the Newport Beach billionaire who now controls the giant real estate concern.

A Michigan court referee in June decided that Smith and her mother, Athalie Clarke, should get $149 million for their 11% stake in the company. What remains to be decided is the interest--accumulated over seven years--owed to Smith on that award.

Smith’s lawyers will argue that the rate should be determined under the Michigan law in force in 1983, when the sale occurred. That law leaves the interest rate up to the referee within certain limits, probably including a Michigan law that caps interest rates at 12%.

The heiress’ lawyers say they may ask for as much as a 12% compound interest rate, which would amount to an additional $180 million.

Irvine Co. lawyers will argue that the referee should elect to follow another Michigan law that took effect only last year, before the referee ruled on the case. That law sets the interest rate in such cases at the company’s average borrowing rate, which the company says has been between 9% and 10% the last seven years.

The company will also argue that the amount be computed using simple interest. In other words, each year’s interest would not be added into the principle on which the interest is figured. At 10% simple interest, the amount due Smith would be $104 million.

The complex case is being heard in Michigan because the company is incorporated there. The lawsuit was filed by the company in 1983, when it could not come to an agreement with Smith over what she should be paid for her stock. The case came to trial in 1987 and took up 150 days in court over the next two years before Referee Robert B. Webster, a retired judge, issued his opinion in June.

Smith, whose grandfather, James Irvine, founded the ranch in the 19th Century, had asked $330 million for her stake, saying that the company was worth $3 billion. Irvine Co. Chairman Donald L. Bren, 58, one of the nation’s richest men, offered her $114 million when he bought control of the company in 1983. Bren valued the company’s assets at $1 billion.

After months of testimony by Bren, company executives, Smith, her mother and expert witnesses for both sides, the referee set the value of the company’s vast land holdings and office, apartment and industrial buildings at $1.36 billion.

The award to Smith was far less than she had asked for, but $35 million--or about 35%--more than the company had offered. Both sides claimed victory.

Another issue to be settled is legal costs of more than $30 million--$15 million on each side--that the company estimated was expended during the seven-year dispute.

Each side will argue in hearings today and Wednesday that the other should pay costs and legal fees. Smith’s lawyers declined to say how much the court battle has cost the pugnacious heiress, who has quarreled with company management for 30 of her 57 years.

Both sides say the case could continue through further costly hearings if the judge agrees with Smith’s contention that he should follow the old law and use his discretion in setting the interest rate.

Lawyers for Bren and Smith have discussed settling the matter out of court. “But the short answer is that we’re still quite far apart,” said William B. Campbell, an Irvine Co. lawyer.

The fact that a settlement is unlikely is not surprising. The trial testimony at times reflected some hard feelings between Bren, the urbane billionaire, and Smith, the feisty horsewoman.

Smith’s lawyers accused Bren of trying to stampede Smith and other shareholders into selling their stock by sowing dissent on the company’s board. While the referee didn’t consider it a major point, he did note in his June opinion that an accounting firm which shareholders relied on for an estimate of the company’s value, Los Angeles-based Kenneth Leventhal & Co., was secretly in the employ of Bren.

Bren’s lawyers argued that Smith’s experts had wildly overestimated the value of the company, and in fact the referee said one of their experts, prominent consultant Steven E. Roulac of San Francisco, was unconvincing in his testimony.

IRVINE CO. VS. JOAN IRVINE SMITH In June, a court referee ruled that Irvine Co. must pay $149 million to Joan Irvine Smith and her mother, Athalie Clarke, for their 11% interest in the real estate development firm. That was $35 million more than the company agreed to pay her in 1983. Still to be resolved are four major issues:

The amount of interest that the company should pay Smith on the $149-million award for the past seven years. The interest could amount to as much as $180 million.

The payment of attorney fees and court costs. Both sides say the combined costs exceed $30 million.

Whether damages should be assessed to either side for violations of pretrial orders or discovery abuses in the proceedings.

Whether the referee’s determination of the company’s 1983 value of $1.36 billion ought to be adjusted because of errors.

Source: Representatives of Irvine Co. and Joan Irvine Smith