Bren, Smith Go Another Round in Legal Battle : Lawsuit: At issue now are interest on the heiress’s award and payment of legal fees in the 7-year court fight over the value of her stake in the Irvine Co.

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

The battle is the latest skirmish in a 7-year legal war that pits Joan Irvine Smith, whose grandfather founded the sprawling Irvine Ranch, against Donald L. Bren, the Newport Beach billionaire who now controls the real estate giant.

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 7 years--owed to Smith on that award.

Smith’s lawyers will argue that the interest rate should be determined under a 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’s lawyers say they may ask for as much as a 12% compound interest rate, which would amount to an additional $180 million for Smith.

The Irvine Co. lawyers will argue that the referee should elect to follow another Michigan law that took effect only last year but before the referee ruled on the case. That law sets the interest rate in such cases at the company’s borrowing rate, which the company says has averaged between 9% and 10% over 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 subsequent 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 the company was worth $3 billion. Irvine Co. Chairman 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 landholdings 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 her. Both sides claimed victory.

Another issue to be settled is payment of legal costs of more than $30 million, or $15 million each, expended in the 7-year dispute, according to the company’s estimate.

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

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

That would likely require more time and more expensive expert witnesses, say lawyers for both sides. There is also a chance, the Irvine Co. says, that the referee could set a lower interest rate than either side is now discussing.

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, a lawyer for the Irvine Co.

The fact that a settlement is unlikely is not surprising. The trial testimony has, 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 at the time.

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

The company’s lawyers also argued that Smith is an eccentric, litigious woman who simply likes battling the powerful landowning and development company, which was originally formed to manage the Irvine family’s huge ranch. In fact, as they attempt to recover the company’s legal fees, Irvine Co. lawyers will argue that Smith filed the suit merely to be “vexatious.”

But Howard I. Friedman, Smith’s lawyer, denies that. “There’s clearly nothing vexatious about our case at all, and that’s clear from the fact the referee gave us a third more money than Mr. Bren was offering,” he said.

The case has dragged on for so long because it is extremely difficult to set a value on privately held companies, especially one as unique as the Irvine Co., which owns about one-sixth of the land in Orange County and is said to be the largest private urban landholder in America.

It is one of the largest such cases on record, since few people can afford the time and expense of bringing such an action.

Both sides will also argue that the referee made mathematical and technical errors in setting a value on the company that could decrease Smith’s award by $17 million or increase it by as much as $20 million.

So far, Smith hasn’t collected a penny and won’t until these matters are settled and the results certified by the Michigan courts. The case has been heard by a referee outside the court system so as not to tie up a courtroom and a judge for years.

How much interest is awarded and whether one side must pay the other’s costs will go a long way toward bolstering one side’s claim to victory.

What seems certain now is that still more time will pass before the referee decides which law--the old or the new--will guide him in determining the interest. At that time, a second--and last--hearing will be scheduled in this affluent Detroit suburb. Depending on how the referee rules after this week’s hearing, the second hearing could be merely a formality or another long chapter in this lengthy fight.

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