Interest Rate Confirmed in Irvine Co. Suit

A Michigan court referee issued a letter Thursday confirming a preliminary ruling he made Tuesday on several major issues in the seven-year dispute between Joan Irvine Smith and the Irvine Co.

Referee Robert B. Webster, in the letter sent to attorneys for both sides, confirmed that he would use a 1989 Michigan law to determine the interest the company owes Smith on a $149-million award for her sale of the firm’s stock in 1983.

Smith, granddaughter of the founder of the sprawling Irvine Ranch, wanted an earlier law used that would have allowed her to collect up to 12% compounded, or roughly $180 million.

Webster’s decision means that the company will have to pay interest based on its average corporate borrowing rate over the past seven years. Company officials said that the rate should be just above 9%. That would mean the company, headed by billionaire Donald L. Bren, would owe Smith $100 million to $125 million in interest depending on how the interest is calculated--simple or compounded.

The referee, a retired judge, also ruled that he made a slight error in his earlier decision on Smith’s award. The correction will result in nearly $2 million being added to the amount Smith is owed.

Smith and her mother, Athalie L. Clarke, stand to collect about $250 million for their 11% stake in the company, which owns nearly one-sixth of the land in Orange County.

Further hearings to decide the remaining issues in the dispute are expected to be held in November. The referee’s decision can be appealed.

The Irvine Co. officials said they are pleased with the referee’s decision, which could save it up to $80 million in interest payments. Smith’s lawyers withheld judgment, saying it was too early to say if they would appeal or not.

“We believe that on the major issues we prevailed,” said Irvine Co. spokesman Larry Thomas.

The dispute has been a bitter and public battle for two of Orange County’s wealthiest and most private citizens. It stems from Bren’s effort to gain control of the real estate development firm in 1983.

Bren bought out other stockholders and Smith agreed to sell her shares as well. But they could not agree on a price. Smith wanted $330 million, saying the company was worth $3 billion. Bren offered $114 million, saying the firm was valued at $1 billion.

After 150 days of hearings in 1987 and 1988, the referee ruled in June that Smith should get $149 million--$35 million more than she was first offered. Webster said the company was worth $1.35 billion in 1983.

The decision cleared the way for resolution of the long-running dispute. Only the issues of interest, payment of legal costs and possible sanctions remain. The referee has indicated that legal costs--expected to be more than $30 million--should be borne by each side.