Smith, Irvine Co. Dispute Interest--Up to $180 Million

Attorneys for the Irvine Co. and Joan Irvine Smith argued for what could be the last time Thursday in the company’s seven-year lawsuit against the heiress.

A court-appointed referee will now decide whether Smith will get up to $180 million in interest, in addition to the $150.5 million he awarded her in June for selling her stock in the company.

The company contends that she should get $96 million in interest.

The case began when Irvine Co. Chairman Donald L. Bren bought control of the Newport Beach landowner in 1983. His first offer to Smith was $110 million for her 11% of the stock; she wanted $330 million.

She forced the company to sue her and to ask the courts in Michigan, where the company is incorporated, to set a fair price. Once the question of price was settled, both sides began debating the question of interest.

The company won a round in September when Referee Robert B. Webster, a retired judge, agreed that the interest rate should be determined under a new Michigan law that sets the rate at the average charged the company by its lenders.

That figure is 9.16%, the company’s attorneys told Webster on Thursday in a one-day hearing. At simple interest, that would come to $96 million through October.

Smith had asked for 12%, under an old law that left the interest rate to the courts’ discretion.

As it is, the new law’s vague definition of the company’s “average borrowing rate” leaves room for legal maneuvering, and Smith’s attorneys are still asking for a rate as high as 11.25%.

Compounded monthly over the last seven years, that would come to $178.5 million in interest on the $150.5 million.

But Smith’s attorneys Thursday also suggested several other approaches to calculating the company’s average borrowing rate, most of which were lower than 11.25%.

Much of Thursday’s hearing--held in Webster’s law offices in a Detroit suburb--was taken up with highly technical arguments on how the borrowing rate should be computed.

The referee is expected to rule soon on whether the interest should be compound or simple--a decision that could involve tens of millions of dollars.

The referee also heard Smith’s attorneys argue Thursday that she should get $17 million in court costs: fees for attorneys and expert witnesses.

Assuming that the Irvine Co. has run up the same amount in bills, the long and complicated case may have cost both sides roughly $35 million.