Irvine Co. Heirs Are Finally Paid Quarter-Billion
The 8-year-old dispute pitting the Irvine Co. against Joan Irvine Smith and her mother, Athalie R. Clarke, came to a close Tuesday when the company paid the two women a quarter of a billion dollars.
The company wired $127,934,845.01 into each of their bank accounts, payment for their stock in the giant landowner, which was founded by Smith’s grandfather in the 19th Century and still owns a sixth of Orange County. The figure comes from the value a court placed on the 5.5% of the stock each owns plus almost eight years’ interest.
The settlement ends once and for all the long, bitter lawsuit between two of the county’s richest and most prominent people: billionaire Donald L. Bren, 59, the Irvine Co. chairman who is one of the nation’s wealthiest men; and Smith, 58, the heiress who once rode horses on the sprawling family ranch. The ranch eventually became one of the world’s largest real estate empires.
The settlement also ends most of the Irvine family’s connections with the company after more than a century. Only two members still own a little stock.
Smith and Clarke had asked for almost $300 million each but both were awarded nearly $128 million last year after a lengthy trial. They elected to drop an appeal that could have taken years and cost millions of dollars more in lawyers’ fees.
Smith, Clarke and Bren met at a Newport Beach law firm Tuesday morning to sign the agreement, details of which were kept secret.
Despite the long, fractious legal dust-up between the three, they joked and posed for a photograph together. Bren reportedly told Smith not to spend “all the money in one place,” while Smith invited Bren to share a bottle of champagne at one of the horse shows she holds each year in San Juan Capistrano.
“He said he would love to come and asked if he could bring his daughter,” Smith said. “He said we will have some champagne and I said ‘absolutely.’ I will have him present one of the trophies.”
In turn, Smith said, Bren invited her to play golf with him on the new course the Irvine Co. is developing on the coast next to Crystal Cove State Park.
Smith said she spent the afternoon visiting several of her banks and arranging to invest the money in government securities, such as Treasury bills.
“Donald was very nice,” she said. “This dispute has always been strictly about money.
Bren returned to his Newport Beach office Tuesday afternoon and opened his own bottle of champagne to celebrate. He was not available for comment. None of the platoon of lawyers deployed by the combatants would comment.
The two sides issued a one-page statement that pointedly said “each expressed their intention to establish peaceful coexistence that will preclude any future controversy among them.”
That seemed to bring to an end nearly 30 years of on-and-off battles Smith has waged with the company her family founded.
This court fight began in 1983 when Bren, until then just another Southern California home builder, bought most of the stock in the company. Owning it eventually made him a billionaire. Smith, once an ally of Bren’s on the company’s board, agreed to sell her shares to him. But she said Bren was trying to cheat her by offering $115 million for the family’s 11% of the stock. That was $200,000 a share, the price the other shareholders accepted.
But Smith demanded $363 million, or $600,000 a share, which she said was a far more realistic figure for her share of the company’s vast holdings.
She forced the company to file a lawsuit against her asking the courts to fairly value the stock. The case then slogged through the courts in Michigan, where the company is incorporated.
After more than $30 million in legal fees and endless trips to the suburbs of Detroit to try the case, the main issue was settled a year ago when a court-appointed referee ruled that Smith should get $150.5 million for her stock. In so ruling, the referee largely accepted the testimony of the company’s expert witnesses but adjusted their estimates upward.
The amount was $35.5 million more than Bren had offered, but $213 million less than Smith had wanted. Both sides claimed victory.
But lately the rulings in the case have clearly gone against Smith.
Smith had asked for a compound interest rate of 11.5% on the award, which would have brought her and her mother more than $200 million in interest; the company argued for a simple interest rate of 9.16%. The referee awarded simple interest of 9.22% for a total of about $105 million.
Smith had asked to be reimbursed for $17 million in fees for lawyers and expert witnesses; she got nothing.
So this spring when Smith began talking settlement, the company was interested. It eventually acceded to quickly paying her and Clarke the $256-million award--the original $150.5 million plus the $105 million interest--rather than take a chance on losing some of it in the appeals process.
For her part, Smith said she wanted to settle because she was concerned about the recession and its eventual impact on the company.
“I don’t know what the future holds with respect to any company in this country,” she said. “We’re definitely in a recession here.”
That’s why, she said, she’s investing the money in government securities.
There was also the fact that she had been paying lawyers and experts for eight years only to be awarded an amount that might not be much more than if she had accepted Bren’s offer in 1983 and had invested the money well since then.
Smith says that’s not the case. “I made a good profit on this case,” she said. “I definitely made money.”
Negotiations between the two sides continued in secret in May and June. In return for getting the money upfront, Smith agreed to accept all the rulings in the case. Those include $299,000 in sanctions imposed against Smith and her law firm, Los Angeles’ Loeb & Loeb, for delaying the trial in 1988.
After the quarter of a billion dollars was wired to their accounts, Smith and Clarke each immediately wrote checks to the company for $62,639.53, each woman’s share of the sanctions minus $174,000 the referee awarded them for court costs.
Smith said last month that she would donate as much as $30 million of the money from the settlement to nonprofit organizations, including UC Irvine. That amount would put her in the big leagues of local philanthropists, joining such figures as Corona del Mar businessman Arnold O. Beckman, founder of Beckman Instruments Inc., who has given away more than $70 million in recent years.
Smith, however, was by no means destitute until now. When the company changed hands earlier, in 1977, she and her mother sold their 22% of the company’s stock for $72 million and as part of the deal bought 11% of the stock back from the new owners for only $3.3 million.
The company, which owns land as well as hundreds of millions of dollars’ worth of office towers, shopping centers and factories, says publicly that paying the settlement won’t strain it.
The company says it arranged to borrow the money years ago from several of its leading bank lenders. But in the midst of a real estate slump, the company hasn’t been selling much land lately. And the sale of land is one of the businesses that fuels with cash the rest of the company’s operations. The Irvine Co. laid off 40 people last fall.
The company’s land stretches for miles right across the middle of the county. It develops on a huge scale, including designing and building much of what is now the city of Irvine.
Staff writer Leslie Berkman contributed to this story.
The Case History
1977: The Irvine Co. is offered for sale. A group including home builder Donald L. Bren and Joan Irvine Smith outbids Mobil Oil, paying $337 million. Bren, the biggest stockholder, buys more than a third of the shares.
1983: After feuding with Smith and the company’s chairman, Bren buys most of Irvine Co.'s shares for $500 million. Bren values the company at $1 billion. He offers Smith and her mother, Athalie R. Clarke, $115 million for their stock. Smith believes that it is worth three times that. She forces the company to sue so a referee can decide its value.
1987: The trial over the stock’s value begins in Michigan, where the company is incorporated.
1990: The referee says Smith should receive $150.5 million plus interest for her stock.
April, 1991: Tiring, Smith decides not to appeal. If Bren will settle quickly, she vows to donate $30 million to nonprofit organizations.
June, 1991: Smith and her mother agree to abide by the referee’s rulings in return for being paid quickly. The two get $256 million.