BIRMINGHAM, Mich. — Nearly two years after it started, the Irvine Co.'s suit against Joan Irvine Smith entered its final two days, as company lawyers argued Wednesday that Smith be paid far less than the $500 million she wants for her stock in the giant land development company.
The trial, which pits two of the nation's wealthiest people against each other, has run intermittently since August, 1987. Irvine Co. Chairman Donald L. Bren contends that Smith should receive $88 million from the 1983 deal in which he bought most of the company's stock.
In its suit, the Irvine Co. has asked a Michigan state court referee to determine what was the true value of the company in 1983, for purposes of determining what Smith's shares are worth. The company is incorporated in Michigan. The amounts involved make this one of the largest such cases on record, Irvine Co. lawyers say.
Smith, who did not testify during the trial, also did not attend Wednesday's final oral arguments, which were held in the law offices of referee Robert B. Webster, a retired Michigan judge.
After the trial adjourned Wednesday, Bren said the company had budgeted $114 million--the amount he originally offered to Smith, plus an unspecified amount of interest--in the event that Webster rules against the company.
A higher award, he said, could affect the company's ambitious development plans.
"To the extent we have to slow down, the community would feel it," he said.
Earlier, during the trial Wednesday, one of Bren's attorneys phrased the same argument more dramatically.
Half a billion dollars, attorney William Campbell said, "would literally bleed this company dry."
"We can't pay these people with Monopoly money," Campbell said. "These dollars are going to impact the economy of Orange County."
Smith is the granddaughter of the company's founder, James Irvine II. She alleges that Bren fomented discord among Irvine Co. stockholders in the early 1980s, part of a purported scheme to buy a majority of the stock for far less than its worth. At the time, Bren was the company's largest stockholder, with 34%.
As an alternative to the $88-million settlement Bren proposed in 1983, he has offered to double Smith's 11% stake in the company, to 22.8%. But Smith and her mother and fellow shareholder, Athalie Clarke, objected to the $560 million in debt Bren loaded onto the company's books to buy out other shareholders.
Bren's attorneys insist that either alternative is a good deal and that Smith has harmed her interests by rejecting both offers and fighting Bren in the courts.
The company has prospered in the last five years as land values jumped in booming Orange County. Bren said Wednesday that the company repaid the $560 million in loans within a year. He would not say how much a 22.8% stake in the privately held company--which zealously guards its finances--would be worth now.
In contrast with Smith, most of the other stockholders jumped in 1983 at the chance to sell for $200,000 a share the stock they bought for $6,000 in 1977. In fact, that is a key part of Bren's case: His attorneys say the company was worth exactly what knowledgeable shareholders sold it for in 1983. At $200,000 a share, the company would have been worth about $1 billion.
Smith's attorneys, however, contend the company's ownership of 68,000 acres squarely in the path of Southern California's growth was far more valuable. The land is part of several old Spanish land grants bought by the Irvine family in the 19th Century. Company holdings make up about a sixth of Orange County. It is the largest undeveloped piece of real estate under single ownership in any U.S. metropolitan area. The company also owns the Newport Center office and shopping complex and the Irvine Spectrum industrial park.
Smith's attorneys say the company's holdings should have been shopped around in 1983 to other buyers to raise the price. Smith says that the actual value of the company when Bren bought it was $3 billion and that her 11% of the stock was actually worth $330 million, boosted since by interest to $500 million.
Bren's attorneys insisted Wednesday that those estimates ignored such company liabilities as debt and taxes and underestimated such problems as the reluctance of local governments to approve the land for development as quickly as the company wants.
The attorneys spent most of Wednesday trying to persuade the court that Smith's estimates are "ridiculous" figures cooked up by hired experts.
If the judge rules for Smith, Bren's attorneys said it would set a new precedent in corporate laws concerning the rights of minority shareholders.
A favorable ruling would significantly widen such shareholders' ability to seek independent appraisals of their stock by the courts and to hold up sales arbitrarily when they are dissatisfied with the price, Bren's attorneys argued.
So a Michigan courtroom would not be tied up, the high-stakes trial has run for most of its length in a modest office building in a Detroit suburb. A squad of attorneys for both sides faced each other Wednesday across a conference table, while another 18 people sat within arm's length in high-backed chairs set against the wall. They included Bren, who was flanked by an attorney, a consultant and key Irvine Co. executives. He took copious notes on a legal pad.
The trial will resume today, its last day, when Smith's attorneys sum up their case. Webster, the referee, would not comment on when he might rule. But lawyers said a ruling might not come for months.