Irvine Co., Smith Face Off in Court Battle : Firm, Shareholder Open With Demands That Are $312 Million Apart

BLOOMFIELD HILLS, Mich. —  The Irvine Co. and dissident shareholder Joan Irvine Smith squared off in a makeshift courtroom here Tuesday, more than 2,200 miles away from home and with the two sides further apart on their demands than at any time since their legal battles began in 1983.

In Tuesday’s opening statements, attorneys for the company and Smith made clear the radically different perspectives they have on the market value the company had in November of 1983 when owner Donald L. Bren made a second offer to buy Smith’s shares and merged the company with another firm he controlled.

The outcome of the trial and expected appeals will determine whether shareholder Smith and her mother get the $400 million they are demanding for the sale of their 11% interest in the company, or whether they will have to accept the company’s latest offer of just $88 million for their shares.

Listening intently and taking notes during the proceedings was Bren, the publicity-shy chairman and majority owner of the company. He has proposed paying Smith and her mother $26 million less for their shares than he offered them four years ago.

Bren, who during a break in the proceedings called Smith’s latest $400-million demand “patently absurd,” said he intends to attend the first week of the trial, which is expected to last six months. “This is very important; that’s why I’m here,” Bren said of his rare public appearance.

The amount that Smith is awarded for her stock could have “a significant financial impact on the company,” he said. He refused to be more specific but insisted that any outcome would not trigger layoffs or slow the company’s business activity.

Bren said he will return in September to take the witness stand.

Smith and her mother, Athalie Clarke both stayed home in California. Smith previously said she would stay in Orange County to keep an eye on the company’s operations.

Because of the expected length of the trial, it is being held in an office building in the swank Bloomfield Hills suburb of Detroit, instead of in a standard courtroom. The lawsuit was filed in Michigan because the Irvine Co. is incorporated there.

A retired judge, Robert B. Webster, has agreed to act as a referee. His staff and legal staffs working for the company and Smith have moved into offices next to the makeshift courtroom--along with their computers, copy machines, charts and bundles of documents.

So with nearly a score of attorneys, staff workers and witnesses moved halfway across the country, the participants settled in for the expected six-month marathon.

Bill Campbell, the company’s lead attorney, emphasized that other Irvine Co. shareholders who agreed to sell their shares to Bren in 1983 included shrewd businessmen such as oilman Max Fisher, shopping center magnate A. Alfred Taubman and auto executive Henry Ford II.

They had good reason to sell, Campbell said. He stressed that from 1977, when they joined Bren and Smith in buying the company for $337 million, to April of 1983, the company suffered from the national recession that struck real estate enterprises hardest.

Shows Charts

He pointed to charts illustrating that in 1978-83 annual land sales on the Irvine Ranch dropped from 1,000 acres to fewer than 100 acres, and revenues from housing sales plunged from $35 million to $10 million.

Campbell said that in 1983 the company was also faced with severe problems in getting vital highways funded and suffered from a deteriorating public image because of its leasehold policies.

As for the 68,667 acres that the company owns--approximately one-sixth of Orange County--Campbell said only about 25,902 acres are buildable because of steep slopes on most of the remaining acres.

He noted that Smith has sued the company “more than 12 times” over the years and accused Smith of “seeking a judicial windfall” that she could not get for her stock in a fair market.

Jumping to Smith’s defense, her lead attorney, Howard Friedman, said: “Mr. Bren became an 86% shareholder (by buying the interests of other shareholders) for practically nothing.”

Contending that the 1983 buyout of other shareholders did not represent fair market conditions, Friedman described the power struggle that developed between Taubman and Bren.

Agreed to Price

Friedman said ultimately Taubman, Fisher and others agreed to Bren’s price after little or no negotiating. Moreover, Friedman said, he has evidence showing that Bren would have been willing to value the company at $1.7 billion--up from the $1 billion that he actually paid--for the buyout if he had been pressed.

Arguing that the 1983 stock purchases are not fair tests of the company’s value, Friedman said the court should instead use appraisals in setting a price for the company’s stock.

Friedman said the company’s 60,000 acres of undeveloped land is alone worth at least $1.75 billion, and its developed properties $1 billion more.

The trial is scheduled to resume today with the company’s. first witness, vice chairman Thomas Nielsen.