Judge awards Kim Lund $45.2 million for her stake in Lunds & Byerlys

After an ugly dispute with her siblings, Kim Lund has been awarded $45.2 million for her stake in the Lunds & Byerlys grocery chain, less than the $80 million she sought but more than double the $21.3 million that the family-owned company offered her.

Kim Lund, the oldest of four Lund siblings who equally own the Twin Cities grocery chain, had sued Lunds and its CEO — her brother Russell "Tres" Lund III — to cash out of the company.

After a five-day trial in February that saw all four Lund siblings take the stand, Hennepin County Chief Judge Ivy Bernhardson ruled late Friday that Kim was the "prevailing party," or the winner in legal terms. However, Bernhardson rejected valuations of Lunds & Byerlys made by experts for both Kim Lund and Lunds Inc., arriving at a figure in between.

Kim Lund, 57, would receive $2.3 million of the award — 5 percent — within 90 days of a final, non-appealable order. The rest will be paid over 20 years through a note that bears 2.75 percent annual interest, a "modest" interest rate, Bernhardson wrote. Kim Lund had testified she was comfortable with a long-term payout.

In a statement through her attorneys, Kim Lund said she was pleased with Bernhardson's ruling. "I sincerely appreciate the judge's efforts and hope that my brother Tres will accept the court's decision so that the companies and our family can move on and get back to the work that benefits the community."

Lunds & Byerlys, which can appeal the ruling, said in a statement that it is "currently in the process of reviewing the judge's decision and determining our next steps.

"We have made, and will continue to make, every decision in this process with the utmost integrity, respect and fiscal responsibility," the statement said.

Lunds & Byerlys had argued that the $80 million Kim sought would have caused the company to take on a "crippling" amount of debt.

Bernhardson noted that competition "will indeed have meaningful impact on [Lunds & Byerlys'] cash flow for the foreseeable future." Still, she wrote that the company's situation "is not so dire."

"Their business strategies amidst competition have been indisputedly successful, and there is no evidence that the changing market in the Twin Cities will be the end of Lunds as we know it," she wrote.

Kim Lund first talked about cashing out some equity as early as 1992. The topic lingered for several years and led to family meetings with wealth counselors from JPMorgan Chase from 2006 to 2008. But no solution was found, and in December 2014, Kim Lund sued Lunds Inc. and Tres Lund.

Last October, Bernhardson ruled that the defendants failed to structure an exit strategy for Kim, despite her requests. So, the fair value of the company would be determined by a trial, using Oct. 2 — the end of Lunds' most recent fiscal year — as a valuation date.

Kim Lund's attorneys questioned the timing of the pension payout, arguing it was intended to improperly reduce the value of her stake in the company.

Judge Bernhardson wrote that paying out the $57 million was a prudent business decision by Lunds. However, she criticized Lunds & Byerlys for incorporating the pension payouts into the company's future cash flow projections — "dramatically deflating available cash" — while agreeing with the pension valuation by Kim Lund's appraiser.

Lunds & Byerlys has been a conservatively run company that has no long-term debt. Now, with the $57 million pension payout and the $45.2 million owed Kim, the company will have over $100 million in new long-term obligations. Debt is likely to fund at least a portion of that burden.

If Lunds' future debt load exceeds a specific measure, the company can accrue interest payments and defer principal payments due to Kim. However, payments on Kim's note must be made before equity distributions to the other siblings.

Since Kim Lund is the prevailing party in the case, she's entitled to be paid by Lunds for "statutory costs and disbursements," which are primarily fees for expert witnesses. Kim's attorneys at Anthony Ostlund in Minneapolis said they will seek several hundred thousand dollars in reimbursements.

Bernhardson also ruled Friday in favor of Kim Lund by removing Tres Lund as co-trustee of her Lund trusts, though she rejected Kim's favored replacements and instead appointed U.S. Bank.

"The sad truth of this case is that the bitterness defining the current relationship between Kim and Tres, in conjunction with the fact that they have been litigating against one another for nearly three years, has eradicated their ability to collaborate and their ability to rely on each other in any capacity," Bernhardson wrote.

Kim hasn't had a conversation with Tres in over two years, and she did not receive any information about her trusts in 2016 and 2017, the judge's order said.

Kim Lund, who was a teacher for 30 years, has said she's sought to cash out her stake largely to give it away. "I have always believed that privilege and wealth are community resources that should be used to lift all boats," she said in a statement.

Mike Hughlett • 612-673-7003