It was bad judgment, not a crime, when 20 plainclothes San Francisco policemen stormed Lord Jim's bar and held 60 patrons at gunpoint for 90 minutes last summer, Dist. Atty. Arlo Smith has decided. For that reason, the policemen involved will not be prosecuted, said Smith. He said the incident, which caused a flap that rocked City Hall and the police from Chief Con Murphy down, illustrated "the lack of middle management and direction" in the 1,980-man department. The officers, bearing warrants, arrested the Polk Street bar's owner on sex and drug charges, which were later dropped. Critics at the time said the warrants did not include detention of the patrons.