U.S. vs. Sears: Courts End Decade Without a Decision : Law: The result has been called a ‘judicial tragedy.’ The case bounced through the halls of justice for nearly 10 years and never came to trial.

Nearly a decade ago, the U.S. Justice Department indicted Sears Roebuck & Co., the nation’s largest retailer, on charges of evading customs duties on thousands of Japanese televisions that were suspected of being “dumped” on the American market.

Sears faced $130,000 in fines and considerable public embarrassment if the federal government proved that the Chicago-based corporation concealed more than $1.1 million in rebates and credits it allegedly received from Japanese suppliers between 1968 and 1975.

The 13-count fraud indictment, handed down in Los Angeles--the port of entry for many of the televisions--sent shock waves through the electronics industry because several American companies were accepting such rebates from Japanese firms.

The government alleged that Sears tried to avoid duties imposed by the U.S. Customs Service on merchandise sold in this country for prices below those charged in their home market, a practice known as “dumping.” Sears vigorously denied the charges.

From early 1980 until late in September, when it was quietly settled, the case of United States vs. Sears was one of the most controversial in local federal court history.

It evolved into what some observers called “judicial Ping-Pong,” with the case bouncing back and forth 10 times between the district court in Los Angeles and the appeals court based in San Francisco--but never got to trial. It also caused considerable embarrassment for the U.S. Justice Department because of the initial prosecutor’s questionable conduct before the grand jury.

Ultimately, it became “a judicial tragedy,” according to Donald C. Smaltz, a Los Angeles lawyer who was involved in the case briefly and followed it closely for years.

The Justice Department quietly dismissed the case in return for Sears’ making only a written admission that some of its employees had not complied with the Customs Service’s interpretation of what a company had to do when importing goods into the United States.

After 10 years, hundreds of hours of arguments and thousands of pages of legal briefs, the case ended “with a whimper, not with a bang,” as one former prosecutor put it.

That scenario seemed unlikely when the highly publicized charges were first lodged against Sears on Feb. 26, 1980.

But Sears chose to fight.

Other companies of its mammoth size and prestige might have quickly settled and launched advertising campaigns to stress a positive corporate image, but Sears counterattacked.

Stephen D. Miller, the company’s Los Angeles-based defense lawyer, asserted that the Customs Service “actively misled” Sears into following importing practices that led to the indictment.

He further contended that Customs officials had for years quietly approved purchasing practices that both American and Japanese firms were using to skirt unwieldly Japanese trade laws.

Thus began a legal war that included charges of prosecutorial misconduct, the dismissal of the indictment four times by two federal judges and the restoration of charges four times by a federal appeals court.

The Sears saga also featured an unseemly clash between Manuel L. Real, the chief judge of the U.S. District Court in Los Angeles, and some of his judicial brethren on the U.S. 9th Circuit Court of Appeals, who ordered him to give up the case to another federal judge to preserve “the appearance of justice.”

Despite all the sound and fury, United States vs. Sears never got to trial.

Both sides informally agreed not to discuss the details of the case, but a review of thousands of pages of affidavits, briefs, motions and transcripts show that although the government won several legal skirmishes, it probably lost the war because of tactics early on by an overzealous prosecutor.

That prosecutor’s name was Paul G. Gorman.

At the time, Gorman was a young Justice Department lawyer working in Washington who was sent to Los Angeles with the important task of taking the Sears case before a federal grand jury. But Gorman’s actions inside the grand jury hearings would haunt the Justice Department for years.

Prosecutors routinely are given broad latitude in how they conduct grand jury proceedings and how they introduce evidence and question witnesses.

But Sears’ lawyers alleged that Gorman went much too far. They accused him of engaging in prosecutorial misconduct by being excessively hostile when questioning Sears’ employees, keeping from the grand jury information that was favorable to Sears, expressing his personal views on the evidence, and permitting a key witness to make inflammatory statements that were prejudicial to Sears.

One witness that Gorman vigorously questioned was Jerome F. Brennan, who was Sears’ senior buyer of televisions from 1967 to 1974.

Under questioning by Gorman, Brennan made what the government considered a key admission: Sears officials told Customs agents that they had paid more to Japanese suppliers than they really had because they had received rebates. However, Brennan also insisted that Sears “didn’t think we were doing anything wrong.”

But in an affidavit given last June, Brennan said that he had met with Gorman prior to appearing before the grand jury and that “it quickly became apparent” to him that Gorman was “not interested in learning my honest thoughts and perceptions concerning the matters under investigation or hearing my testimony in my own words.”

Court records also show that Gorman misquoted statements Brennan made to him in an interview outside the grand jury room and then presented the inaccurate statements to the grand jury and pressed Brennan to confirm them.

Another witness whose testimony later tainted the prosecution’s case was John J. Nevin, the chairman of Zenith Radio Corp., one of Sears’ major competitors. Nevin testified before the grand jury at great length about the devastating effects that Japanese industry had had on the American economy.

Several judges would later question the relevance of Nevin’s testimony. At the time, Zenith was a plaintiff in a major antitrust case pending in Philadelphia against a number of importers and exporters of Japanese televisions, including Sears.

Herbert Hoffman, a Justice Department lawyer who took over the case from Gorman in 1981 and was the lead prosecutor for four years, said in a recent interview that it was “definitely wrong” for Gorman to have brought Nevin before the grand jury.

“I never would have called him,” Hoffman said, but stressed that there were several other witnesses who gave more relevant testimony.

Soon after the indictment was filed, Sears’ attorney Miller argued that the case should have been dismissed on the grounds of prosecutorial misconduct. But U.S. District Judge Robert J. Kelleher, the first jurist to preside over the case, denied the motion and the appeals court upheld him.

From that point on, the Sears case took a tortuous path.

It was transferred to Real, who in the fall of 1981 dismissed the indictment. He agreed with Sears that Gorman had engaged in several types of prosecutorial misconduct. The prosecutor, Real wrote, commanded Sears employees to answer “yes” or “no” to complex, unintelligible or argumentative questions that were peppered with sarcasm.

“Blind zeal in the prosecution of any criminal defendant . . . cannot be tolerated in an ordered society,” Real wrote.

He characterized much of Nevin’s testimony as “irrelevant ramblings” that had no place in a grand jury proceeding.

Chief Assistant California Atty. Gen. Andrea Ordin, who was the U.S. attorney in Los Angeles at the time, acknowledged that neither her office nor the Justice Department in Washington adequately supervised Gorman.

“He did make mistakes,” said Ordin, but added that prosecutors should have been allowed to go to trial.

The 9th Circuit agreed. Two years after Real first dismissed the charges, a three-judge appeals court panel reinstated the indictment. The judges said that Gorman’s “behavior before the grand jury was, at times, abusive” but ruled that the misconduct was not serious enough to have tainted the grand jury’s deliberations.

In the meantime, other prosecutors took over the case but the impact of Gorman’s conduct lingered.

In 1984, Real dismissed the indictment a second time, saying that he had discretionary, supervisory power to do so. Again, the appeals court reversed him.

Four years had passed and still there had been no trial.

A frustrated Justice Department convened another grand jury, and again Sears was indicted.

Real weighed in a third time, dismissing the case on grounds that the statute of limitations on when the alleged crimes occurred had run out.

“I think this is one of the most egregious cases I have ever known about in my career as a lawyer,” wrote Real, who served as U.S. attorney in Los Angeles from 1964 to 1966. “I think if I had been the U.S. attorney (at the time of the original indictment) I would have fired him (Gorman) on the spot.”

Gorman declined to comment on the case when reached by telephone at his Toledo, Ohio, residence.

The Sears case was not the last time allegations of misconduct were raised about Gorman. In 1985, while working as a federal prosecutor in Ohio, he was convicted of criminal misconduct in a case unrelated to Sears. The misconduct included accepting an illegal gratuity. Gorman was sentenced to a year and a day in federal prison.

Despite Real’s belief that the Sears case had been poisoned from the beginning, the government pressed on. “I always thought it was a good case,” said former prosecutor Hoffman, now a San Diego Superior Court judge. “I think it became a matter of principle.”

In March of 1986, prosecutors secured a third reversal of Real from the 9th Circuit. This time, the appeals court not only reinstated the indictment but, in a rare move, ordered Real off the case. The appellate court said it had the right to remove judges in the interest of “the appearance of justice,” but stressed that their decision “does not imply any personal grievance against the judge.”

Nonetheless, some court observers said the Sears case came to be dominated by a clash of wills between Real and the appellate judges.

“I think this was a really exaggerated case where the appeals court thought the trial judge was out of control and he thought they didn’t understand what was going on in the case,” said Jeffrey S. Brand, a University of San Francisco law professor, who publishes a journal on federal courts and characterized the case as “judicial Ping-Pong.”

Real appealed to the U.S. Supreme Court, but the justices rejected the request. In July of 1987, an angry Real surrendered the case and it was reassigned to Judge A. Andrew Hauk.

In 1988, Hauk dismissed the indictment a fourth time, saying that Sears’ right to a speedy trial had been violated. But the appeals court disagreed and reinstated the indictment.

With that ruling, it appeared that the Sears case would finally go to trial, even though some events that led to the indictment had occurred 21 years earlier.

By now, Brennan--the former Sears purchasing official and a potential key witness--was in ill health and was excused from testifying. Sears then won a ruling from Hauk that Brennan’s decade-old grand jury testimony would be excluded from the trial, and the judge told prosecutors that their case was now “bereft” of key evidence.

At that point, both sides decided it was time to call it quits and reached a settlement.

On Sept. 20, Sears admitted in a court document presented to Hauk that some of its employees “though acting in good faith, acted unwisely” in not fully complying with Customs Service interpretations of the agency’s rules. The corporation said that it had long ago changed its importing procedures.

“Sears recognizes its obligation to set the highest standards of business conduct in its dealing with government agencies and its customers,” the document said. “Sears will continue to maintain these same high goals in its future relations with government and its customers.”

The judge said Sears’ statement was not an admission of guilt but “sort of an admission that the government wasn’t on an absolutely wild goose chase.”

Judge Real said in a recent interview that he was pleased by how the case ended.

“I’m vindicated,” he declared. “The case should never have gone past the first appeal.”

UCLA law professor Peter Arenella, a criminal law expert, questioned the wisdom of the Justice Department’s decade-long pursuit of Sears.

“The government got nothing (for its years of effort in the case),” Arenella said. “For all this time, energy and expenditure of resources, the government gets a statement from Sears that Sears could run in a television commercial.”