A federal judge in Baltimore acquitted Fairchild Industries and the company's chairman, Edward G. Uhl, yesterday on charges of filing false corporate tax returns for 1971 and 1972.
The unusual decision by U.S. District Court Judge James R. Miller came before the federal government had completed its case on an indictment last Sept. 8, which followed a three-month investigation by the U.S. Attorney's Office in Baltimore.
In a harshly worded, 17-page decision, Miller said yesterday the government had attempted "to place a square peg in a round hole."
Miller said that, as a matter of law, a jury could not have convicted Fairchild and Uhl of tax violations, even if the government had proved its contention that corporate tax returns for the two years were falsified to "disguise" illegal corporate political contributions, because the U.S. attorney's case was too weak.
Fairchild President John F. Dealy hailed the judge's decision and said in an interview yesterday that the "case should not have been, they had been stopped many years ago," fully disclosed to the Securities and Exchange Commission and documented in materials voluntarily delivered to the Internal Revenue Service.
Marvin Garbis, a Fairchild attorney, called Miller's ruling a "major precedent." Other lawyers could recall no major cases where a judge prevented a case from going to the jury by halting proceedings before the prosecution's evidence was completed.
The case against Fairchild, an aerospace and communications satellite firm based in Montgomery County, marked the first time criminal prosecution of a major corporation for tax violations had gone to the trial stage.
Dealy said yesterday that Fairchild "could have compromised" and settled out of court, but that its board of directors had decided to "take a stand" because its reports to one government agency had been seized upon by another agency, which thought "there must be a crime."
The Fairchild trial was the first major case for Russell T. Baker, who became U.S attorney in Baltimore last spring. Baker argued the case in court himself and was visibly upset over Miller's ruling yesterday.
Asked what would happen to the trial now, Baker said only: "That's it."
The trial started Jan. 8 but became snagged last week on legal arguments about the manner of the indictment. Baker argued that the judge should look into the entire Fairchild scheme to "launder" money and maintain a slush fund for cash contributions to politicians who were sympathetic to defense industries.
Uhl allegedly determined which politicians got the money. Testimony in the aborted trial revealed that some of it went to at least 16 U.S. senators and representatives, including both Maryland senators at the time, as well as former presidents Nixon and Ford.
During the trial, neither side disputed that Fairchild began offering certain officers company cars in the mid-1960s and that those officers wrote checks made out to cash totalling 63 percent of the value of the cars they chose.
Baker charged that the corporation was not entitled to depreciation on its tax returns based on the full cost of those cars because the corporation did not pay the full cost. He also argued that the cars were used to "disguise" the illegal political contributions.
Fairchild attorneys said the IRS itself told the company during a 1977 audit to take the depreciation deduction based on the full cost of the cars and include the reimbursed payments as income.
The government "has doggedly asserted that the automobiles... were not automobiles but were political contributions and therefore not depreciable, in any event," Miller wrote.
"To ignore the tangible reality of the corporate automobiles and to transform them, as Cinderella's good fairy, from a glistening coach to the ignominous pumpkin of political contributions is to turn the doctrine (of tax law) on its head and create a fairy tale of unreality," the judge added.
Miller said the government might have been able to prosecute its case successfully "under an appropriate indictment" but not under the tax violation it charged. The government was precluded from charging Fairchild with violating any laws explicitly covering corporate political contributions by a three-year statute of limitations which had expired when the investigation was started.