SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) June 3, 1997
SEARS, ROEBUCK AND CO.
(Exact name of registrant as specified in charter)
New York
(State or Other
Jurisdiction of
Incorporation)
1-416
(Commission File Number)
36-1750680
(IRS Employer Identification No.)
3333 Beverly Road, Hoffman Estates, Illinois
(Address of principal executive offices)
60179
(Zip Code)
Registrant's telephone number, including area code (847) 286-2500
<PAGE>
Item 5. Other Events.
On June 3, 1997, the registrant filed with the United States District Court for
the District of Massachussets a Status Report in anticipation of a hearing
before the Court on June 5, 1997 regarding certain of the registrant's
bankruptcy reaffirmation agreement collection practices. A copy of the Status
Report is attached hereto as Exhibit 99.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
99. Sears, Roebuck and Co. Status Report dated June 3, 1997.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SEARS, ROEBUCK AND CO.
Date: June 3, 1997 By: /s/ Michael D. Levin
MICHAEL D. LEVIN
Senior Vice President, General
Counsel and Secretary
<PAGE>
EXHIBITS
99. Sears, Roebuck and Co. Status Report dated June 3, 1997.
E-1
<PAGE>
Exhibit 99
UNITED STATES BANKRUPTCY COURT
DISTRICT OF MASSACHUSETTS
EASTERN DIVISION
___________________________________
In re )
)
DOUGLAS O. BRIOSO, ) Chapter 7
) Case No.97-11503-CJK
)
Debtor. )
)
)
DOUGLAS O. BRIOSO, et al. )
Plaintiffs, )
) Adversary Proceeding
v. ) No. 97-1222-CJK
)
SEARS, ROEBUCK AND CO. and )
WESTERN AUTO SUPPLY )
COMPANY, )
Defendants. )
___________________________________ )
)
In Re: )
ANTONIO CALDAS, ) Chapter 7
Debtor. ) Case No. 96-18925-CJK
___________________________________ )
)
ANTONIO CALDAS, )
Plaintiff, )
)
v. )
) Adversary Proceeding
SEARS, ROEBUCK AND CO., ) No. 97-1229-CJK
Defendant )
___________________________________ )
STATUS REPORT
Pursuant to this Court's Minute Order of April 11, 1997, and in
anticipation of a hearing in this matter (in conjunction with In re Travis
Amalfitano and others, Case No. 95-15260-CJK), on Thursday, June 5, 1997,
Sears, Roebuck and Co. ("Sears") submits this Status Report.
A. Litigation Background.
The Brioso class action was filed on March 31, 1997 in this Court.
That case has been followed by five other putative class action complaints.
The United States also filed an action against Sears in the U.S. District
Court for the District of Massachusetts. There has also been interest
expressed by the U.S. Federal Trade Commission ("FTC"), and a number of
state attorneys general (who have been coordinating their involvement via a
committee led by the Office of the Massachusetts Attorney General). These
litigations are more fully described as follows:
1.Brioso v. Sears, Roebuck and Co. (Ch. 7, Case No. 97-11503-JNF, Adversary
Proceeding No. 97-1222-CJK (Bankr. D. Mass., filed Mar. 31, 1997)
("Brioso"). Brioso alleged, inter alia, that Sears withheld numerous
reaffirmation agreements from the knowledge of the Court by not filing
them with the Court as required by Section 524(c)(3) of the Bankruptcy Code.
It seeks compensatory and punitive damages along with declaratory and
injunctive relief and is asserted on behalf of a nationwide class. Brioso
also alleges violations of the Commonwealth's unfair and deceptive
trade practices act and similar acts of other states where Sears also
failed to file reaffirmation agreements.
2.Caldas v. Sears, Roebuck and Co., Ch.7 Case No. 96-18925-JNF, Adversary
Proceeding 97-1229-CJK (Bankr. D. Mass., filed April 7, 1997
("Caldas"). Caldas makes allegations very similar to Brioso, seeks
similar relief, and is brought as a class action for debtors in the New
England states. Caldas has been consolidated with Brioso. In the
consolidated case, this Court, on April 16, 1997, conditionally certified a
nationwide class in those actions for settlement purposes and appointed
the plaintiffs and their counsel as class representatives and class counsel,
respectively. On May 20, 1997, an amended class action complaint in
the consolidated action was filed, adding additional plaintiffs, containing
virtually the same factual allegations and alleging a nationwide class.
3.United States of America v. Sears, Roebuck and Co., C.A. 97-10839-JLT
(D.Mass. filed April 17, 1997) ("U.S. Action"). The U.S. Action alleges,
inter alia, that Sears induced Chapter 7 debtors to enter into reaffirmation
agreements and failed to file the agreements as required
with the Bankruptcy Court. For relief, the U.S. Action seeks preliminary
and permanent injunctive relief, and orders requiring Sears
to cease the practice, to make restitution, and for unspecified monetary
penalties.
4.Boyer v. Sears, Roebuck and Co. Case, No. 97 Civ. 3411 (E.D. Pa.
removed May 14, 1997) ("Boyer"). Boyer, originally filed in the Court of
Common Pleas for Philadelphia on behalf of the citizens of Pennsylvania, was
removed by Sears to the United States District Court for the Eastern
District of Pennsylvania. Boyer makes allegations similar
to those in Brioso and Caldas and seeks similar relief.
5.Patchin v. Sears, Roebuck and Co., C. A. No. 97-11090-PBS (D. Mass.,
filed May 12, 1997) ("Patchin"). Patchin, filed in the U. S. District
Court, alleges claims similar to Brioso and Caldas, seeks similar relief,
and purports to be brought on behalf of a nationwide class is a clear
copycat of Brioso and Caldas.
6.Conley v. Sears, Roebuck and Co., C.A. No. 97-11149-PBS (D.Mass.,filed
May 20, 1997) ("Conley"). This action describes Brioso as a related
matter, was filed by plaintiffs who are represented by the same counsel
as in Brioso and Caldas and makes allegations similar to those in Brioso.
Conley does, however, add additional counts under the Racketeer Influenced
and Corrupt Organizations Act ("RICO") and a claim under
the Truth in Lending Act ("TILA").
7.Avellino v. Sears, Roebuck and Co., No. 97C-2974 (N.D. Ill. filed Apr.
25, 1997) ("Avellino"). Avellino is another clear copycat of Brioso and
Caldas and seeks similar relief.
8.On May 29, 1997, Sears filed its Motion for Transfer and for Coordinated
or Consolidated Pre-trial Proceedings before the Judicial
Panel on Multidistrict Litigation, along with its brief in support of the
motion and an appendix containing each of the aforementioned complaints.
Sears motion to the Panel seeks the transfer to the District
of Massachusetts of Boyer and Avellino. A copy of these motion papers
have previously been filed with the Court.
B.Litigation Threatened.
In addition to the aforementioned filed cases, the following
governmental entities have made allegations and/or have threatened suits:
1.This Court had previously referred Sears reaffirmation practices to the
U.S. Attorney as constituting possible criminal violations. In its brief
filed on May 30, 1997 the United States Attorney advised the
Court that it would inform the Court of the status of its criminal
investigation, if any, by the filing of a sealed report prior to June 5,
1997.
2.The FTC has informed Sears that, in its judgment, Sears has violated the
Federal Trade Commission Act. The FTC forwarded to Sears a draft complaint
seeking a consent order with respect to certain of Sears
practices.
3.The Massachusetts Attorney General is chairing a formal group of 39
state attorneys general (expected to soon include all 50 states) who have
alleged various violations of their state consumer protection laws. Thus
far, none have filed a complaint against Sears.
C.Ancillary Litigation.
In a number of districts, bankruptcy judges, the U.S. Trustees, and
individual debtors have filed "orders to show cause" and similar motions
relating to Sears reaffirmation practices. Sears has been responsive to each
matter and has moved the courts to stay or continue the proceeding pending
the outcome of the proceedings in this Court. Thus far, the other courts
have shown comity to this Court.
D.Non-Litigation Response by Sears.
1.On Friday, March 28, 1997, Sears failure to file reaffirmation agreements
first came to the attention of senior management. On that date, Sears
senior management directed that an immediate audit be commenced to
ascertain the scope and nature of the manner in which reaffirmation
agreements had been handled by Sears. On Monday, March 31, 1997, Sears
senior management promptly issued directives to its field representatives to
file all reaffirmations with the appropriate bankruptcy
court. On April 9, 1997, Sears publicly acknowledged that it had exercised
flawed legal judgment and execution in failing to file reaffirmation
agreements, and indicated that it would compensate bankruptcy debtors whose
reaffirmation were not filed during the period 1992 to date.
2.On April 21, 1997, a Stipulated Order for Preliminary Injunction was
entered in the U.S. Action by which Sears, without making any admissions
relating to the allegations in the complaint, but in furtherance of Sears
desire to achieve a global resolution of the unfiled reaffirmation matters,
assented to a preliminary injunction requiring that Sears, inter alia, file
future reaffirmation agreements, and identify those debtors from whom Sears
obtained a reaffirmation agreement that was not filed from January 1, 1992
to April 1, 1997, under a detailed program to be completed by August 15,
1997; that Sears provide the U.S. Attorney's Office with biweekly status
reports on that complex identification process; that Sears cease all
collection activities against those debtors; and that Sears calculate the
amounts charged and collected from such debtors. A copy of the Stipulated
Order for Preliminary Injunction is attached as Exhibit A.
3.Sears has made the bi-weekly status reports on its on-going identification
program and produced two lists of nationwide debtors. The first list,
produced on May 9, 1997, covers the period from August 1, 1996 through April
1, 1997. The second list, produced on June 2, 1997, covers the period from
July 1, 1994 through July 31, 1996. These lists, along with the biweekly
report to the U.S. Attorney's Office, have also been delivered to counsel
for the class action plaintiffs, the U.S. Trustee, the FTC, and the state
attorneys general group.
4.Sears has retained the services of Professor Lawrence P. King, of counsel
to Wachtell, Lipton, Rosen & Katz, to perform a legal review of Sears
procedures with regard to reaffirmation agreements, and has committed
to adopt Professor King's recommendations to insure its future compliance
with the requirements of Section 524 of the Bankruptcy Code.
5.In order to produce the list of all debtors with signed but unfiled
reaffirmation agreements, Sears has retained outside assistance from
Deloitte & Touche LLP's Litigation Service and Business Insurance Consulting
Group to identify all debtors who filed for bankruptcy from
January 1, 1992, through April 1, 1997, from whom Sears obtained
reaffirmation agreements which were not filed with the appropriate bankruptcy
court. Additionally, Sears purchased from Hogan Information Services, a
division of First Data Corp., a list of all Chapter 7 petitions filed in the
United States between July 1, 1993, and April 2, 1997. It also purchased a
similar list from PRR, another bankruptcy data service. Sears has combined
these lists to capture data missing from either list. Sears also contracted
with TransUnion, to match the Hogan and the PRR lists to determine which of
the Chapter 7 debtors may have held a Sears charge card. As a result of
those efforts, a revised so-called "Latanowich List" was filed with this
Court on May 23, 1997, increasing the number of debtors to 3,376. 6.Sears
has also retained several outside law firms to assist it in
formulating and negotiating a debtor compensation plan and in resolving the
myriad issues affecting it.
E.Litigation Procedures.
1.In order to meet this Court's deadline of June 5, Sears has engaged in
extensive consensual discovery with each of the constituencies. Sears
has produced approximately 4,831 pages of documents to the parties.
Although not necessarily required, documents produced to the class
action plaintiffs have been simultaneously produced to the U.S. Attorney,
U.S. Trustee, the attorneys general group and the FTC. Of the
documents produced, many are privileged as attorney-client communications or
the attorney work product. Although this privilege has not been generally
waived, it is our understanding that no document to date in existence prior
to April 1, 1997 has been withheld based on privilege.
2.Interrogatories have been propounded by the class action plaintiffs and
have been answered. Several depositions of Sears personnel have been
taken by the class action plaintiffs. Each of the other constituencies
were noticed for the depositions and given an opportunity to question
the deponents; an Assistant U.S. Attorney has attended the depositions
and questioned deponents. The U.S. Attorney's Office has interviewed a
number of Sears employees, each of whom was voluntarily produced by
Sears.
F.Settlement Progress.
Sears has met repeatedly with counsel and representatives of each
of the constituencies asserting claims against Sears. These include the
class action plaintiffs, the U.S. Attorney, the U.S. Trustee, the state
attorneys general group, and the FTC.
1.Class Action Plaintiffs. The parties have been negotiating a nationwide
class settlement in the Brioso, Caldas and Conley class actions, and as of
today have reached an agreement in principle on the significant terms of
compensation to the class and other payments. A 36-page (excluding
exhibits) settlement agreement has been drafted and is in the process of
being finally negotiated.
2.FTC. A consent order has been negotiated with the staff of the FTC.
The FTC staff has recommended the consent order to the Commission for its
approval (expected on June 4, 1997).
3.Attorneys General. Several negotiation sessions have taken place with
the state attorneys general group, via a working committee led by the
Office of the Massachusetts Attorney General. The group currently
includes 39 attorneys general, and is anticipated to soon include all 50
states. Representatives of the National Association of Attorneys
General (NAAG) have also participated. As of today, an agreement in
principle covering a broad range of issues, including compensation to
debtors, as well as penalties and additional injunctive relief, is being
presented to 39 attorneys general for formal approval.
4.U.S. Attorney. Sears has been negotiating with the U.S. Attorney's
Office. The status of this Court's criminal referral will be the subject of
a separate report by the United States Attorney as described above.
Negotiations continue with the U.S. Government, and another meeting
is scheduled for tomorrow.
G.Open Issues.
Sears and the parties in interest have worked diligently to effect
a global resolution. During the course of these negotiations and
discussions, considerable research has been done on a number of issues which
are interrelated with the proposed settlements. Each of these issues can be
resolved by the consent of the parties. Without a consensual settlement,
however, these open issues must be resolved through litigation in several
courts, which would be time-consuming, expensive for all parties, and of
uncertain outcome. The following sets forth a partial list of issues which
must be resolved before this matter could be finally resolved
absent a consensual resolution:
1.Does violation of 11 U.S.C. 524 give rise to a private cause of action or
are the plaintiffs in the various proceedings limited to remedies available
through contempt proceedings? Section 362(h) of the Bankruptcy Code was
expressly created by Congress in 1984 to provide a cause of action for
individual debtors harmed by a Section 362 violation. No express cause of
action is set forth for a violation of Section 524. If Congress wished to
create the same private cause of action under Section 524, it would have
done so. See In re Sullivan, 90 B.R. 307, 308 (M.D. Tenn. 1988) and
In re Wagner, 87 B.R. 612, 617 (Bankr. C.D. Cal. 1988). If plaintiffs are
limited to contempt actions, does the Bankruptcy Court have the power
to assess punitive damages as a remedy?
2.Does 18 U.S.C. 1345 give the district court the authority to award civil
penalties payable to the U.S. in the pending U.S. Action? Nothing in the
text of the statute or its legislative history refers expressly to civil
penalties. See U.S. v. American Heart Research Foundation, Inc. F.2d 7
(1st Cir.1993).
3.Would Sears have a double jeopardy defense under the Fifth Amendment were
sanctions to be imposed on Sears by the Bankruptcy Court. The double
jeopardy clause prevents the government from imposing multiple punishments
for the same offense. The civil and punitive sanctions contemplated by this
Court may well constitute an initial punishment which would prevent the U.S.
government from imposing any punishment against Sears for the same offense.
See United States v. Halper, 490 U.S. 435, 440 (1989), United States v.
Kane, 90 F.3d 7, 10 (1st Cir. 1996), and United States v. Staller, 78 F.3d
710, 715 (1st Cir.), cert. dismissed, 117 S.Ct. 378 (1996).
4.Are the states preempted by the Bankruptcy Code from asserting state law
claims growing out of the same facts underlying Sears failure to file
reaffirmation agreements? See MSR Explorations Ltd. v. Meridian Oil, Inc.,
74 F. 3d 910 (9th Cir. 1996), Koffman v. Osteoimplant Technologies, Inc.,
182 B.R. 115 (D.Md. 1995), and Mull v. Sears Roebuck & Co., No. 3:96-CW-64
(N.D.W.Va. filed Apr. 4, 1997), a copy of which, together with the
underlying Bankruptcy Court memorandum, opinion and order, is attached as
Exhibit B.
5.Can the Bankruptcy Court preside over a jury trial when one of the
parties objects? 28 U.S.C. 157(e).
6.Can the Bankruptcy Court punish Sears for alleged criminal contempt
occurring outside of its presence?
7.Is withdrawal of the reference mandatory because of the RICO claims
and the Truth in Lending Act claims asserted in the class actions in the
District Court? 28 U.S.C. 157(c)
8.Would federal or state statutes of limitation apply to the actions
brought? Most statutes of limitation would limit actions to the more
recent years and not permit recovery for as far back as Sears has agreed.
H.Conclusion.
Sears and the parties have worked extremely hard since the hearing
held before this Court on April 11, 1997. Very substantial progress toward
settlement has been achieved. It would be unfortunate for the process to
evaporate at this time.
Assuming that a class settlement is reached by June 5, 1997, it is
anticipated that the parties at that time would present a procedural order to
this Court and to the District Court (in Conley), together with the
definitive Stipulation and Agreement of Compromise and Settlement, detailing
the terms of the proposed settlement subject to the ultimate approval of the
Courts under Fed. R. Civ. P. 23(e). The application to be presented on June
5, 1997, would request that the Court approve a Settlement Class, schedule
a fairness hearing on the proposed settlement, and direct a notice program
designed to advise members of the Settlement Class of the terms of the
proposed settlement, the fairness hearing, and their various rights to
participate in the settlement, "opt out" of the class or object to the
settlement. Fairness hearings in both this Court and the District Court
would be required since the District Court's jurisdiction is broader and a
final judgment of that Court is necessary to avoid issues as to the
effective scope of the settlement. The initial procedural order would not
seek judicial approval of the settlement. That ultimate question would be
the matter to be ruled upon, after notice to the Settlement Class, at the
fairness hearings (which could be scheduled, subject to the Courts' wishes,
as a single joint hearing).
Respectfully submitted,
SEARS, ROEBUCK AND CO.
By its attorneys,
Mark N. Polebaum
Stephen H. Oleskey
Paul P. Daley
HALE AND DORR LLP
60 State Street
Boston, MA 02109
(617) 526-6000
Theodore N. Mirvis
WACHTELL, LIPTON, ROSEN &
KATZ
51 West 52nd Street
New York, NY 10019
(212) 403-1000
Dated: June 3, 1997
- ------------------------------------------
Exhibits not included in Current Report on Form 8-K:
Exhibit A:
- -----------
Stipulated Order for Preliminary Injunction filed in The United States of
America v. Sears, Roebuck and Co.
Exhibit B:
- ----------
Underlying Bankruptcy Court memorandum, opinion and order in Mull v. Sears,
Roebuck & Company.
