Reagan Insists Meese Stay, Rejects Advice to Oust Him

President Reagan, two days after being told by the Justice Department’s former No. 2 official that Atty. Gen. Edwin Meese III “has lost his moral authority to lead the department,” insisted Friday that Meese should not resign and that the department is running “just fine.”

Reagan held firm in his public defense of his longtime friend as details emerged of the extraordinary meeting Reagan and Vice President George Bush had Wednesday with former Deputy Atty. Gen. Arnold I. Burns and William F. Weld, the former criminal division chief, both of whom had resigned last month over Meese’s legal difficulties.

After the session with Burns and Weld, Reagan and Bush met for 40 minutes with Meese. Although the two meetings touched off a wave of speculation inside the Administration about Meese’s future, a Justice Department spokesman said that “Meese absolutely has no intention of stepping down.”

At the conclusion of the meeting with Meese, “the President clearly indicated he was satisfied and supportive,” a Justice Department official said. Government sources said that any action by Reagan would await a report expected to be completed late next month by independent counsel James C. McKay, who has been conducting a wide-ranging investigation of Meese.

White House Chief of Staff Howard H. Baker Jr., who attended both meetings, said Friday in a CBS Radio interview: “We don’t know what will happen next. All we know is that the attorney general is functioning and functioning well, and the President expressed his continuing confidence.”

At the Justice Department, Meese spent most of his day searching for replacements for Burns and Weld and temporarily shifting staff members to Burns’ old office and that of former Associate Atty. Gen. Stephen S. Trott. Trott, the department’s No. 3 official, resigned last week to become a federal appeals judge.

At Wednesday’s 35-minute meeting with Reagan and Bush, Burns made his assertion about Meese’s loss of moral authority in response to Bush’s question about whether the Justice Department was still in a state of “malaise” over Meese’s difficulties, sources familiar with the session said.

Weld was “unequivocal” in telling Reagan and Bush that he would seek an indictment of the attorney general if he were conducting the investigation of him, sources said. When Weld notified Meese on March 29 that he was resigning, he also had said he would seek his indictment, if he were investigating, although it would be a close call, sources said.

‘An Oral Indictment’

Weld was said to have presented Reagan with “an oral indictment” of Meese, concentrating on assistance provided by Meese as a government official to his longtime friend, E. Robert Wallach, a San Francisco lawyer who is under federal indictment in New York on charges of accepting money from scandal-plagued Wedtech Corp. to influence Meese.

Weld, the U.S. attorney in Boston before he took over the Justice Department’s criminal division, said Meese’s actions amounted to illegally accepting gratuities from Wallach in violation of Section 201(c) of Title 18 of the U.S. Criminal Code, according to the government sources.

That section bars a public official from accepting anything of value personally “for or because of any official act performed or to be performed by such official.” Weld said that Meese, as Reagan’s counselor during the President’s first term, helped Wallach, a consultant to Wedtech, when Wedtech was encountering Defense Department resistance to awarding the New York firm a $32-million Army engine contract, sources said.

Weld also pointed to Meese’s help as attorney general on a proposed $1-billion Iraqi pipeline that Wallach was retained to promote.

Gratuities Cited

The gratuities, as Weld outlined the case, took two forms: Wallach’s $150,000 pipeline fee that he directed be paid to a pooled fund that allegedly benefited Meese’s stock purchases; and a $40,000 annual salary to Ursula Meese, the attorney general’s wife.

Ursula Meese’s salary was paid by the Multiple Sclerosis Society from a $40,000 contribution by a foundation set up by a family that has engaged in profitable real estate transactions with the Justice Department.

Weld noted in his presentation, which was not interrupted by questions from Reagan or Bush, that independent counsel McKay had decided not to seek an indictment of Meese and that this showed there were two sides to the question.

The sources with detailed knowledge of the meeting said Burns was “more dramatic, emotional and forceful” than he had been in his and Weld’s resignation meeting with Meese last month.

Burns, citing Wallach’s racketeering and conspiracy indictment in New York, contended that the San Francisco lawyer had been “selling” Meese’s office “for millions of dollars.” Burns, according to the sources, said Meese was aware of Wallach’s actions but, as recently as Senate testimony a few hours earlier, had refused to repudiate his old friend.

Smith Rejected Payment

Burns then showed the President a statement that Reagan’s first attorney general, William French Smith, issued in 1982 when he returned a $50,000 severance payment he had received from a Southern California steel firm shortly before taking office and limited his income tax deductions on two oil and gas drilling projects.

While contending that the transactions were “proper,” Smith said: “The fullest public confidence in the nation’s chief law enforcement officer requires an attorney general to do whatever is necessary to avoid even an inaccurate appearance of impropriety.”

In addition to contrasting Meese’s stance with Smith’s, Burns was said to have cited a presidential Executive Order on standards of conduct that he said Meese had grossly violated. Department attorneys, Burns argued, would have been reprimanded or removed if they had acted as Meese had, the sources said.

Reagan’s meetings first with Burns and Weld and then with Meese, requested by the President at the recommendation of Baker and White House counsel A. B. Culvahouse, did not represent a move by the two White House officials to influence Reagan to oust Meese, a senior White House official said.

‘An Honest Broker’

“They’re trying to manage a difficult situation,” said the official, who refused to be identified.

“Baker has tried to be an honest broker from the beginning, getting information to the President and making sure Ed Meese was involved at all times,” he said. “A.B.’s involvement was to monitor the situation,” and he is keeping up “day-to-day contact with people in the Justice Department.”

Justice Department sources said that when Burns and Weld first raised their protests last month in a meeting with Baker and Culvahouse, the White House officials told them: “We should get you in to see the President.”

An Administration official, identified with conservative issues, said there was “some sentiment” among conservatives that Meese’s continued tenure was distracting attention from such issues as family concerns and the war on drugs.

‘Dead in the Water’

“It would be good to have a unified, aggressive Administration position,” something he said is not now possible with Meese as head of the Domestic Policy Council, an inter-agency clearinghouse on domestic issues.

“He’s totally dead in the water,” the official said. “It intensifies the lameness of a lame-duck Administration.”

In a related development, it was learned that McKay on Friday rejected a proposal in his office to give Meese’s lawyers his detailed report on his yearlong investigation two or three days before he files it with the court.

McKay’s aides had sought to give Meese’s attorneys an opportunity to correct any factual details, but McKay rejected it on two grounds, sources familiar with the matter said. One is a thick legal analysis which concluded that providing the material would have violated the federal rule against divulging grand-jury material. The other is McKay’s desire to avoid any “hassles” with Meese’s legal team over the report’s findings.

Withholding the report from Meese’s lawyers until it is filed with the special court that oversees independent counsels also avoids the controversy that giving them an advance look would likely generate. McKay was criticized by veteran Justice Department officials for his April 1 statement that he had no plans to seek an indictment of Meese. Although McKay’s office had set May 11 as a target date for completing the report, sources familiar with the work said the end of May now is more likely.