Hubbell Quits; Top Justice Aide, Clinton Friend

Webster Hubbell, the third-ranking Justice Department official and a close friend of President Clinton and Hillary Rodham Clinton, resigned Monday amid allegations that he cost his former Little Rock law firm as much as $1 million in unbilled time and questionable expenses.

Hubbell said in a statement that an investigation into his billing practices by his former partners at Little Rock’s Rose Law Firm had become a burdensome distraction and that he did not want to do further damage to the Administration by remaining in office.

The departure of Hubbell leaves a gaping hole at Justice, which has not yet filled the spot vacated by the departure last month of the department’s second-ranking official, Deputy Atty. Gen. Philip B. Heymann, who quit in a personality clash with Atty. Gen. Janet Reno.

The Hubbell resignation also intensifies the growing cost to the Clintons of the Whitewater controversy, and it leaves an impression of an Administration in disarray.

“It could not have come at a worse time for him and for the Administration,” said a senior White House adviser.

Hubbell described the matters under dispute with his former firm as “private issues” relating to “compensation and reimbursement” that have nothing to do with Whitewater or the President and First Lady.

“I am confident that at the conclusion of these discussions all outstanding matters will be resolved satisfactorily,” Hubbell said.

The Rose firm internal investigation “came to a very acute head” over the last several days, according to knowledgeable sources. Hubbell’s former partners confronted him with how much money they believed he owed them and said that they could not settle the matter amicably, the sources said.

Hubbell decided Sunday to resign, knowing that the dispute with Rose would spill over into the public arena, embarrass the Clintons and limit his effectiveness at Justice, a senior White House official said. “He did the honorable thing,” the aide said. “He didn’t want to ensnare the President and the First Lady.”

Numerous calls to attorneys at the Rose firm went unanswered Monday. The firm’s outside counsel, Walter B. Stuart of the Houston firm, Vinson & Elkins, did not return calls seeking comment.

Hubbell, Mrs. Clinton and the late Deputy White House Counsel Vincent Foster, who apparently committed suicide last July, all were senior partners and close friends at Rose before coming to Washington with Clinton’s inauguration.

Hubbell’s resignation followed the forced resignation of White House Counsel Bernard Nussbaum on March 5. Nussbaum quit after disclosures that he had met with federal regulators looking into the Clintons’ role in the Whitewater case. Nussbaum, too, was a close friend of the First Lady’s, having worked with her 20 years ago on the House Judiciary Committee considering the impeachment of former President Richard Nixon.

Special counsel Robert B. Fiske Jr. is looking into allegations that the President may have benefited improperly from his association with James B. McDougal, owner of the failed Madison Guaranty Savings & Loan and partner with the Clintons in an Ozark real estate development firm known as Whitewater Development Corp. The inquiry also encompasses the role played by Mrs. Clinton and her firm in representing Whitewater and Madison Guaranty.

In his letter of resignation to the President, Hubbell wrote that dealing with “public speculation about me and my former law firm” would consume increasing amounts of his time and would limit his effectiveness in office.

Arriving in Boston for a political appearance, Clinton told reporters that Hubbell made “the right decision.”

And while he praised Hubbell as a “good personal friend” and a lawyer who is “widely esteemed” by those who know him, Clinton appeared to leave himself considerable maneuvering room in case the facts prove otherwise. “I haven’t talked to him since this whole issue came up,” Clinton said. He repeated several times that he had “no knowledge of the facts.”

Hubbell “strongly feels that he will be vindicated but it will take some time for him to do it and that he shouldn’t be working at a public job while he’s doing that,” Clinton said. “I think he’s right.”

The Rose firm has been investigating Hubbell’s billing practices since last year, when it discovered what it considered discrepancies in the hourly billings and expense accounts of the former senior partner. The internal review heated up last month when the monetary scale of the dispute became clear and when Fiske announced that he would investigate a broad range of activities at the Rose firm when Hubbell, Foster and Mrs. Clinton were essentially in charge.

The matters under scrutiny internally at Rose involved the business interests of Hubbell’s father-in-law and brother-in-law, Seth Ward Sr. and Seth Ward Jr., as well as Hubbell’s work for federal bank regulatory agencies, the Federal Deposit Insurance Corp. and the Resolution Trust Corp. The firm is trying to determine whether Hubbell properly accounted for personal expenses paid out of firm funds and whether there was any impropriety involved in litigation costs borne by the firm in matters Hubbell handled.

Hubbell took on an unsuccessful copyright infringement suit that a parking meter manufacturing company owned by the Wards filed against a competitor, according to White House and Justice Department sources. Hubbell assumed the case on a contingency basis, an unusual arrangement for a large corporate law firm, meaning that if he lost the case his firm would bear the expenses of the litigation.

Hubbell lost the case but did not reveal the contingency fee deal to his partners until after he joined the Administration, the sources said. As a result, Rose will get none of the $500,000 it would have received from the Wards if it had been able to bill on an hourly basis.

What’s more, the firm was stuck with as much as $500,000 in additional costs related to the case, including fees paid to expert witnesses, outside copyright specialists, travel, copying and various other expenses generated during what was a major lawsuit, the sources said.

Also, the RTC is conducting a full-scale audit of more than $1.2 million billed to the agency by the Rose firm since 1989 to see whether the charges were justified. Hubbell solicited the regulatory business and supervised many of the 22 bank cases handled by the firm, including one against the former auditors of Madison Guaranty Savings & Loan.

“After a thoughtful weekend, I believe that my continued service will not be as effective as it has been; that the distractions on me at this time will interfere with my service to the country and the President’s agenda; and that my family, although totally supportive, is being harmed,” Hubbell said in a statement released by the Justice Department. Hubbell and his wife, Suzanna, have four children ranging in age from 12 to 21.

“It is also unfortunate that private issues between me and my firm have been cast, by some, as being part of a broad political net called Whitewater,” he added. “These private issues have nothing to do with Whitewater, Madison Guaranty, the McDougals or the President and First Lady.”

Hubbell’s dispute with Rose is only tangentially related to Whitewater, a Justice Department official contended, though it was Whitewater and the presence of reporters looking into it in Little Rock that prompted dissidents at the law firm to make their move against their former colleague, according to a source close to Hubbell.

“In the current climate, some members of the firm reached back to prior cases and in the course of that there were some isolated matters involving the Resolution Trust Corp. that they queried Webb about,” the source said.

“Even though the dispute has nothing to do with Whitewater, it’s Whitewater that created the climate, that gave the dissidents in the firm the opportunity to go after Hubbell, and preoccupation with Whitewater increases the pressure on Hubbell to get this dispute off the government’s back,” a source close to Hubbell said.

Another source said that Hubbell had asked the firm to conciliate the matter, but the firm refused.

Hubbell was the first Clinton Administration official to join the Justice Department at the very beginning of Clinton’s term and ran the department for weeks while the White House stumbled through the process of naming an attorney general.

Hubbell had broad responsibilities as the No. 3 official. He oversaw the Immigration and Naturalization Service and the Civil Rights, Environment and Natural Resources, Civil, Antitrust and Tax divisions. He also was responsible for the Office of Legislative Affairs, the Bureau of Prisons, the Community Relations Service and the Office of Legal Counsel, which serves as the attorney general’s legal adviser.

The official said that Hubbell met Sunday with friends, including Mickey Kantor, who is U.S. trade representative, to review the dispute and what to do about it. Hubbell apparently decided after Sunday’s session to quit but wanted to keep at arm’s length from the President and First Lady.

Kantor on Sunday informed White House Chief of Staff Thomas (Mack) McLarty, who told the President of Hubbell’s impending action. Hubbell called Mrs. Clinton on Monday to tell her of his decision, aides said.

In Denver, Mrs. Clinton said of Hubbell: “Personally, as a friend, I am thinking a lot about him and his family and wishing him well.”

In a brief press appearance in mid-afternoon to announce Hubbell’s resignation, Reno said: “There are no words capable of fully conveying to you my deep respect and admiration for Webb Hubbell or how sad this event makes me. He has been a tireless crusader for doing justice, for doing the right thing.”

There is no list of potential replacements for Hubbell, a Justice Department official said, noting that Hubbell could remain on the job for as long as 30 days.

Times staff writers Robert L. Jackson and David Lauter in Washington and special correspondent Kristina Lindgren in Denver contributed to this story.