LITTLE ROCK LAW : THE ROSE FIRM PROUDLY SENT FOUR PARTNERS TO THE CLINTON ADMINISTRATION-- AND IT’S FACED DISASTER EVER SINCE

A shift in fortune was signaled, as it so often is, by the most prosaic of events. The phone rang.

Phillip Carroll, at 68 one of the grand patriarchs of Little Rock’s legal community, was at home on a midsummer night in the affluent Heights neighborhood. He was the first to receive the news that would rock the rich, sheltered way of life enjoyed by partners at the Rose Law Firm.

Shortly after 10 p.m., an old friend with close ties to the Clinton White House, federal appellate Judge Richard Arnold, called to impart the incomprehensible. Vince was dead. A suicide. His body had been found in a park in Virginia. Carroll could barely breathe. Vince Foster. Carroll had been his mentor and confessor, godfather to his eldest son. Dead by his own hand.

Minutes later, Rose partner George E. Campbell’s phone rang. It was Ann Pincus, a Little Rock native, wife of a Washington Post reporter and lifelong friend of Campbell’s wife, Joan. Pincus had attended a Washington dinner party for David Gergen during which the presidential counselor received an urgent call from the White House with the awful news.

It was July 20, 1993, and deputy White House counsel Vincent W. Foster Jr., 48, once the soul and spine of the Rose Law Firm, boyhood friend of the President and close confidant of former Rose partner Hillary Rodham Clinton, had apparently committed suicide with an antique .38 Colt revolver in an isolated park overlooking the Potomac River.

Suddenly, the Washington-Little Rock nexus of lawyers and politicians went into action. The news spread across the network like a cascading wave.

William H. Kennedy III, now White House associate counsel and former chief operating officer at Rose, quickly called several of his former colleagues at the firm. Trying to learn more about Foster’s death, Carroll sought the Washington home number of Webster L. Hubbell, also a former senior partner at Rose and then the No. 3 official at the Justice Department, who was in a key position to monitor the Foster investigation.

Back in Washington, Foster’s boss, White House counsel Bernard W. Nussbaum, was searching Foster’s modest office in the West Wing, looking for a suicide note or a blackmail demand.

“Did he say anything?” a bewildered Nussbaum kept asking himself as he riffled through papers on Foster’s desk. Nussbaum, the New Yorker who had made a fortune on Wall Street in the 1980s putting together corporate mergers, was out of his element when confronted with violent death, and his amateurish handling of Foster’s suicide deepened suspicions that the White House was trying to conceal some hidden scandal involving the First Family.

Not until six days later did a White House lawyer find a torn-up suicide note in the bottom of Foster’s briefcase. It hinted at dark conspiracies by the FBI, the media and Republicans to destroy the Clintons and everything they were trying to accomplish. Foster, in a restrained but anguished cry, wrote that he “was not meant for the job or the spotlight of public life in Washington. Here, ruining people is considered sport.”

It was the most traumatic, unfathomable and searing event of the Clinton presidency. Why was Foster--whom the President described as the “Rock of Gibraltar,” the man once anointed to guide the Rose Law Firm into the next century, the man people in trouble turned to for help--dead at the pinnacle of his career?

That question remains unanswered. But what is clear is that in the wake of Foster’s death, the prosperous and peaceful life of Little Rock’s Rose Law Firm has been shattered. Foster’s death has immersed the firm in the rapidly unraveling Whitewater scandal, a tale of Arkansas banking and real estate deals gone bad and the White House’s clumsy efforts to contain the continuing damage. It set in motion a series of events that subjected Rose’s 59 lawyers to unaccustomed stress. That pressure now appears to threaten an implosion of the oldest law firm west of the Mississippi.

Already, the firm’s response to the harsh glare of national scrutiny has turned into an ugly internal blood bath. On March 14, Hubbell resigned from his job at the Justice Department amid charges that he improperly billed as much as $100,000 in personal expenses to the firm while he was a partner. The Rose investigation of Hubbell was only tangential to the Whitewater probe, but “It’s Whitewater that created the climate, that gave the dissidents in the firm the opportunity to go after Hubbell,” observes one source close to Hubbell.

There is bitter talk, especially among the younger generation of Rose attorneys now taking control, of the tarnished legacy bequeathed them, and they are trying to distance themselves from Hillary Clinton and her departed cronies. In mid-March, Rose partners voted to file charges against Hubbell with the Arkansas Supreme Court ethics division.

In the past year, Rose has become the favorite target of every conservative conspiracy theorist in America, assuming the secret-villain mantle once reserved for the Trilateral Commission. The firm has been portrayed by Clinton critics, most often in the Wall Street Journal, as a secretive fortress at the center of political and economic life in Arkansas that has now extended its sinister influence into the highest reaches of the federal government. Hubbell and Hillary, assisted by the aggressive but shadowy Kennedy and Foster, surreptitiously took over the government to advance their hidden agenda of federal intervention into every cranny of American life, according to this view. The firm, playing on its capital connections, added a tentacle by sending partner Allen W. Bird II to open a Washington office last fall, feeding the suspicions of the conspiracy theorists.

The truth is more mundane but in some ways more profound. The lawyers of the Rose firm became entangled in the careers of the Clintons mainly by the accident of Foster’s birth in Hope, Ark., and by a rising politician’s wife’s need for a job in 1977. But the lives of these 59 people have now become hostage to the consequences of the Clintons’ actions and to the President’s past business dealings with a two-bit real estate investor and S&L; operator named James B. McDougal.

Of the four Rose partners who assumed major roles in Washington after Bill Clinton’s election, one is dead, a second has resigned, and a third, Kennedy, is under scrutiny for nonpayment of taxes for a nanny. The fourth, Hillary herself, is caught squarely in the middle of Whitewater, her effectiveness as an advocate for health care reform and other legislative efforts increasingly in doubt.

No one could have predicted when Rose hired Hillary Clinton that, 17 years later, the firm’s reputation would be hanging by a thread, a 174-year-old institution facing oblivion because of a rotten little land deal.

UNTIL THEN-GOV. BILL CLINTON OF ARKANSAS ANNOUNCED HIS CANDIDAcy for the presidency at the end of 1991, the Rose Law Firm was little known outside the region. The firm, whose partners only recently gave up the Old South style of seersucker suits and white buck shoes in summer, never recruited from farther away than Tennessee or Texas. While its ambitions were to be an important regional legal player, it never acquired the stature of larger and better-connected firms in Memphis, Houston and Dallas.

Still, its partners enjoyed whatever luxuries Little Rock had to offer--gracious old homes or newer mini-mansions, the golf course and large swimming pool of the exclusive Country Club of Little Rock, expensive cars, civilized working hours and close association with the small circle of Arkansas leaders who wield true political and financial power.

The Clinton candidacy brought national focus on Rose because of Hillary’s employment there, but it has not been the attention the firm would have wished. Beginning early in the campaign, Rose was the subject of hundreds of news stories and dozens of rumors about potential conflicts of interest, the sale or purchase of political influence, and office intrigue.

Inside Rose, the pressure has only gotten worse in the months since Foster’s death. At first, many tried to rally around Lisa Foster, Vince’s widow, when she moved back to their white-pillared home in the Heights with her three children. But now, like barracudas in an overcrowded tank, Rose lawyers have begun to turn on each other and their former colleagues. These were just the latest and most overt signs of the poisonous climate at Rose. Even longstanding friendships within the firm have been eroded by Whitewater. Senior Rose partners Herbert C. Rule III and W. Wilson Jones have practiced together for more than 20 years and consider themselves the best of friends. But during a joint interview, Jones repeatedly interrupted whenever Rule drifted into a discussion of the effects of Whitewater on the firm. “I thought we agreed we weren’t going to talk about that,” Jones upbraided Rule more than once, his voice growing edgier each time. Asked later about the evident tension, Rule dismissed it as “the bickering of an old married couple.”

Many in the firm grumble that the price the remaining lawyers are paying for their association with the Clintons is far too high and the rewards far too low. True, another former Rose lawyer, Richard B. Steinkamp, has just found a home in the Clinton Administration, recently named general counsel of a new oversight board for federal mortgage financing agencies. Yet the White House connection has done little for Rose’s new Washington office; the firm’s name is now radioactive in a city where clients looking for political pull don’t like to read about their lawyers and lobbyists in lurid newspaper headlines.

Although the remaining partners are loath to express such a view publicly, in conversations one hears an undercurrent of resentment at the Clintons and their pals for robbing Rose of a lucrative obscurity, for bringing its lawyers’ integrity into question, for the loss of the beloved Foster.

“We rely heavily on our reputation, which until recently has been untarnished,” says Chief Operating Officer Ronald M. Clark, weighing his words judiciously, trying to mask his bitterness at being forced to deal with insatiable federal authorities and prying media. “Here we are defending stuff that took place six or eight years ago and which most of us know absolutely nothing about. A lot of us here complain that when you speak of ‘the firm,’ you’re talking about an entity. But we’re all individuals, and I knew nothing about Whitewater.

“If this is our 15 minutes of fame,” the 39-year-old tax specialist laments, “I’d just as soon it end.”

The tribulations of the Rose Law Firm have caused few tears to be shed in the inbred legal community of Little Rock. Oh sure, there are the ritual expressions of sympathy for Foster’s widow and the clucking of tongues over the breathless media coverage. But beneath a veneer of Southern manners there is barely disguised glee at the decline of a collection of lawyers whom many of their competitors consider arrogant, aloof and overrated. “They’re nothing special, just another Little Rock law firm with big pretensions,” says one attorney in a small Little Rock partnership. He adds that a lawyer will chide any colleague who grows full of himself by saying, “Now don’t go acting like a Rose firm lawyer.”

Legal competitors are quick to pounce on the latest allegation about Rose and brag about the cases they won or clients they stole from the powerhouse on East Fourth Street. Always on background, of course; Little Rock is a small town, and it’s not polite to cut up your fellow country club members on the record.

But from the country club locker room to the barroom of the Capital Hotel, wherever Little Rock’s lawyers gather, Rose and Whitewater are the hottest topics. Rumors abound about who’s been subpoenaed and what records have been shredded. Some of it is just politics, old enemies of the Clintons getting even. Some is the old-fashioned delight in the misfortunes of the better-off; the Rose firm traditionally was among Little Rock’s most profitable.

In many ways, what the Rose firm is going through today mirrors Foster’s transformation last year, when he surrendered a privileged and private existence in Little Rock to serve in Washington at the behest of the Clintons.

After arriving at the White House, the taciturn and tightly wrapped Foster was quickly bombarded by crises of a sort he had never encountered in Little Rock, from battles over controversial Clinton appointments to the botched firing of the White House travel staff. He was painted as part of the insidious Rose cabal in Washington. He worked harder under more pressure and with more painful results than he ever had in Arkansas.

A corporate litigator from a quiet Southern town who some former colleagues believe initially saw a White House job as the answer to his midlife crisis and growing restiveness as a lawyer, was thrust into a political hurricane for which he was dramatically ill prepared. And whether because of these pressures, some unbearable secret or, as many of his friends believe, an undiscovered medical event that triggered his suicidal depression, he snapped and ended his life six months to the day after Clinton was inaugurated.

“We have all been trying to understand what happened to Vince ever since,” says Bird.

Among the effects found in Foster’s White House office were a dim black-and-white photo of Foster and Bill Clinton in kindergarten and a thin manila file folder labeled “Whitewater,” which contained tax records and other documents relating to the Clintons’ Ozark Mountain real estate deal. Nussbaum, considering it the personal legal business of the Clintons, forwarded it to their private attorney in Washington.

When it was revealed that Nussbaum removed Whitewater-related papers from Foster’s office while holding at bay police officers investigating the death, the political equivalent of hell broke loose for the Clintons, raising the ugly specter of a White House cover-up. That finally forced the White House in January to accede to the appointment of a special counsel, Robert B. Fiske Jr., a veteran New York prosecutor who has set up shop in Little Rock.

Rose falls under Fiske’s scrutiny because Hillary Clinton and the firm represented James McDougal’s Madison Guaranty Savings & Loan in front of state regulators appointed by her husband in an attempt to shore up the foundering thrift. Four years later, in an unrelated matter, Rose solicited legal business from federal regulators and was hired to sue Madison Guaranty’s auditors for negligence; that case has raised allegations of a conflict of interest because of Hillary’s earlier representation of Madison.

Rose partner Bird represented Hillary Clinton in a Whitewater-related land transaction. And Foster also acted as the Clintons’ personal lawyer in dealing with Whitewater, at least in the later stages, and handled the 1992 sale of their share of the venture. There have also been hints, from Rose partners and federal investigators, that the firm’s lawyers handled far more Whitewater transactions than have been publicly acknowledged.

The firm first felt the effects of notoriety during the 1992 presidential race, when its most famous partner took a leave of absence to campaign for her husband. Rose hired security guards after catching reporters pawing through their trash and snooping around their document storage facility. The firm also, for the first time, bought a shredder to destroy confidential documents.

The attention during the campaign was nothing compared to the floodlights now shining on the firm. Its elegantly appointed offices--which include a 60-foot basement swimming pool, salvaged from the building’s days as a YWCA--have been visited by agents of the FBI, the Resolution Trust Corp., the Federal Deposit Insurance Corp. and the Department of Justice. At least a dozen times a day, reporters from as far away as London and Australia call with questions about Whitewater and the Clintons.

On a recent visit to the firm, a reporter observed half a dozen boxes of files relating to Whitewater being wheeled down the bird’s-eye-maple-paneled hallways, being prepared for submission under subpoena from Fiske.

“Not in my wildest dreams would I have imagined what has happened,” says George Campbell, at 61 one of the firm’s elder statesmen. He contends that the Rose firm is “an innocent bystander who happens to be around when politicians are slinging mud at each other.” He believes that the firm’s name and reputation will be vindicated, but the effects of the trauma will linger.

“If there’s an insight I’ve gained from all this, it’s about the pain involved in national politics,” Campbell says, sitting primly on a sofa in his office. “There are people who spend every waking moment trying to tear somebody else down.”

NO ONE OUTSIDE ARKANsas’ legal community would ever have heard of the Rose Law Firm if Vince Foster had not walked into then-Chief Operating Officer C. Joseph Giroir Jr.’s office one day in 1976 and urged him to hire a sharp young law professor he knew, 29-year-old Hillary Rodham.

Rodham was then teaching at the University of Arkansas Law School in Fayetteville, where Foster, an alumnus, often handled recruiting for the Rose firm. Hillary was moving to Little Rock because her husband had just won the Democratic primary for state attorney general. For Rose, it seemed like a fortuitous match; Bill Clinton was clearly on the way up in politics, and Hillary was going with him. Giroir recalls that the firm, which at the time only hired two or three associates a year, was not trying to fill an opening. Rose just made a slot for Hillary. “We had a policy that if we found someone we really wanted, we would go after them,” says Giroir.

Today, partners refuse to voice regret at Hillary’s hiring. Those who played a role say one of the only concerns expressed at the time was whether her marriage might force the firm to turn away some state business because of potential conflicts of interest. Others worried that Little Rock was not ready for a “lady lawyer,” particularly a feminist Northerner educated at Wellesley and Yale.

Hillary was a liberal woman in a staid, Southern white-male-dominated firm that had been founded before Arkansas was granted statehood, a firm that did not hire its first black attorney until 1988. (It currently has none.) Ultimately, she would bring high-profile politics into a corporate law firm that shunned publicity.

Hillary was naturally drawn to Vince Foster, then only 32 but already considered a major asset at the firm because of his legal skills and attention to detail. One of the leading civil trial attorneys in the city, “He won by following the rules,” observes one former colleague. Older clients liked his discretion and his ability to cut to the heart of a legal problem.

Younger associates referred to him as “Vince the Knife,” for his legal acuity and for his cool, assassin-like manner that could wilt a witness or an underachieving associate. He developed a reputation within the firm for moodiness, temperamental behavior and even extended spells of silence. Former colleagues say that for one 18-month stretch, he refused to talk to his secretary.

His austere demeanor could intimidate those around him. Kennedy, a recent hire at the firm, was transferred out of the litigation department because he and Foster, his supervisor, couldn’t get along, Rose sources say. The two later came to terms as Kennedy, a Pine Bluff, Ark., native, proved his worth by billing more hours than any other Rose lawyer for several consecutive years.

Webb Hubbell, who followed Foster as managing editor of the University of Arkansas Law Review and joined the firm two years after his older friend, also became part of Rose’s inner circle. Hubbell was Foster’s fun-loving opposite, a beefy former Arkansas Razorback lineman who was as outgoing as Foster was reserved. His minor football fame was a draw in a state where the Hogs rule, but former associates say that Foster’s brain and Kennedy’s prodigious capacity for work brought in a lot more revenue. (Clinton, Hubbell and Kennedy all declined to be interviewed for this article.)

Hillary Clinton, meanwhile, consciously sought to keep her head down, shying away from highly visible cases that could raise questions about her relationship to the attorney general who would later become governor.

Little Rock lawyers and reporters on the legal beat say that in her 15 years in the Rose firm’s litigation section, she was seldom seen in court, preferring to find a way to settle disputes outside the glare of public pleading. One attorney who opposed her on a commercial matter in the late 1980s said that Hillary led him to believe that she wanted a trial, but on the eve of their court appearance she called to offer a settlement “on very favorable terms to our side.

“She was very worried about a high-profile loss. She had to take politics into account on each matter,” says the attorney, who worked at Rose for several years and now is at another Little Rock firm. He asked not to be identified because the Little Rock local legal community is so small. “She was afraid to tie it up and go to court. She ended up settling most matters.”

Even her supporters at Rose say Clinton was less than a full-time lawyer, having to attend to state business, service on corporate boards, political campaigns and a variety of public advocacy pursuits. Her pay reflected her relatively modest contributions to the firm’s bottom line--just over $100,000 a year when many of her contemporaries were making twice that or more. Her pay was also reduced because she did not take a share in work done by Rose on behalf of the state government, mostly the handling of the sale of state bonds.

She was missing so often that former Chief Operating Officer Giroir says she was often assigned to assist Foster. “We couldn’t give her a full load of cases because we were never sure she would be around to handle them,” Giroir says. Indeed, in 1982, Hillary Clinton had to turn down Giroir’s offer of a promotion to become administrative partner, which would have given her significant management duties in the firm; she was interested in the post, but she was too busy that year helping her husband launch his bid to regain the governorship.

Yet despite her efforts to keep a low profile, Hillary Clinton still entered into some business arrangements that gave rise to potential conflicts. The firm developed its own ethics guidelines in the mid-1980s that were supposed to limit partners’ business dealings with firm clients, but those guidelines were apparently informal.

Certainly Clinton didn’t refrain from mixing business and legal work. For example, she sat on the board of directors of two major Rose clients, TCBY Enterprises, the yogurt franchise, and Wal-Mart Stores. Her most serious potential conflict, of course, came from the fact that she represented Madison Guaranty at the same time that she was in business with its chairman, James McDougal. Most troubling of all was that while she had other firm partners handle work for Whitewater, she apparently did not disclose her business relationship with McDougal to the firm’s COO. “I never knew that she was in business with him,” says Giroir.

But there is no denying that her departure, along with those of Foster, Hubbell and Kennedy, took a heavy toll on the remaining partners. One legal competitor refers to the firm today, with its senior management gutted and its legal expertise and political connections sorely missed, as “Home Alone III.”A HUNDRED MILES OR SO north of Little Rock, down the road from the Ozark village of Yellville, are the 240 acres of land along the White River that the Clintons and James and Susan McDougal bought amid dreams of real estate riches. Oddly, it was along this same river more than 150 years ago that one of the founders of the Rose firm first brought the partnership into disrepute and caused its temporary demise.

In 1832, 12 years after forming the partnership that grew into the Rose Law Firm, Robert Crittenden decided that Little Rock could not contain his ambitions. He tried to unseat the incumbent delegate from the Arkansas territory, Henry W. Conway, but the campaign deteriorated into a bitter exchange of insults and a challenge to a duel, which left Conway mortally wounded, Crittenden disgraced and the law partnership with Chester Ashley disbanded.

The firm was re-established in 1837--without the trigger-happy Crittenden but with its political yearnings intact. Ashley went on to the U.S. Senate, where he served as chairman of the Judiciary Committee. His new partner, George Watkins, later became chief justice of the Arkansas Supreme Court.

The firm adopted its current name in 1865 with the addition of noted jurist U.M. Rose, a founder and later president of the American Bar Assn. A “Northerner” from Kentucky who arrived in Arkansas on a Mississippi riverboat, he was a linguist, legal scholar and diplomat who was cited by Supreme Court Justice Felix Frankfurter as an important early influence. Rose family members were associated with the firm until the late 1940s.

Over the years, the partnership was a breeding ground for Arkansas’ political and legal elite, producing six members of the state Supreme Court, dozens of state legislators and officers of the state bar association. But the past decade has been unquestionably one of the most traumatic periods in the firm’s history. Just as the rise of Hillary Clinton and her colleagues increased the firm’s political profile throughout the 1980s, Joseph Giroir sought to radically transform the firm’s relationship with the Arkansas business community.

Giroir never quite fit the Rose image. A small, dapper man partial to flashy suits and custom-made shirts, he considered himself half businessman, half lawyer. Yet his vision of turning Rose into an entrepreneurial player in mergers and acquisitions throughout the region ultimately collided with the firm’s conservative traditions. “The firm almost came apart over Giroir,” says one Rose partner.

When Giroir’s major lender, First South Savings & Loan, was taken over by regulators from the Federal Savings and Loan Insurance Corp., funding for his personal ventures suddenly dried up. In 1986, the agency not only cut off Giroir’s line of credit, it seized $12 million in assets he had put up as loan collateral.

“I had no choice but to sue,” Giroir says now. “They had just about all my money.”

The problem was that Rose represented the FSLIC in other thrift cases--a conflict of interest that became the central management issue for nearly two years. Finally, by early 1988, Giroir resigned and set up his own firm, taking with him some of the best young lawyers in Rose’s profitable securities law department.

More important, he took key clients with him, including corporate and personal legal work of Jackson Stephens, the patriarch of a family financial empire and arguably the most powerful figure in Arkansas. It has taken years for Rose to rebuild its securities business since Giroir’s departure.

Rose today is not Little Rock’s most political firm; there are one or two rival powerhouse firms in town that have traditionally had closer ties to the state Legislature. Yet Rose still exerts influence through its heavyweight client base, which has remained intact during the current controversy, according to Rose lawyers. “My clients almost never even mention it, except to sympathize and ask how we are doing,” insists senior partner Wilson Jones.

But the coming months will pose a stern test of client loyalty. By March, congressional Republicans were smelling blood and had forced the Federal Deposit Insurance Corp. to reopen an investigation of whether Rose had a conflict of interest in its legal work involving Madison before state and federal regulators. “Hillary Clinton and Rose got money going in and got money going out,” charged Sen. Lauch Faircloth (R-N.C.).

The mysteries of the firm are slowly yielding to the persistence of the press and the pressure from Fiske, who is still in the opening stages of his inquiry into Whitewater. Stories detailing grand jury testimony from former Rose couriers and clerks about shredded documents, potential conflicts of interest, shadowy real estate deals and political connections blare almost daily from newspapers and TV reports.

Rose partners are certain to be forced to testify before Fiske’s grand jury throughout the spring. Fiske’s self-described mandate is to investigate, among other things, the death of Foster and the possible complicity of the Rose firm in fiscal and legal shenanigans involving McDougal’s failed businesses and his relationship with the Clintons.

Besieged with subpoenas and under intense media scrutiny, Rose has hired its own legal counsel, the giant Houston firm of Vinson & Elkins, to represent it in possible federal prosecution. The firm’s legal fees could easily run into hundreds of thousands of dollars.

In a sign of the serious questions still surrounding Foster’s violent death, Fiske has named Roderick C. Lankler, former chief litigator in the New York district attorney’s office, to concentrate solely on the Foster suicide. And, of course, if any proof of shredding of Whitewater-related documents surfaces in grand jury testimony, Rose attorneys will be facing obstruction of justice charges.

Taken together, that’s enough potential trouble to make almost any client think twice. “It’s not the sort of reputation one would go searching for,” sighs senior partner Herb Rule.

Rose partners deny they are covering up any scandal and deny their shredder has been working overtime to hide the truth about the Clintons and Whitewater. Former couriers at Rose have testified before a grand jury in Little Rock that they were asked by clerks to shred documents marked with Vincent Foster’s name but have acknowledged that they don’t believe any of the papers were related to Whitewater or Madison Guaranty. One sardonic Rose partner asks: “Now, if we were really going to shred documents about Madison and Whitewater, do you think we would do it in the middle of the day and call in the clerks and say, ‘Hey, we’re shredding the Madison files, can you help us?”’

Yet, deservedly or not, Rose is now smack in the middle of the hottest political scandal since the Iran-contra debacle. And suddenly, Rose of Little Rock is the most famous law firm in America--for all the wrong reasons.