PROVIDENCE, R.I. (AP) _ The chief justice of the Rhode Island Supreme Court stepped down today, pending the outcome of charges accusing him of picking a business partner as a paid arbitrator in labor disputes.

Justice Thomas Fay said in a statement that he consulted the governor, lieutenant governor, legislative leaders and members of the court before deciding ''it is in the best interest of all concerned that I temporarily step aside from all administrative and judicial duties.''

Three misdemeanor charges accusing Fay of violating state ethics laws were unsealed Tuesday. Two allege that Fay appointed business partner Paul Foster to arbitrate labor disputes involving the Smithfield fire and police departments in August 1990 and March 1992.

A third count alleges that Fay appointed Foster to arbitrate a dispute involving the North Smithfield Police Department in November 1992, Pine said.

Foster is president of Lincoln Center, a development group in which Fay is a partner and has a financial interest.

The accusations stem from an ethics law that bars people from using their offices to help associates. The August 1990 arbitration job alone paid Foster $40,000.

Gov. Bruce Sundlun, who had urged Fay to step aside, hailed the decision. ''It's a good day for state government in Rhode Island,'' Sundlun said. ''We saw a problem and we're moving quickly and publicly to handle it.''

Fay, 52, was appointed to the court for life in 1986. A guilty verdict could lead to his ouster but it would not be automatic. Fay had no intention of resigning, said court spokesman Jim Roberts.

On Tuesday, Fay temporarily relinquished only his administrative duties, but he said today he would also give up his judicial duties temporarily.

Fay asked for ''a full, open and public hearing'' before the Commission on Judicial Tenure and Discipline. The misdemeanor charges were contained in a criminal complaint in Providence District Court.

Each charge carries a penalty of up to one year in prison and $1,000 in fines. Fay's arraignment was set for Thursday.

The appointments of Foster were uncovered during an attorney general investigation of former Court Administrator Matthew Smith's alleged cover-up of the theft of court funds by the son of state Auditor General Anthony Piccirilli.

Smith, who resigned earlier this month, was Fay's top aide and oversaw a controversial Supreme Court checking account also uncovered during the investigation.

Auditors said the account, funded by surplus bar exam fees, was used to pay for liquor and food for court parties, baseball caps for a court team and tuxedo rentals for Fay.

Sundlun ordered the court to repay the state up to $170,000 that auditors determined was improperly spent.

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