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Canales v. Paulson

August 30, 2006

MARIA CANALES, ET AL., PLAINTIFFS,
v.
HENRY M. PAULSON, SECRETARY OF THE TREASURY, ET AL., DEFENDANTS.



The opinion of the court was delivered by: Gladys Kessler U.S. District Judge

MEMORANDUM OPINION

Plaintiffs, Maria Canales and M Squared Strategies, Inc. ("M Squared"), bring this case against Henry M. Paulson, Secretary of the Treasury, Thomas A. Sharpe, Jr., Director of the Office of the Procurement Executive, U.S. Department of the Treasury, and Dennis S. Schindel, Acting Inspector General, U.S. Department of the Treasury, challenging a June 27, 2006 Debarment Notice issued by the United States Department of the Treasury. That Notice precludes them from contracting with the federal government for a period of three years.

This matter is currently before the Court on Plaintiff M Squared's Application for Temporary Restraining Order [Dkt. No. 18]. Upon consideration of the Application, Opposition, Reply, and the entire record herein, and for the reasons stated below, Plaintiff's Motion is hereby granted.

I. BACKGROUND

A. Facts*fn1

Between 1999 and 2002, Maria Canales was employed by the United States Department of the Treasury ("Treasury" or the "Department") and served in various capacities at that agency. For a brief period in 2002, she held the title Acting Deputy Assistant Secretary and Acting Chief Information Officer. She resigned in October 2002 and founded M Squared shortly thereafter. A Maryland Corporation, M Squared provides management consulting services primarily to government agencies. Canales is the sole shareholder of M Squared and serves as its Chief Executive Officer.

In October 2001, while Canales was still employed at Treasury, the Department allocated $5.7 million for contracts relating to cyber-security software and consulting services. At that time, John M. Neal, an individual with whom Canales had been acquainted for several years, was working as a consultant for companies seeking those contracts. While the Department was considering various bids, including bids from companies Neal was representing, Canales and her husband vacationed in Malta with Neal and his companion and stayed at a time-share property belonging to Neal's companion. Subsequently, Canales received a valuable vase and several emerald chips from Neal. In March 2002, Treasury awarded a sole source subcontract worth $1.5 million to one of the companies Neal represented. Canales signed the sole source justification for that subcontract.

Later in March 2002, Treasury's Office of the Inspector General ("OIG") began investigating allegations that there was a connection between Canales's relationship with Neal and the award of a sole source subcontract to Neal's client. In June 6, 2002, a representative from OIG interviewed Canales regarding the gifts she received from Neal. In the course of that interview, Canales made false statements, including denying that she received emerald chips, which were later memorialized in an affidavit she signed.

Those false statements led the U.S. Attorney for the District of Columbia to file a one-count Information against Canales in April 2004, charging her with Making a False Writing in violation of 18 U.S.C. § 1018. Canales subsequently pleaded guilty to that misdemeanor offense and was sentenced to a term of probation. Her plea agreement, and the Government's allocution at her sentencing, made clear that no connection had been established between the gifts Canales received and the contract Neal's client won. The Government stated in its allocution that there was "no allegation that Canales broke any of the bribery or gratuity laws or corruption offenses." See Trans. of Canales Sentencing at 5.

In April 2004, Treasury's OIG published its semi-annual report to Congress. In that document, the OIG inaccurately reported that, as a result of its investigation, Canales had voluntarily agreed to a lifetime debarment from contracting with the federal government. The OIG repeated that inaccurate statement in its next semi-annual report to Congress, in October 2004. Defendants concede that OIG's statements were false and represent that OIG intends to correct them in its upcoming semi-annual report to Congress, due to be published in October 2006. See Defs.' Opp'n and Mot. for Summ. J. at 6-7.

In November 2005, Thomas Sharpe, Director of Treasury's Office of the Procurement Executive, initiated proceedings to debar Canales. She was represented by counsel during those proceedings, and had several opportunities to make legal arguments and present factual documentation in opposition to the proposed debarment.

By Notice dated June 27, 2006, Sharpe informed Canales that he had decided to impose debarment on her, effective immediately. The debarment, he explained, would apply "throughout the executive branch of the Government" for a period of three years. See Admin. R. at CAN0012. As grounds for his action, Sharpe cited Canales's "conviction of a criminal offense," specifically, "making a false writing in connection with an ongoing procurement." See id. at CAN0011. He further explained that M Squared would be debarred for the same period on the ground that Canales is its "sole stockholder and Chief Executive Officer," and therefore a "principal" of the corporation. Id. at CAN0012. Sharpe also sent a separate Debarment Notice to M Squared, addressed to the attention of Canales.

At the time the debarment took effect, Plaintiffs' entire business consisted of four contracts with various federal agencies for management consulting services.*fn2 One of those contracts was terminated on July 31, 2006, following the denial of Plaintiffs' first Motion for Temporary Restraining Order/Preliminary Injunction. Of the remaining three contracts, two are funded through September 2006 and one is funded through November 2006. Plaintiffs represent that unless the Court grants temporary injunctive relief regarding the three remaining contracts, ...


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