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Canales v. Paulson

July 16, 2007


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


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

This matter is currently before the Court on Defendants' Motion for Summary Judgment [Dkt. No. 22], Plaintiffs' Cross Motion for Summary Judgment [Dkt. No. 30], and Defendants' Motion to Dismiss in Part [Dkt. No. 36]. Upon consideration of the Motions, Oppositions, and Replies, and the entire record herein, and for the reasons stated below, Defendants' Motion for Summary Judgment is hereby denied, Plaintiffs' Cross Motion for Summary Judgment is hereby granted in part, and Defendants' Motion to Dismiss in Part is hereby granted.


A. Facts*fn1

Between 1999 and 2002, Maria Canales was employed by the United States Department of the Treasury 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. Before her resignation, on June 1, 2002, Canales incorporated M Squared.*fn2 A Maryland corporation with twenty employees, 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 stayed at a time-share property belonging to Neal's companion. Subsequently, Canales received a Greek 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' relationship with Neal and the award of a sole source subcontract to Neal's client. On 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 had 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 during an official investigation, a misdemeanor offense under 18 U.S.C. § 1018. Canales subsequently pleaded guilty 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 specifically stated in its allocution that there was "no allegation that Canales broke any of the bribery or gratuity laws or corruption offenses" and that her sole offense was making a "false written statement to the Inspector General." Sentencing Hr'g Tr., United States v. Maria Canales, No. 04-CR-135 (D.D.C. July 13, 2004).

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. In its Opposition to Plaintiffs' Motion, the Government concedes that OIG's statements were false and represents that OIG intended to correct them in its next semi-annual report to Congress, which was due to be published in October 2006. See Defs.' Opp'n and Mot. for Summ. J. at 6-7.*fn3

In November 2005, Thomas Sharpe, Treasury's Senior Procurement Executive, initiated proceedings to debar Canales. She was represented by counsel during those proceedings, and had opportunities to make legal arguments and present factual documentation in opposition. During that process, she argued, inter alia, that a consideration of several mitigating factors would counsel against debarment in her case. See Admin. R. at CAN0111.

By Notice dated June 27, 2006, Sharpe informed Canales that he had decided to debar her, effective immediately. While he acknowledged that she had presented mitigating factors, he concluded that "[g]iven the facts and nature of your offense debarment is the appropriate course of action." Admin. R. at CAN0011. The debarment, he explained, would apply "throughout the executive branch of the Government" for a period of three years. Id. at CAN0012. As grounds for his action, Sharpe cited Canales' "conviction of a criminal offense," specifically, "making a false writing in connection with an ongoing procurement." 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 company. 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.*fn4 One of those contracts was terminated on July 31, 2006. Of the remaining three contracts, two were funded through September 2006 and one was funded through November 2006.

B. Procedural History

Plaintiffs filed their Complaint, together with a Motion for Temporary Restraining Order and Preliminary Injunction [Dkt. No. 2], on July 28, 2006. Finding that Plaintiffs had not established a substantial likelihood of success on the merits, the Motions Judge presiding that day denied their Motion for a Temporary Restraining Order but left open the possibility that a Preliminary Injunction could issue after more comprehensive briefing of the ...

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