Federal lawsuit against family business shadows Mary Kane political run

Ehrlich's pick for running mate denies involvement in company

her husband calls federal contract fraud allegations baseless

July 17, 2010|By Gus G. Sentementes, The Baltimore Sun

For years, the family business has been a source of respect and wealth for the Kanes. As a leader in the commercial moving industry, John M. Kane nurtured business and political connections in Montgomery County and Annapolis, and led the Maryland Republican Party during Robert L. Ehrlich Jr.'s tenure as governor.

But as his wife, Mary D. Kane, runs for lieutenant governor with Ehrlich, John Kane is trying to keep himself and the Kane Co. out of the political crossfire. That's because Kane is defending the business in a lawsuit that alleges federal contract fraud.

"It's personally embarrassing because it's an affront to my reputation," Kane said in an interview. "I am not going to settle [the lawsuit]. I would rather go down financially bankrupt than admit to being morally bankrupt. I'll fight to the end."

Filed five years ago, the lawsuit has received fresh attention since Ehrlich chose Mary Kane as his running mate last month. Five of eight talking points from the state Democratic Party about her candidacy focus on her ties to the company.

In the suit brought by a former employee, the allegations against Kane include his paying workers less than mandated wages on federal contracts, double-billing the government for labor and fuel costs, and charging the government higher costs than commercial customers. Company representatives deny the charges.

In an interview, Mary Kane, who previously served as secretary of state under Ehrlich, said she has never been involved in the operations of the company, perhaps best known for its Office Movers division, whose white-red-and-blue trucks are a regular presence on the region's roads. She did serve as an unpaid company director from 1997 to 2003, but that was only because her husband wanted her to be aware of overall strategy if something happened to him and she needed to take over, she said. She denies any knowledge of federal contract improprieties.

"I'm not involved in the company," said Mary Kane, a lawyer who worked as special projects director for the U.S. Chamber of Commerce until taking a leave of absence to run for lieutenant governor. "I go to work and have my own life, and John does what he needs to do. In business, lawsuits happen, and this one does not involve me at all."

Kane, who lives in Potomac in a $3 million house she owns with her husband, has disclosed that she stands to gain a 50 percent share of the company if the couple divorces, and 100 percent if her husband dies.

The federal lawsuit started five years ago as a whistleblower complaint against the Kane Co., a $70 million-a-year business with headquarters in Elkridge and 1,000 full and part-time employees. It took on greater significance when the U.S. Department of Justice chose last year to investigate some of the allegations under the civil False Claims Act.

"The False Claims Act is a rare tool pulled out [by the federal government] when there are extreme problems in the contract," said Patrick Burns, a spokesman for Taxpayers Against Fraud Education Fund, a nonprofit advocacy group based in Washington. "It's a sledgehammer."

Legal experts say that the Kane Co. — which has billed the federal government at least $2 million every year since 2003, topping $5 million in 2007 and 2008 — could potentially be liable for hundreds of thousands of dollars, if not millions, in financial penalties related to contracts with several federal agencies.

When the Justice Department chooses to participate in a whistleblower case under the False Claims Act, companies typically end up negotiating a settlement, legal experts say. Companies want to avoid a protracted legal battle and potentially high penalties, and also don't want to risk being banned from government contracts if they lose, experts say.

"My gut tells me that at some point in the future, they'll settle the case. Very few go to trial," said John T. Boese, a Washington litigator and an expert on whistleblower cases involving government contracts. "The Justice Department recovers in the majority of the cases they intervene with, mainly because companies end up settling with them," he said.

The lawsuit depicts Kane as a hands-on leader who knew of problems in the firm's government billing practices for years, yet did nothing to correct them. It was filed by Anthony Head, a former employee described by company officials as "disgruntled."

The Kane Co. argues that the government never set a wage requirement on certain federal contracts, so the company can't be faulted.

John Kane said his company has turned over documents to federal investigators showing that for contracts covering $8.6 million in wages, some employees were underpaid by a total of $49,000, while others were overpaid by $20,000.

In all, the discrepancies are "less than one percent," he said.

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