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.
The allegations raised by Head and the government are "just impossible," Kane said, because they would have required collusion by "hundreds of people" over 15 years. The company has asked for the suit to be dismissed, and a judge's ruling on that request could be the next major step in the case.
The Kane Co. has also done business with 32 Maryland agencies, earning $1.7 million since 2000. Mary Kane served as Ehrlich's deputy secretary of state from 2003 to 2005, and secretary of state from 2005 to early 2007.
The suit does not raise questions about state contracts.
Earlier this month, John Kane pledged in an e-mail to Maryland Attorney General Douglas F. Gansler that his company would refrain from bidding on new state work if the Ehrlich-Kane ticket is elected.
Melissa Deckman, a political science professor at Washington College in Chestertown, said the charges could be harmful to the Ehrlich campaign since Mary Kane is not well-known in the state and the charges in it give Democrats opportunity to fashion an unflattering narrative. "It is probably not enough to shape the race, but it could impact people's impression of Mary Kane," Deckman said.
"Ehrlich is a very well-known commodity," she said. "Kane is less well-known. Potentially, in a close race, it could be an issue."
Ehrlich has played down the significance of the allegations, and said his campaign reviewed them before rounding out its ticket. "We had a very strong group of attorney vetters," the former governor said last week. "We conducted a very thorough investigation, due diligence."
John Kane has harbored political aspirations himself, and considered running for governor in 2002, before Ehrlich entered the contest. After winning, Ehrlich endorsed Kane as chairman of the state party.
Kane has been an aggressive fundraiser and a champion for the Intercounty Connector in Montgomery County, a controversial highway construction project.
He has also been active in the transportation industry, serving as a past vice president of the American Trucking Association and a past chairman of the Maryland Motor Truck Association.
His company has a history and a good reputation that traces back 40 years, industry observers say. It has done work for the Pentagon, and the departments of Interior, Agriculture and Labor. At the state level, it has provided moving and storage services to the Department of Public Safety and Correctional Services, the State Highway Administration and other agencies.
The company was founded by Kane's father in 1969. John Kane worked for the family business for years before acquiring it in full in 1998. It has grown to include six business units, including office equipment installation, document shredding and electronics recycling.
"He's very well-known in the industry," said Barbara Windsor, who sits on the board of the national trucking association and is chief executive of Hahn Transportation Inc. of New Market. Kane and his company have "always been first-rate," said Windsor. "He's very well-respected."
"I think very highly of John and Mary Kane," said Louis Campion, president of the Maryland Motor Truck Association. "It's an outstanding company with an excellent reputation."
In January 2008, John Kane and his Office Movers company were targeted by critics for its contract with electronic voting machine manufacturer Diebold to deliver the machines to some Maryland voting districts that year for the primary and general election. He called the complaints a "conspiracy theory."
"To say that this isn't a conspiracy theory is to say that Jeffrey Dahmer only had an eating disorder," Kane told The Baltimore Sun at the time.
Other allegations in the lawsuit could simply prove embarrassing to Kane, such as an accusation that he placed a fake ad on Craigslist, encouraging people to call Head's phone number to retrieve a laptop computer and an entertainment center allegedly being given away for free.
With Craigslist's help, Head claims he tracked the ad to an e-mail address — sissy12pants@aol.com — that originated in Potomac, and he blamed Kane. Head said in court papers that "sissypants" is a word that Kane uses toward men to "humiliate them and insult their masculinity."
Kane said that Head's allegation is "100-percent inaccurate."
Head's attorney, Brian J. Markovitz, declined to comment. Head could not be reached for comment.
The federal lawsuit also includes a Kane e-mail to another former employee. In the email, Kane attributes the success of the former employee, who is African American, to minority set-aside programs, and then calls him a "punk," according to the lawsuit.
Kane said his e-mail to the man was an "embarrassment," and "stupid and ignorant."
"I've apologized to the man I said it to," Kane said. "I said it in the heat of the moment."
Baltimore Sun reporter Annie Linskey contributed to this article.
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Kane Co. federal contracts
2009: 135 transactions; $3.4 million
2008: 127 transactions; $5.0 million
2007: 117 transactions; $5.3 million
2006: 77 transactions; $4.3 million
2005: 104 transactions; $4.1 million
2004: 96 transactions; $3.8 million
2003: 20 transactions; $2.1 million
2002: 15 transactions; $3 million
2001: 9 transactions; $1.5 million
2000: 44 transactions; $1 million
Source: usaspending.gov
Kane Co. Maryland state contracts
2009: $40,951
2008: $134,669
2007: $125,333
2006: $262,203
2005: $291,888
2004: $105,788
2003: $299,699
2002: $198,472
2001: $155,824
2000: $130,826
Source: Comptroller of Maryland