A federal judge upheld yesterday the District government's plan to cancel a $22.9-million lease agreement negotiated by former city official Jose Gutierrez, describing Gutierrez as "an unfaithful servant" who had circumvented D.C. purchasing rules in awarding the 10-year lease to a firm headed by a friend.

Gutierrez, the former head of the D.C. government's purchasing agency who was fired by Mayor Marion Barry on May 20, bypassed the city's $5 million limit on his contracting authority by splitting into nine leases the contract for the Perpetual Building, according to U.S. District Judge Oliver Gasch. The building is owned by a partnership headed by Gutierrez's friend, Angel S. Roubin.

"To saddle the taxpayers of the District of Columbia with substantial rental payments because of the conduct of one of its unfaithful servants would not be in the public interest," Gasch said in a 32-page ruling.

The judge rejected a bid by Perpetual Building Limited Partnership, owned by Roubin and his sons, Jose and Richard, for a preliminary injunction that would have prevented the city from stopping leases for the building at 1111 E St. NW. The city planned to move six agencies there.

Barry said yesterday that Gasch's decision -- coupled with an earlier federal court ruling that denied Gutierrez an injunction to regain his job -- affirms the administration's position in its highly publicized dispute with Gutierrez.

Gutierrez, who was the city's highest-ranking Hispanic official and whose firing prompted protests from some Hispanic leaders and business executives, had accused city officials of demoting and later firing him because he resisted pressure from Barry and City Administrator Thomas Downs in awarding other city contracts.

Barry, at his monthly news conference, said, "We have had two legal rulings which indicate that the city is right up to this point." The mayor said that the city "never paid any money on those illegal leases."

Roubin, who purchased the Perpetual Building in November in anticipation of the lease agreement and obtained a $15-million mortgage, has until Friday to appeal the ruling, Gasch said. The judge noted that Roubin now faces foreclosure for nonpayment because the city has refused to pay rent. However, he added that Roubin should have known there were problems with Gutierrez's authority to negotiate the deal.

Roubin could not be reached for comment.

Gutierrez invited Roubin to a meeting last August and discussed Roubin's purchase of the building so he could lease it to the city, according to the court ruling. Gutierrez signed the $22-million lease in October, but split it after lawyers in his Department of Administrative Services advised him of the limit on his authority. A 1975 city executive order specifies that any lease over $5 million must be approved by the mayor or his designee.

Gutierrez said yesterday he regretted that Roubin lost the case.

"It was not my intent to circumvent any regulations," Gutierrez said. "Indeed, the idea for writing the leases in this manner came from Mr. Downs. Those were decisions he made."

Gutierrez said that Downs suggested the splitting of leases last September so that individual agencies occupying the new building could pay rent separately so the city would have an easier time in billing federal officials for various reimbursements.

But Gasch's decision said that two lawyers in Gutierrez's department had given depositions stating that Gutierrez had proposed splitting the leases. Downs denied yesterday that he had advised splitting leases. He said that statements by other city officials indicated Gutierrez had made "a conscious decision" to split the leases to avoid a review by other officials.

According to Gasch, "Mr. Gutierrez knew that the $22-million master lease required approval . . . . His motive in breaking the master lease into nine separate ones was to avoid this approval requirement."