Court rejects TSP board’s $350 million lawsuit

The board that runs the federal Thrift Savings Plan cannot sue a contractor over the failed modernization of a computer system, a federal judge has ruled. The board is appealing the ruling. In a Nov. 30 decision, Judge James Robertson of the U.S. District Court for the District of Columbia threw out the Federal Retirement Thrift Investment Board's $350 million lawsuit against American Management Systems of Fairfax, Va. The judge ruled that Federal Retirement Thrift Investment Board Executive Director Roger Mehle, who runs the TSP, is not permitted to file suit independent of the Justice Department. The TSP is the government's 401k-style savings program for federal employees and retirees. About $100 billion is invested in the TSP's five funds. The TSP board and AMS have been locked in a legal battle since July, when Mehle cancelled a software development contract with the company. In 1997, the board hired AMS to install a new system for managing TSP investments. The original contract was for $30 million. The system would have allowed employees to more easily control their TSP accounts. But the contract ran into frequent delays and its cost had ballooned to an estimated $87 million with no completion date in sight when the board fired AMS and filed suit. AMS, however, argued that federal law does not permit Mehle to bring such a suit. The judge agreed. "Because Mr. Mehle has not obtained Department of Justice approval to sue and is not authorized by statute to litigate independently, [AMS'] motion must be granted," Robertson wrote in his decision. Only the Justice Department can sue on behalf of federal agencies, unless Congress has specifically granted litigation authority to an agency, the judge said. In fact, the Justice Department filed a notice with the court informing the judge that the department's attorneys don't think Mehle has the authority to sue. "The Attorney General controls all litigation in which the United States or its agencies or officers is a party, unless otherwise authorized by law," Assistant Attorney General Robert McCallum and U.S. Attorney Roscoe Howard wrote. In the board's defense, Mehle contended that the TSP Fund, which holds federal employees' assets, is a trust. Common law and the legislative history of the TSP give Mehle the power to represent the TSP's interests in court, he said. Mehle said he will appeal Robertson's decision.

"It is inconceivable that Congress intended to deny litigation authority to the statutory fiduciaries it mandated and empowered to act solely in the interest of TSP participants and beneficiaries," Mehle said Monday in a statement. The Justice Department had no comment on the appeal. In addition to appealing the decision, the TSP board has proposed a legislative change that would clarify the board's power to sue. AMS issued a news release noting the judge's decision and stated, "The ruling does not constitute a final resolution of the dispute between the Thrift board and AMS." In October, AMS filed a contract claim in the U.S. Court of Federal Claims against the TSP board and the federal government, challenging the board's decision to terminate the contract for default and refusal to pay some invoices. The federal claims court has not ruled on AMS' complaint yet. The Justice Department filed a response on behalf of the board, arguing that the claims court doesn't have jurisdiction to hear the case because the TSP does not use appropriated funds. This summer, the TSP board hired Materials, Communication & Computers Inc. of Alexandria, Va., to take over the computer system modernization project.