Utah v. Micone

The federal district court for the Northern District of Texas again upheld the U.S. Department of Labor’s final rule allowing Employee Retirement Income Security Act of 1974 (ERISA) fiduciaries to consider “collateral benefits” such as environment, social, and governance (ESG) factors “when deciding between competing investment options that each equally served the beneficiaries’ financial interests.” The court initially upheld the rule in September 2023 based on application of Chevron deference. The Fifth Circuit remanded the case in July 2024 for reconsideration after the Supreme Court overruled Chevron in Loper Bright Enterprises v. Raimondo. On remand, the district found that the final rule’s “tiebreaking provision” did not violate ERISA’s text—which requires fiduciaries to act “solely” in the participants’ and beneficiaries’ interest and for the “exclusive purpose” of providing benefits to these parties—because the regulation “never permits fiduciaries to deviate from exclusively achieving financial benefits for the beneficiaries alone.”

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Twenty-seven states, two companies, an energy producers trade group, and two individual plaintiffs appealed a decision by the federal district court for the Northern District of Texas upholding the U.S. Department of Labor’s 2022 amendments of its Investment Duties regulation, which included provisions clarifying that employee benefit plan fiduciaries may consider environmental, social, and governance (ESG) factors such as climate change in risk and return analyses for investment decisions.

The federal district court for the Northern District of Texas ruled that the U.S. Department of Labor’s 2022 amendments of its Investment Duties regulation that governs private-sector employee benefit plans did not violate the Employee Retirement Income Security Act of 1974 (ERISA) or the Administrative Procedure Act. The 2022 amendments included provisions that clarified that fiduciaries could consider environmental, social, and governance (ESG) factors such as climate change in risk and return analyses for investment decisions. The court rejected the argument by 26 states and several private plaintiffs that ERISA’s plain text foreclosed consideration of such “non-pecuniary” factors. The court also concluded that the 2022 amendments were not “manifestly contrary to the statute.” In finding that the amendments were not arbitrary and capricious, the court noted that it was “not unsympathetic to Plaintiffs’ concerns over ESG investing trends,” but that the Department of Labor had provided the required “minimal level of analysis” from which the agency’s reasoning in support of the regulation could be discerned.

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The federal district court for the Northern District of Texas denied the U.S. Department of Labor’s motion to transfer a lawsuit challenging the agency’s amendment of its Investment Duties regulation that governs private-sector employee benefit plans under the Employee Retirement Income Security Act of 1974 (ERISA). The amendments reversed and modified certain changes made during the Trump administration, including by providing that ERISA plan fiduciaries may consider factors such as the economic effects of climate change and other environmental, social, or governance (ESG) factors on investments. The Department of Labor’s motion argued that the proper court for the suit was either the federal district court for the District of Columbia, a district where one of the plaintiffs resides, or, at a minimum, a division in the Northern District of Texas in which more than one district judge sits. The district court found that venue was proper in the Northern District of Texas because an individual plaintiff (added in an amended complaint after the motion for transfer was filed) lived in Amarillo, Texas, and because Texas—which was one of the 25 state plaintiffs—“resides everywhere in Texas.” The court further found that the Department of Labor fell “well short” of meeting its burden of demonstrating that convenience of the parties and witnesses and the interest of justice required transfer to the District of Columbia. The court also found that the Department of Labor’s arguments that the plaintiffs were engaged in “judge-shopping” presented an “unprecedented and unworkable” standard for motions to transfer.

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