After a four-day bench trial, the federal district court for the Northern District of Texas found that the facts “compellingly demonstrated” that American Airlines, Inc. (American) and the American Airlines Employee Benefits Committee had breached their fiduciary duty of loyalty under the Employee Retirement Income Security Act of 1974 (ERISA) by allowing corporate interests in environmental, social, and governance (ESG) objectives and their investment manager’s ESG interests to influence their management of employee retirement plans. The court found that a preponderance of the evidence demonstrated that the defendants acted disloyally by allowing ties to the investment manager (BlackRock)—which was also one of American’s largest shareholders—to influence management of the plan. In addition, the court concluded that the defendants acted disloyally by allowing corporate goals, including sustainable aviation fuel and climate change initiatives, to influence management and oversight of the retirement plans. The court found that the defendants failed to maintain the “critical divide” between these corporate goals and their fiduciary obligations. The court also found that the defendants “utterly failed to loyally investigate BlackRock’s ESG investment activities.” The court concluded, however, that the plaintiff did not prevail on the claim that the defendants violated the duty of prudence under ERISA because the defendants had acted “according to prevailing industry practices, even if leaders in the fiduciary industry contrived to set the standard.” The court described its conclusion that there was no violation of the duty of prudence a “shocking result given that the evidence revealed ESG investing is not in the best financial interests of a retirement plan” but found that “faithful application of the law” required the court to find that the defendants oversaw and monitored the plan consistent with existing industry standards. The court directed the parties to submit supplemental briefing regarding issues related losses suffered by the class members.

Class action alleging that American Airlines and related defendants breached their fiduciary duties under ERISA by investing employees' retirement savings with managers and in funds that use ESG strategies.

Spence v. American Airlines, Inc.

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Texas Federal Court Found that American Airlines Breached ERISA Duty of Loyalty Due to Influence of ESG Interests

Filed

United States of America

Texas

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Renewable energy means all forms of energy produced from renewable sources in a sustainable manner.

Fossil fuel is a generic term for non-renewable energy sources such as coal, fossil gas, and oil (including crude oil, and petroleum products), that can be used for electricity and heat generation. Fossil fuels are hydrocarbons formed from pressurised and heated organic material buried over millions of years.

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Area of the economy in which actors engage in identical or related activities.

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The management and allocation of funds, assets and investments to meet various objectives

People whose sexual orientation, gender identity, or gender expression differs from the majority or societal norms

A loan is a policy instrument where funds are provided to a borrower with the expectation of repaying the principal plus interest.

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The processes through which enterprises can identify, prevent, mitigate and account for how they address their actual and potential adverse impacts. Due diligence is the idea that reasonable precautions should be taken to avoid causing harm to people, the environment, or society. It also involves identifying and mitigating risks before they occur.

A company that is owned wholly or partially by the state, typically operating in key sectors.

A target to reduce the prevalence of a greenhouse gas over a specific time frame

A commitment to balance GHG emissions with removal by a certain point in time, effectively reducing the net emissions to zero

Either money or something of monetary value is transferred between two or more organisations, people or countries.

The release of heat-trapping gases, primarily from human activities such as burning fossil fuels, agriculture and industry.

Actions to reduce emissions in energy generation and supply.

Social protection systems consist of policies that help people manage social risks in order to prevent poverty and maintain decent incomes and living standards

Oil is a combustible liquid fossil fuel composed mainly of hydrocarbons, occurring as crude oil and refined into petroleum products such as petrol, diesel and kerosene.

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woman and genders outside of the gender binary

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Activities of industries that extract natural resources, such as mining, oil, and gas, for commercial use.

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Texas Federal Court Found that American Airlines Breached ERISA Duty of Loyalty Due to Influence of ESG Interests

Target

Policy instrument

Risk

Impacted group

Just transition

Fossil fuel

Greenhouse gas

Economic sector

Adaptation/resilience

Finance