American Airlines Seeks Win in 401(k) ESG Suit After Setback

American Airlines Inc. renewed its effort to kill litigation over its 401(k) plan’s alleged ties to investments focused on environmental, social, and corporate governance goals, asking for a summary judgment victory five days after its motion to dismiss fell flat.

The record shows American’s process for choosing and monitoring plan investment options was “at all times state of the art” and that it “secured contractual commitments from all investment managers to pursue investors’ financial interests when voting the Plans’ proxies,” the airline said. There’s no evidence plan fiduciaries held any improper motives, whether “ESG-related or not,” and plaintiff Bryan Spence hasn’t even attempted to calculate how the disputed investment decisions caused damages to the plan, the airline said.

American’s motion for summary judgment, filed Monday in the US District Court for the Northern District of Texas, comes five days after Judge Reed O’Connor allowed Spence to move forward with claims of fiduciary disloyalty and imprudence under the Employee Retirement Income Security Act. O’Connor, a George W. Bush appointee who has repeatedly struck down provisions of the Affordable Care Act, said Spence’s lawsuit tells a “plausible story” that the airline’s “public commitment to ESG initiatives” caused it to invest 401(k) plan assets with ESG-focused managers while failing to properly investigate other managers that would focus exclusively on maximizing financial benefits for plan participants.

Spence’s lawsuit, which seeks to represent a proposed class of more than 100,000 people, says American’s $26 billion 401(k) plan improperly favored ESG funds and invested billions with BlackRock Inc., which he describes as a proponent of the investment strategy. It’s one of the first private-sector lawsuits to argue that a retirement plan fiduciary breached its duties by pursuing ESG investments—those aimed at promoting socially conscious goals—at the expense of workers’ financial interests.

In addition to arguing that Spence lacks the evidence needed to make his case, the airline criticized him for attempting to introduce a new legal theory through an expert report. This theory—which argues American should have attempted to influence BlackRock’s proxy vote in a 2021 election that installed new climate-friendly members on Exxon Mobil Corp.'s board of directors—is speculative, lacks proof, and wasn’t properly pleaded in the operative complaint, American said.

BlackRock isn’t a party to the suit.

O’Melveny & Myers LLP and Kelly Hart & Hallman LLP represent American. Hacker Stephens LLP and Sharp Law LLP represent Spence.

The case is Spence v. Am. Airlines, Inc., N.D. Tex., No. 4:23-cv-00552, summary judgment motion 2/26/24.