Daniel Wiessner
(Reuters) – A federal judge in Texas said on Friday that American Airlines (NASDAQ: ) violated federal law by basing investment decisions for its employee pension plan on environmental, social and other non-financial factors.
The ruling by U.S. District Judge Reed O’Connor appears to be the first of its kind amid growing opposition from conservatives to the rise of socially conscious investing.
O’Connor said American breached its legal duty to make investment decisions based solely on the financial interests of 401(k) plan beneficiaries by allowing BlackRock (NYSE: ), its asset manager and major shareholder, to focus on environmental, social and economic factors. of corporate governance (ESG).
“The evidence clearly showed that [American’s] incestuous relationship with BlackRock and his own corporate goals disloyally influenced the administration of the Plan,” wrote O’Connor, appointed by Republican former President George W. Bush.
A BlackRock spokesman said: “We always act independently and with a particular focus on what is in the best financial interests of our clients. Our sole objective is to maximize returns for our clients, consistent with their choices.”
The judge ruled after a four-day non-jury trial in June, in a class-action lawsuit filed by American pilot Bryan Spence on behalf of more than 100,000 participants in the pension plan. O’Connor said he would later decide whether class members suffered financial damages and whether American must pay them damages.
American said in a statement that it is reviewing the decision. Attorneys for Spence did not immediately respond to requests for comment.
BlackRock, which said Thursday it was leaving the environmentally focused investor group under pressure from Republican politicians, is not involved in the lawsuit.
In November, BlackRock and two rival asset managers were sued by 11 Republican-led states that say the companies violated federal antitrust laws through climate activism that reduced coal production and caused energy costs to rise. BlackRock called the claims baseless.
Spence sued American 2023, saying it violated the federal Employee Retirement Insurance Act (ERISA) by failing to remain loyal to 401(k) plan participants and prudently overseeing their assets.
Last February, O’Connor rejected American’s claims that the lawsuit should be dismissed because Spence could not prove the 401(k) plan was unsuccessful, clearing the way for a trial.
On Friday, a judge said American breached its duty of loyalty to pension plan participants. But the company’s decisions did not breach its duty of care, O’Connor said, because it acted in accordance with prevailing industry standards.
O’Connor is known for frequently ruling in favor of conservative litigants challenging laws and regulations governing guns, LGBTQ rights and health care.
In 2023, the Biden administration passed a rule allowing 401(k) and other plans to consider ESG factors as a “balance” between financially equal investment options.
The rule replaced a regulation passed during Republican President-elect Donald Trump’s first administration that barred consideration of any non-financial factors, which could be reinstated after Trump takes office for a second term later this month.
A federal judge in Texas is currently hearing a legal challenge to the Biden administration’s rule by 25 Republican-led states and oil drilling company Liberty Energy.
