American Airlines has again filed a motion to dismiss a lawsuit that accuses the airline of improperly including and prioritizing environmental, social, and governance (ESG) investments in the company’s 401(k) plan.
In its motion, American Airlines pushed back on plaintiff Bryan P. Spence’s allegations, maintaining that the former pilot had never invested in any of the 25 challenged funds.
“Indeed, it would have been impossible for Plaintiff to fund any such ESG-themed investment strategies in the Pilots Plan’s core investment lineup, where he has chosen to invest, because there are none,” American Airlines stated in the suit.
The airline goes on to add that even if Spence had invested in one of the challenged funds, his theory would be dismissed on the account that American Airlines offers a self-directed brokerage account (SDBA), which allows participants to choose “freely from thousands of mutual funds, exchange-traded funds, and individual stocks at their own risk.”
“No fiduciary is responsible for the selection or monitoring of the individual investments within an individual participant’s brokerage account,” American Airlines’ motion reads. “Indeed, the very purpose of a brokerage account is to free participants from the constraints of a fiduciary-curated investment lineup. A fiduciary breach cannot exist where no fiduciary duty applies, and Plaintiff’s Challenged Fund theory thus would fail even if he had invested in the Challenged Funds.”
Spence’s second theory underlying his claims—that the plan should not be using a broader list of managers with allegedly sub-par proxy voting practices even to manage investment strategies that pursue purely pecuniary objectives—also fails to state a claim, American Airlines argues.
“Plaintiff has patched over the standing problem with his Original Complaint— that he had not invested in any investment options managed by the Challenged Managers—by expanding the list of managers he targets to conveniently include ones involved with options he has personally chosen for his Pilots Plan account,” the motion reads.
“But he has done nothing to remedy a separate fatal flaw,” American Airlines’ attorneys continued. “Plaintiff does not allege any facts sufficient to infer that the unspecified options sponsored by the Challenged Managers are financially inferior to those available from other managers, and thus that a prudent fiduciary would not select them.” The motion goes on to add that Spence did not allege that options relying on the Challenged Managers delivered lower returns than other options, or that the options’ performance would have disqualified the managers on any other financial ground.
Additionally, American Airlines says that Spence likewise alleges nothing that remotely permits an inference that defendants selected the Challenged Managers to serve their own financial interests or otherwise engaged in acts of disloyalty.
Lastly, the motion calls out what they say is Spence’s contradiction in refusing to discuss historical returns of the plan’s investment options, noting that such irony undermines his proxy-voting theory.
“He insists that Defendants are duty-bound to avoid funds managed in whole or in part by any of an expanding set of Challenged Managers even if their financial performance is stellar, simply because the managers might lend support to a shareholder ESG proposal through proxy voting,” the motion states. “But the broader premise underlying his Complaint—that ERISA fiduciaries must curate a menu of core investment options or “Designated Investment Alternatives” based exclusively on the goal of “maximiz[ing] financial benefits” for participants—confirms the exact opposite.”
American Airlines is asking the court to dismiss Spence’s amended complaint in its entirety, with prejudice.
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