After a four-day non-jury trial that was held last June, Judge Reed O’Connor of the U.S. District Court for the Northern District of Texas on Friday ruled that American Airlines breached its fiduciary duty of loyalty under ERISA to make investment decisions based solely on the financial interests of 401(k) plan beneficiaries—but not its fiduciary duty of prudence—in allowing its retirement plan to be influenced by corporate goals unrelated to workers’ best financial interests.
“The facts here compellingly established fiduciary misconduct in the form of conflicts of interest and the failure to loyally act solely in the Plan’s best financial interests,” O’Connor’s ruling stated.
More from the ruling’s conclusion:
“The Court concludes that the facts compellingly demonstrated that Defendants breached their fiduciary duty by failing to loyally act solely in the retirement plan’s best financial interests by allowing their corporate interests, as well as BlackRock’s ESG interests, to influence management of the plan. However, the facts do not compel the same result for the duty of prudence. Defendants acted according to prevailing industry practices, even if leaders in the fiduciary industry contrived to set the standard. This is fatal to Plaintiff’s breach of prudence claim. Accordingly, Plaintiff prevails on the merits of his breach of loyalty claim but not on the breach of prudence claim.”
BlackRock was not involved in the lawsuit.
The Court also deferred ruling on the remedies, including the questions of whether injunctive relief is warranted and what damages, if any, are appropriate. Both parties were instructed to submit a cross-supplemental briefing by no later than Jan. 31, 2025, addressing a handful of considerations.
The case gained instant notoriety upon being filed in June 2023. Senior American Airlines pilot Bryan P. Spence sued American Airlines, arguing that the company’s 401(k) plan—one of the largest in the country—picks investments that pursue “leftist political agendas through environmental, social and governance [‘ESG’] strategies, proxy voting, and shareholder activism—activities which fail to satisfy these fiduciaries’ statutory duties to maximize financial benefits in the sole interest of the Plan participants.”
The suit argued that over the past 6 years (dating from 2023), the plan underperformed due to the airline choosing to invest in and recommend funds that meet ESG goals—including sustainability efforts, LGBTQ+ interests, and racial and gender diversity—causing him financial harm.
Spence claimed the company’s approach is “flatly inconsistent” with its fiduciary responsibility under ERISA.
The outcome of the case could impact how fiduciaries balance ESG factors with financial performance in retirement plans, potentially reshaping the landscape of plan management and compliance under ERISA. It could lead to stricter guidelines on the inclusion of ESG investments in retirement plans and further clarify fiduciary responsibilities under ERISA.
O’Connor’s prior rulings in the case denied the airline’s motion to dismiss, certified a class of as many as 100,000 plan participants, and allowed the plaintiffs to present their claims at trial.
O’Melveny & Myers LLP and Kelly Hart & Hallman LLP represent American Airlines in the case, Spence v. Am. Airlines, Inc. Hacker Stephens LLP and Sharp Law LLP represent the pilots.
SEE ALSO:
• American Airlines Pilot Sues Company 401(k) Over ‘Woke’ ESG Investing
• American Airlines Pushes Back on Amended ESG Complaint
• American Airlines Pilot Cuts Fidelity and Financial Engines from ESG Suit
Veteran financial services industry journalist Brian Anderson joined 401(k) Specialist as Managing Editor in January 2019. He has led editorial content for a variety of well-known properties including Insurance Forums, Life Insurance Selling, National Underwriter Life & Health, and Senior Market Advisor. He has always maintained a focus on providing readers with timely, useful information intended to help them build their business.
