A pending lawsuit against American Airlines was recently allowed to continue as a judge in the Northern District of Texas denied American’s Motion to Dismiss. The case revolves around claims by an American employee alleging that the company’s 401k plan violates its fiduciary duty and duty of loyalty by investing with financial services firms that promote ESG goals in their portfolio companies. The Order denying the Motion to Dismiss summarizes the arguments as:
“Plaintiff’s… theory of liability is that Defendants violated their fiduciary duty by knowingly including funds ‘that are managed by investment managers that pursue non-financial and nonpecuniary ESG policy goals through proxy voting and shareholder activism’ on their investment portal (the ‘Challenged Manager Theory’). Specifically, Spence contends that Defendants’ Plan primarily contains funds administered by investment management firms like BlackRock, Inc.”
The argument goes that BlackRock uses its position as an asset manager to advance ESG policies at various companies through proxy voting. The Plaintiff argues that those proxy votes result in a lower share price and therefore devalue Plaintiff’s investment. Since American invests Plaintiffs funds through BlackRock, the argument goes that the airline is violating its fiduciary duty because it is aware of BlackRock’s ESG positions and practices.
It’s important to note that the Plantiff’s claims rely on several unproven allegations, including that BlackRock’s proxy actions resulted in diminished share value. While the Court has allowed this case to move forward, that doesn’t mean the Plaintiff will be able to adequately prove factual elements at trial. However, similar anti-ESG cases have failed to survive this far, and the advancement of this case marks a notable development.
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