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A U.S. federal court has ruled that American Airlines failed its employees by choosing BlackRock to manage parts of its pension plan, with the judge ruling that the world’s largest asset manager had committed to “ESG activities.” claimed to have been contaminated.
The ruling by U.S. District Judge Reed O’Connor in the Northern District of Texas highlights how U.S. companies face increasing legal risks over environmental, social, governance, and diversity and inclusion policies.
O’Connor’s ruling comes amid a culture war in the United States over programs that promote everything from racial diversity to environmental protection. President-elect Donald Trump and his allies, including Elon Musk, have fiercely opposed these plans, and some companies have begun pulling back on them ahead of Inauguration Day later this month.
“This (lawsuit) is not about ESG funds at all,” said Josh Lichtenstein, a partner at law firm Ropes & Gray. He said this is one of the most high-profile retirement plan lawsuits in the U.S., adding, “To me, this means the same claim could be filed against literally any 401k plan in the U.S.” This is because it looks like there is.
Conservative groups have pursued these types of cases in recent years, trying to handpick judges they believe will side with them. Mr. O’Connor, an appointee of President George W. Bush, last month threw out Boeing Co.’s 737 Max plea deal with the U.S. Department of Justice over diversity, equity and inclusion provisions.
The American Airlines class action lawsuit was filed by pilots in 2023, alleging that American Airlines breached its fiduciary duties to employees in its 401k plan by hiring an investment management firm that “pursued left-wing political agendas through ESG strategies.” claims. The complaint does not mention BlackRock, and the asset manager is not a party to the lawsuit.
But O’Connor took advantage of BlackRock’s relationship as the largest investment manager of American Airlines’ 401k plan. The savings scheme consisted of passive index funds and active funds, but did not include ESG-specific strategies.
But he said BlackRock’s vote in favor of hedge fund Engine No. 1 in its 2021 proxy battle with energy giant ExxonMobil amounted to, among other things, “ESG activity.” American Airlines “allowed BlackRock to continue managing billions of dollars of (401k) plan assets in pursuit of non-economic ESG benefits,” O’Connor said.
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O’Connor ruled that American Airlines breached its duty of loyalty to plan participants by failing to separate “BlackRock’s ESG interests” from its own corporate objectives, “resulting in unacceptable cross-pollination.” was lowered. But he said American had not breached its duty of prudence “in connection with the design and implementation of the process to monitor the program.”
The judge deferred ruling on whether the plan participants had suffered a loss.
American and BlackRock did not respond to requests for comment.
Additional reporting by Claire Bushey