I have noted in prior posts on this site the phenomenon of ESG backlash, which has not only taken the form of legislative and other overtly pollical action, but has also taken the form of litigation as well. Though the ESG backlash lawsuits generally have not fared well in the courts, one of these suits recently survived a motion to dismiss.

In a February 21, 2024, ruling, the Northern District of Texas denied the motion to dismiss in a lawsuit filed by an American Airlines pilot alleging that the airline and its employee benefits committee violated their fiduciary duties under ERISA to the company’s 401(k) plan participants in connection with selection and retention of funds whose managers allegedly pursue non-economic ESG objectives rather than maximizing plan participants’ financial benefits. As discussed below, the ruling underscores just how fraught the ESG-related litigation picture has become. A copy of the court’s ruling can be found here.


On June 2, 2023, an American Airlines pilot filed an ERISA class action lawsuit in the Northern District of Texas against American Airlines and its Employee Benefits Committee. The gist of the complaint is that the defendants “breached their fiduciary duties in violation of ERISA by investing millions of dollars of American Airlines employees’ retirement savings with investment managers and investment funds 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 complaint alleges that the defendants “breached their fiduciary duties of loyalty to the Plan and the Plan participants and beneficiaries by selecting and retaining as investment options under the Plan ESG funds and funds that are managed by investment companies that pursue ESG objectives through proxy voting and shareholder activism.” In its subsequent opinion addressing the defendants’ motion to dismiss, the court described the plaintiff’s theory of liability as the “Challenged Manager Theory.”

The defendants moved to dismiss, arguing that the plaintiff’s allegations were insufficient to state a claim because the plaintiff provides no benchmark by which to compare performance, nor did the plaintiff allege any facts specifically showing how investment managers’ funds underperformed nor provides facts connecting the investment managers’ proxy votes for ESG measures to the alleged underperformance.

The February 21, 2024, Opinion

In a February 21, 2024, opinion, Northern District of Texas Judge Reed O’Conner denied the defendants’ motion to dismiss, finding that “at this stage” in the proceedings, the plaintiff “has provided sufficient facts to support his breach of prudence claim.”

Judge O’Conner said that at this stage, the plaintiff “need not plead the exact connection between the investment managers’ alleged ESG proxy voting and the financial harm,” adding that “that there need only be sufficient facts from which the Court can sufficiently infer a flawed process. Such an inference is possible here.”

Indeed, he added, the plaintiff has pled more than is required; for example, the plaintiff alleges that “investment managers, such as BlackRock, cast proxy votes causing ExxonMobil and Chevron stocks to fall, thereby reducing Plan participants’ returns on those investments.” The court also noted that “various sources have reported on the underperformance of ESG funds, including those managed by BlackRock.” These allegations, the Court said, “give rise to a plausible inference that Defendants should have known about these facts and circumstances,” and the alleged failure to consider this information “gives rise to a plausible inference about Defendants’ flawed process.”

The court specifically rejected the defendants’ argument that the plaintiff’s claims must fail because of his failure to provide a plausible benchmark, adding that the court will “defer evaluation of any comparators for future states of this litigation,” adding that the plaintiff “need not marshal evidence of every ESG investment that has financially harmed Plaintiff and other Plan participants at the pleading stage.” The plaintiff has, the court said, “adequately alleged that Defendants breached their duty of prudence by selecting, including, and retaining investment managers who pursue ESG objectives rather than focusing exclusively on maximizing financial benefits.”

The court also denied the defendants’ motion to dismiss the plaintiff’s claims that the defendants also breached their duty of loyalty in choosing to invest Plan assets with investment managers who pursue ESG objectives instead of exclusively financial ends. The plaintiff had claimed that the defendants had done so as part of a company-wide commitment to ESG goals, knowing that investment managers such as BlackRock invest in and vote on ESG policies. The defendants had tried to argue that the company’s ESG commitment was made with its “corporate hat,” which his separate from the obligations when wearing the “fiduciary hat.” The defendants also argued that the plaintiff had alleged no plausible basis for suggesting that the investment managers were motivated by anything but financial aims.

The court held that at this stage the plaintiff had pled sufficient fact to establish a breach of the duty of loyalty. Judge O’Conner said that whether the company-wide ESG policy motivated the defendants’ choice of Plan funds with ESG-oriented managers is a fact question not appropriate for resolution at this stage. The court said that taking the plaintiff’s allegations that the company’s commitment to ESG “motivated the disloyal decision to investment Plan assets” with managers that pursue non-economic objectives breached their duty of loyalty is a “plausible story.”


There are a lot of different ways to interpret this lawsuit. At least one way to look at the suit is that it is the presentation of a political gripe in the form of a lawsuit – one clue on this point is the plaintiff’s reference in the complaint to the Plan’s investment in “investment managers and investment funds that pursue a leftist political agenda.” That really does seem to be the plaintiff’s primary grievance. In that same regard, with regard to the court’s decision, “the ruling strikes the latest blow in the war between advocates and opponents” of ESG investment, according to the Duane Morris law firm’s March 10, 2024, memo about the court’s decision in the case (here).  

From my perspective, the court’s decision is noteworthy in that plaintiff seems to have managed to use the company’s own corporate ESG commitment against the company in the lawsuit, as the basis for an alleged breach of the duty of loyalty. This is just one more consideration (among many others) that in the wake of the anti-ESG backlash movement that likely will motivate companies to turn the volume down on ESG-related issues – that is, to engage in what has become known as “greenhushing.”

A particularly interesting aspect of the court’s decision is its focus on the selection and retention of the fund managers as the basis of liability. The court said:

Plaintiff articulates a plausible story: Defendants’ public commitment to ESG initiatives motivated the disloyal decision to invest Plan assets with managers who pursue non-economic ESG objectives through select investments that underperform relative to non-ESG investments, all while failing to faithfully investigate the availability of other investment managers whose exclusive focus would maximize financial benefits for Plan participants.

As the law firm memo notes, the plaintiff’s focus on the identify of the fund managers, rather than on the specific actions taken by those managers, was “an innovative theory” – and also “one that the Court adopted in full.” The law firm memo goes on to say that “According to the Court, ERISA plans can breach their fiduciary duties not only by choosing the wrong funds, but also by doing business with fund managers who have signaled their commitment to ESG investment.”  The memo observes further that “If the decision stands and if other courts adopt the rationale of the ruling, ERISA fiduciaries that invest in funds based on ESG factors are apt to face heightened risks and exposures.”

My one final observation about this case has to do with what the ruling says about ESG-related litigation. What a strange, unexpected field ESG-related litigation has turned out to be. Sure, there have been lawsuits, such as the one filed in England by the advocacy group Client Earth against the board of Shell, based on the company’s alleged failure to do enough to achieve ESG-related goals. But by and large, the ESG-related litigation has mostly been like this one, against companies that tried to be proactive on ESG-related issues, and then wind up getting accused of overselling their efforts, or worse, getting sued precisely because of the efforts.

As I have noted before on this site, by and large, it is not the ESG laggards that are getting hit with ESG-related suits, it is the companies like this one that were proactive on ESG issues that are attracting the lawsuits. While there have not been a ton of these kinds of ESG backlash kinds of lawsuit like this one, it is hardly encouraging to see that this kind of suit gain traction. The success of this lawsuit in surviving the motion to dismiss will hardly be encouraging to companies that are now ramping up to comply with the SEC’s recently released final Climate Change Disclosure guidelines.

That said, the complaint survived the motion to dismiss here because the bona fides of the plaintiff’s factual allegations were not at issue at this preliminary procedural stage. It may be more challenging for plaintiffs in the subsequent procedural stages, when the plaintiff will have to substantiate his allegations. Of course, the defendant may decide that the costs of getting through the further procedural stages is not worth the fight.

Eleventh Circuit Strikes Down Florida Legislative Ban on “Woke” Diversity Training: In another development relevant to the topic of ESG Backlash, on March 4, 2024, the Eleventh Circuit upheld a district court ruling striking down the Florida legislation banning employers from certain types of diversity training, holding that the law impermissibly infringes on employers’ free speech rights. A copy of the decision can be found here. The Seyfarth Shaw law firm’s March13, 2024 memo about the appellate court’s decision can be found here.