American Airlines 401(k) ESG Lawsuit Certified as Class Action

A pilot suing American Airlines Inc. over its 401(k) plan’s alleged ties to investments focused on environmental, social, and corporate governance goals won a court order certifying the case as a class action covering as many as 100,000 people.

American argued that the case’s legal theory—that the airline wrongly offered funds managed companies that pursue ESG policy goals through proxy voting and shareholder activism—couldn’t be resolved on a class-wide basis because it requires a “proxy vote-by-proxy vote analysis.” Judge Reed O’Connor disagreed in an order issued Wednesday, saying the class members’ alleged injuries “flow from a common set of facts” and their potential damages can be calculated on a class-wide basis.

“Class certification is natural in this ERISA case,” the judge said. “There are more than 100,000 Plan participants and beneficiaries allegedly injured by Defendants’ unlawful, Plan-wide misconduct.”

O’Connor’s order, issued in the US District Court for the Northern District of Texas, certified a class of American Airlines 401(k) investors since June 2017, with those who invested solely in the plan’s self-directed brokerage window excluded.

The lawsuit by American pilot Bryan Spence says the airline’s $26 billion 401(k) plan improperly favored ESG funds and invested billions with BlackRock Inc., which he describes as a proponent of the investment strategy. It’s one of the first private-sector lawsuits to argue that a retirement plan fiduciary breached its duties by pursuing ESG investments—those aimed at promoting socially conscious goals—at the expense of workers’ financial interests.

O’Connor ruled in February that Spence could move forward with claims of fiduciary disloyalty and imprudence under the Employee Retirement Income Security Act.

O’Connor—a George W. Bush appointee who has repeatedly struck down provisions of the Affordable Care Act—said Spence’s lawsuit tells a “plausible story” that the airline’s “public commitment to ESG initiatives” caused it to invest 401(k) plan assets with ESG-focused managers while failing to properly investigate other managers that would focus exclusively on maximizing financial benefits for plan participants.

BlackRock isn’t a party to the suit.

O’Melveny & Myers LLP and Kelly Hart & Hallman LLP represent American. Hacker Stephens LLP and Sharp Law LLP represent Spence.

The case is Spence v. Am. Airlines, Inc., N.D. Tex., No. 4:23-cv-00552, 5/22/24.