Injecting politics into ERISA’s investment requirements is not a good idea regardless of which side is calling the shots. Many ERISA practitioners were puzzled when a challenge to ESG-related investments in American Airlines 401(k) plans resulted in a decision that American Airlines was prudent but disloyal. Spence v. Am. Airlines Inc (775 F.Supp. 3d 963 (N.D. Tex. 2025)). Many courts don’t even reach the issue of disloyal conduct until they have first determined that an action was imprudent. In fact, our late partner, Jeff Mamorsky, who was involved in drafting ERISA, wrote that such a finding was inconceivable to him. Now that same judge has issued injunctive relief that also aggressively interprets ERISA to support an anti-ESG agenda. (No. 4:23-cv-00552-O, Sept. 30, 2025)).
Taking the two decisions together, the result is that even though American Airlines followed a prudent investment selection process and there were no monetary damages to award because no losses could be tied to American’s decisions, the court injected itself into running the plans permanently and ordered that annual disclosures not required by ERISA be given to all participants. The decision also prohibits proxy voting to support ESG-related measures.
To be clear, ERISA explicitly permits courts to grant injunctive relief, but it is far from clear that the specific relief awarded in the second American Airlines decision is consistent with ERISA or even with the first American Airlines decision.
The Court’s Order
The Court ordered American to permanently :
· add two independent members to its Committee.
· Prevent any proxy voting or shareholder proposals on behalf of the plans including any ESG-oriented activities that were directed towards non-pecuniary ends or exclusively in the best financial interests of participants
· Publish on its website in a location easily accessible by participants information concerning its membership and the membership of its administrators, advisers and investment managers in organizations devoted to achieving DEI or ESG investment objectives and make the information available to the independent committee members
In addition, American was enjoined from using BlackRock or any other manager owning 3% or more of American’s shares or holding any of American’s fixed debt from to manage plan assets without policies in place preventing them from being plan fiduciaries or playing a role in managing the plans. This appears to be real overreach, since BlackRock can change its policies over time (andt has taken steps in that direction.) Further, it could require frequent changes in plan service providers and cumbersome monitoring to determine when that was required. Changes in plan service providers are costly and time consuming and unnecessary ones are arguably not in the interest of plan participants any more than limiting Plan choices to exclude many highly competent managers.
The reconstituted Committee is directed to:
· Provide an annual participant notice identifying any financial transactions or relationships between American and any administrator, advisor or investment manager including affiliated entities
· Provide an annual certification to participants that they will pursue only investment objectives based on “provable financial performance”
· Provide an annual certification to participants, administrators, advisors and investment managers that they will allow proxy votes solely to maximize long term financial returns.
Why This Order is Overbroad
The drafters of ERISA rejected proposals to include lists of permissible and prohibited types of investments, relying on the judgment of fiduciaries who were subject to general standards of prudence and loyalty. Despite that, underlying this second decision is an unstated assumption that all ESG-related investments as a class are inappropriate for ERISA-covered plans. The court declined to explicitly state that in its initial decision although plaintiffs urged it to do so.
Despite the fact that the earlier decision found the challenged investments to be prudent, the relief order is prohibiting them all in one broad stroke without regard to their returns or whether ESG factors such as poor company governance can also be financial because they could depress performance. The challenged funds were not even designed to make ESG investments.
There is not a clear demarcation line between ESG and financial factors. For example, engaging in activity that pollutes the environment may depress investment return because it subjects the polluter to significant cleanup costs.
The relief order is vague and overbroad for these reasons. The order is also not time limited, meaning it seemingly applies regardless of changes in the plans’ practices or committee members or the practices of BlackRock (whose ESG policies seemed to be the real focus) and other advisors. The court did not but should have established a future date to review the plan history and determine whether the micromanagement imposed by its order was still necessary.
What about the Duty of Loyalty?
The plans hired service providers with other relationships with the plan sponsor. BlackRock was a stockholder in American and also a lender. While this may not be a best practice, the court stated in its first decision that that these two factors alone would not result in a breach of the duty of loyalty. The court had further stated in the first decision that a breach of the duty of loyalty occurred when actions are “primarily motivated by interests beyond those of participants and beneficiaries.”. Yet neither decision points to any actual benefit American obtained at the expense of the interest of participants and beneficiaries from investments that the court had determined were prudent, such as by securing additional loans for which American did not otherwise qualify or on more favorable terms than objectively warranted. A violation of the duty of loyalty should require more than the mere appearance of potential conflicts of interest.
It should also be noted that in February of this year, another judge in Texas found in Utah v. Micone (766 F.Supp. 3d 669 (N.D. Tex. 2025) that the 2022 Biden Administration’s ESG regulations, which permit using ESG factors as a tie-breaker when there are financially equal investment options, did not violate ERISA’s duty of loyalty. The court found that when using ESG as a tie-breaking collateral factor, a fiduciary does not act for a purpose other than the participants’ financial benefit. The American Airlines decisions do not attempt to distinguish the Micone decision.
What about ERISA’s Approach to Investing?
The fact that there were no monetary damages awarded seems to be a clear indication that these ESG-related investments were not by class inferior or improper as plaintiffs had claimed. It is nonetheless apparent from the terms of the relief that it flows from an underlying assumption that all ESG-related investments are improper. This seems contrary to ERISA’s rejection of lists of permissible and impermissible investments as well as the U.S. Supreme Court’s decision in Hughes v. Northwestern University (595 U.S. 170 (2022)). In her majority decision in Hughes, Justice Sotomayor makes clear that there are multiple ways in which ERISA fiduciaries can make investment decisions.consistent with ERISA’s fiduciary responsibilities.
Implications for Plan Sponsors.
This is just one district court decision. Even if American Airlines appeals, it is far from certain that the conservative Court of Appeals for the Fifth Circuit will scale back the ordered relief. However, even if the Court of Appeals upholds this ruling, it will not be binding in other circuits. Other courts could come out differently on similar or different facts.
How Can Plan Fiduciaries Respond?
One significant takeaway from this set of decisions is that plan sponsors can try to control the relationships that formed the basis for the judge’s conclusion that the duty of loyalty had been violated. Their committees should not include individuals who are responsible for negotiating or contracting with financial firms who deal with the plan sponsor. Plan hiring fiduciaries should also be cautious about engaging as service providers firms that have more than a de minimis ownership interest in the plan sponsor (although this may limit the plan options). They can establish a Chinese wall between ERISA fiduciary and corporate decisions.. If they do not pass through proxy voting to partcipants, as many 401(k) plans do, they can monitor their advisor’s proxy voting and provide guidance in the form of an agreed proxy voting policy. .
If plans do continue to engage in investment activity that is ESG-related, despite indications that new and undoubtedly restrictive ESG guidance will be coming from the Trump administration, they need a clear written record of the fact that their decisions are based on financial factors, not merely social policy, and are in the interest of plan participants. ESG considerations should continue to be limited to tie-breaking factors as contemplated in the 2022 regulations.
Any new Trump Administration policy restricting ESG investing will not be given automatic deference by the courts as a result of the Supreme Court’s Loper Bright decision. This means that the American Airlines decisions and any new guidance will not necessarily be the last word on whether fiduciaries may ever take ESG-related factors into account when making investment decisions.