Judge Denies American Airlines’ Bid for Summary Judgment in ESG Lawsuit

American Airlines’ efforts to prevent a trial—starting Monday—against its offering of environmental, social and governance-focused investment options in its 401(k) plan were extinguished in federal court this week.

Federal District Judge Reed O’Connor in a June 20 opinion denied American Airlines Inc.’s eleventh-hour request for summary judgment in a class action-certified lawsuit, alleging the airline’s 401(k) plan sacrificed investment performance by including investments that utilized ESG factors.

The trial in the case, Spence v. American Airlines Inc, et al., is now slated to convene at the U.S. District Court for the Northern District of Texas, in Fort Worth on Monday morning.

The court denied American Airlines’ motion for summary judgment “in its entirety,” O’Connor wrote. The legal standard to survive summary judgment is a complainant must provide evidence from which a factfinder could conclude that the accused breached their duty of prudence, wrote O’Connor.

“The summary judgment record makes clear that a factfinder could find defendants breached their duty of prudence by failing to monitor investment managers and failing to address the facts and circumstances of ESG proxy voting and shareholder activism present within the Plan,” he wrote.

O’Connor disagreed with American Airlines Employee Benefits Committee’s arguments. The court determined genuine material disputes remain to be decided at trial.

“Each of these fact disputes speaks to the fundamental question of whether defendants acted reasonably or unreasonably with respect to their fiduciary duties of prudence and monitoring,” O’Connor wrote. “Taken together, the court finds that defendants failed to carry their burden at the summary judgment stage to show that no reasonable factfinder could find in their favor as to the breach of prudence.”

The class action complaint was brought by a former pilot in June 2023. Complainant Bryan Spence alleged the airline’s 401(k) plan sacrificed performance for ESG factors.

Earlier this month O’Connor issued an order, setting the trial date, following the entry by attorneys for each side of pretrial materials, including witnesses that each expects to testify.

Attorneys for Spence anticipate calling at trial seven probable witnesses, including Spence himself and one expert witness attorney, litigation consultant and J.B. Heaton, operator of the law firm One Hat Research LLC. Attorneys for American Airlines expect to call four probable witnesses including Spence, two possible witnesses, three expert witnesses and one records custodian.

Heaton independently published a book called “ESGBS: The False Narrative of Environmental, Social & Governance Investing,” criticizing ESG investing, in 2023.

Neither the attorneys for the plaintiff nor the counsel for the defendants responded to requests for comment. Representatives for American Airlines declined to comment.

The plaintiff is represented by Hacker Stephens LLP and Sharp Law LLP; the defendant is represented by partner Russell Cawyer and attorneys with the law offices of Kelly Hart & Hallman LLP and O’Melveny & Myers LLP.