NYC Pension Funds Argue ESG Lawsuit Hinges on ‘Legal Errors’

New York City pension funds slammed their opposition’s request for the New York State Supreme Court to reject the funds’ motion to dismiss complaints brought against three of the five funds for allegedly jeopardizing the retirement security of participants by permitting environmental, social and governance factors to be considered in investment decisions.

The city pension funds’ counsel blasted the legal merits of the rebuttal, using colorful language to argue against the plaintiffs’ claim that members of a defined benefit pension have demonstrated standing to sue for investment losses, absent some real threat to their pension.

The initial complaints, filed in May, allege fiduciary breaches by three New York City public-employee pension funds for failing to administer the pension funds solely in the interests of the plans’ participants and beneficiaries and for the exclusive purpose of providing retirement benefits.

The defense motion in the case, Wayne Wong et al. v. New York City Employees’ Retirement System et al., asks the court to dismiss the complaint with prejudice.

After the plaintiffs responded with a motion to deny the funds’ motion to dismiss, the Corporation Counsel of the City of New York and Groom Law Group filed an October 23 memorandum in which they argue that the plaintiffs’ standing claims hinges on “three fundamental legal errors” in the plaintiffs’ case.

“Regardless of plaintiffs’ lack of standing, the complaint fails to allege any cause of action,” the memo states.

The “overwhelming authority” of legal precedent, including the U.S. Supreme Court’s decision in Thole v. U.S. Bank, requires the lawsuit be dismissed, the pension funds’ counsel argued to presiding New York State Justice Andrea Masley.

“Plaintiffs devote much of their argument to asking this Court to decline to follow Thole, which they disparage as ‘a single U.S. Supreme Court decision’ decided ‘by a 5-4 vote,’” the memo states. “But plaintiffs fail to cite a single case reaching the opposite result, and they offer no sound basis for rejecting Thole.”

Last month, New York City Law Department spokesperson Nick Paolucci wrote in an email that the plaintiffs’ rejection request would not change anything and that the lawsuit is meritless.

Attorneys from Gibson, Dunn & Crutcher LLP, on behalf of the pension participants who filed the complaints, argued for the lawsuit to proceed in a September filing opposing the pension funds’ motion to dismiss.

The pension participants’ motion argues that the funds breached their fiduciary duties to participants, regardless of the monetary losses suffered by plaintiffs, therefore demonstrating that tangible and redressable harm has occurred, according to the motion.

In 2018, the New York City pension funds’ trustees set a goal to prepare a five-year strategy to sell assets in fossil fuel reserve holdings, and in 2021, the pension funds’ boards of trustees divested an estimated $4 billion from securities related to fossil fuel-producing companies.

The pension participants suing in the case include four individuals—a subway train operator, a public school teacher, a school secretary and an occupational therapist in an elementary school—as plaintiffs. The conservative nonprofit Americans for Fair Treatment is also named as a plaintiff in the case.

A request for comment to plaintiffs’ lawyers were not returned.