NYC Pensions Seek Dismissal of ESG Lawsuit

New York City pension funds on Monday filed a motion to dismiss a lawsuit that alleged three of the five funds jeopardized the retirement security of plan participants, due to the plans’ divestment from securities of certain fossil fuel companies.  

The pension funds’ attorneys argue in the brief filed to New York State Supreme Court Justice Andrea Masley that dismissal is appropriate because the plaintiffs face no injury and lack standing to bring the complaint before the court.

The complaint, Wayne Wong et al. v. New York City Employees’ Retirement System et al., was filed in May.

“Plaintiffs are wasting the Court’s time,” the motion argues. “The Court should swiftly end that drain on resources by dismissing the Complaint, with prejudice, for lack of standing.”

The plaintiffs allege fiduciary breaches for failing to administer the pension funds solely in the interests of the plan’s participants and beneficiaries and for the exclusive purpose of providing retirement benefits. The city funds’ attorneys cite fatal failings they claim require the complaint’s dismissal.

“Regardless of standing, Plaintiffs have not stated any cause of action for multiple independent reasons, including that their Complaint rests entirely upon three demonstrably false contentions and, furthermore, they make the critical concession that the Plans might be able to maintain an appropriate investment mix without buying back any fossil-fuel stocks whatsoever,” the motion to dismiss contends.

Those contentions are:

• Fossil-fuel stocks have fared well in recent history.
• Pension plans’ divestment decisions were made without analysis of whether the decisions were consistent, as a financial matter, with their fiduciary duties; and
• Climate-change-related financial risks are unrelated to prevalent financial risk-reward considerations.

The motion states that “each … is flatly contradicted by public filings and the very news reports upon which Plaintiffs rely.”

In 2021, the pension funds’ boards of trustees divested an estimated $4 billion from securities related to fossil fuel-producing companies.  

When the lawsuit was filed in May, the New York City Employees’ Retirement System held pension plan assets valued at $77.5 billion; Teachers’ Retirement System of the City of New York held $64 billion; and the Board of Education Retirement System of the City of New York held $5.9 billion, according to the complaint.

The defendants’ motion for dismissal argues that allowing the case to proceed would constitute a break with established case law and legal precedent

“Permitting courts to overrule public pension funds’ discretionary investment decisions would run afoul of clear precedent reserving such investment judgments to the publicly accountable officials legally charged with administering the funds,” the motion adds. “Allowing this suit to proceed would open the door to countless such challenges by numerous unharmed plaintiffs who hold different beliefs about how fund assets should be invested, with no perceptible limit on such lawsuits and no check against vexatious litigation.”

The motion also lambasts the plaintiffs’ complaint for its reasoning.

“[Plaintiffs’] legal theory is premised on the radical, absurd notion that courts may force public pension funds to invest in a particular industry if it performs well enough—whether that be mainstream media companies, cryptocurrencies, global hedge funds, or fossil-fuel producers,” the motion states. “Of course, Plaintiffs do not cite any decision in which the courts of this state have overruled public pension funds’ discretionary judgments about which companies or industries to invest in or which to avoid.”

The plaintiffs include conservative nonprofit Americans for Fair Treatment and four individuals: a subway train operator, a public school teacher, a school secretary and an occupational therapist in an elementary school, according to the complaint.

In 2018, the NYC pension funds’ trustees set a goal to prepare a five-year strategy to sell assets in fossil fuel reserve holdings.

“The arguments in this lawsuit are a weak attempt by anti-ESG, anti-union forces to undermine the decisions by our pension system trustees to assess the very real risks of climate change to their portfolios,” New York City Comptroller Brad Lander, says by email. “The systems are implementing ambitious and well-researched plans to address the responsibility that investment managers and portfolio companies have to assess the material risks of climate change. Rather than advancing the actual interests of our City’s public employees and retirees, the lawsuit seeks to protect companies that continue to focus on fossil fuels despite the ongoing and necessary transition to a low carbon economy. The courts should call this lawsuit what it is and dismiss it with prejudice.”

The defendants are represented by Corporation Counsel of the City of New York, senior counsels at the New York City Law Department and attorneys with the Groom Law Group, Chartered, based in Washington, D.C. The plaintiffs are represented by attorneys with law firm Gibson, Dunn & Crutcher LLP, based in Los Angeles.

A request for comment to Americans for Fair Treatment was not returned. The New York City comptroller’s office declined comment.