American Airlines court ruling raises concerns over broader unintended consequences

On Friday, a federal Judge in Texas ruled that American Airlines violated federal law by including nonpecuniary measures in its employee retirement plan.

Initially filed in June 2023, the suit alleged that American Airlines violated its fiduciary duties under the Employee Retirement Income Security Act (ERISA) due to hiring asset managers who offered ESG policies to other interested clients.

Following a four-day bench trial, North Texas district court Judge Reed O’Connor made an uncommon and unique decision; he ruled that American Airlines violated its fiduciary duty of loyalty because they employed asset manager BlackRock to help manage the funds even though BlackRock was not named in the proceedings or a party to the lawsuit.

Judge O’Connor’s unusual, first-of-its-kind ruling has caused a significant stir in the retirement space because it appears the Judge focused more on politics than policy to make his case — especially after the Financial Times highlighted that American Airlines’ investments and relationship with BlackRock “did not include any ESG-specific strategies,” and was comprised mainly of “passive index funds.”

Ironically, the Judge decided to defer the ruling on whether American Airlines’ retirement plan participants suffered actual losses or reduced returns. This is likely because reports dating back to February 2024 admitted that the plaintiff could not yet “factually prove any harm.”

“This, to me, looks like the same claim could be brought against literally any 401k plan in America,” said Josh Lichtenstein, a partner at law firm Ropes & Gray, raising serious concerns about the legitimacy of the lawsuit and the potentially costly, unintended consequences this ruling will have on other states’ retirement plans.

While O’Connor attempted to use BlackRock’s proxy voting to further justify his ruling, it failed to tell how the financial company supported just 4% of ESG shareholder resolutions in 2024. The single-digit support is nearly a 20-point drop from just a few years ago before Gov. Ron DeSantis, Chief Financial Officer Jimmy Patronis and others successfully fought to keep ESG out of Florida’s own retirement and financial systems.

Less than a day before the Texas Judge’s ruling, BlackRock decided to step away from the Net Zero Asset Managers (NZAM) Initiative — the second major climate-related membership the asset manager dropped out of in recent months after previously leaving Climate Action 100+.

This follows an industry trend — mainly led by BlackRock and other large financial companies — of stepping back from ESG as pressure increased to eliminate such initiatives in states like Florida, Texas, Arkansas, and others.

“We always act independently and with a singular focus on what is in the best financial interests of our clients,” a BlackRock spokesperson said in an email. “Our only agenda is maximizing returns for our clients, consistent with their choices.”

Under DeSantis, Florida was one of the first states in the country to abandon ESG investments and protect state investments and retirement from becoming “woke.”

While the expected appeals of this Texas ruling will receive considerable attention, given the potential broad ramifications for both private-sector retirement plans and public employees and retirees alike, the public-sector retirees in Florida are protected thanks to DeSantis and Patronis’ efforts to keep ESG out of the state’s retirement system. But without those past actions, this ruling, if it stands, seemingly sets a dangerous precedent that could negatively harm millions of Americans’ financial futures.

With DeSantis expected to announce his appointment to replace U.S. Sen. Marco Rubio’s seat any day and Patronis expected to win the Special Election to replace former U.S. Rep. Matt Gaetz, Congress will benefit from strong Florida Representatives who know how to protect Americans’ retirement savings.