Following a bench trial, Judge O'Connor (N.D. Tex.) held that there had been a breach of the fiduciary duty of loyalty based upon a 401(k) retirement plan's investments, which reflected ESG interests rather than strictly financial ones. However, nearly ten months later, the court nonetheless “denie[d] Plaintiff's request for monetary damages,” although the judgment did award certain equitable relief (e.g., injunctions related to future investing practices and governance). Notably, since the “Court conclude[d] that Plaintiff failed to sufficiently establish actual monetary losses to the Plan,” then there were no “actual, compensable financial losses as a result of Defendants' breach,” and so no monetary damages were awarded--and the court further held that “monetary equitable relief . . . is not supported by the trial record.” In other words, despite successfully litigating this case through trial, the plaintiff class--and their attorneys--will receive no money from their courtroom victory.
This is a highly significant result. The court's ultimate holding that no damages would be awarded--even after proving a breach of fiduciary duty--means that it is far less likely that there will be many future litigations centering around ESG-focused investing by pension plans. This decision effectively removes the financial incentive for plaintiffs' firms to seek out and bring this type of case, since the prospect of a significant damages award following the extensive costs of litigation is now far less likely. Without the possibility of a substantial financial award, the only lawyers likely to pursue this litigation are those acting in furtherance of a particular ideological agenda--while such firms exist, and will likely continue to bring litigation, it is unlikely that there will be significant participation from the plaintiffs' bar as a whole, since these sort of cases will no longer be as economically viable. (That said, it is altogether possible that a different case, presenting distinct facts, could still lead to a substantial monetary judgment.)
In other words, the victory obtained by the plaintiff in this case has ultimately proved a hollow one--while a court upheld their legal theory that ESG-focused investing constituted a breach of fiduciary duty, such a breach is effectively meaningless in the absence of a major damages award that would incentivize additional litigation in the future.
American Airlines Inc. must revamp its 401(k) plan to remove ties to socially-conscious investing, but it won’t have to pay money damages despite being found liable for violating federal benefits law. The pilot who proved at trial that American acted disloyally by favoring environmental, social, and corporate governance goals in its 401(k) plan failed to prove that the plan suffered monetary losses as a result of this breach, US District Court for the Northern District of Texas Judge Reed O’Connor said Tuesday in a final judgment resolving the case. Instead of awarding money damages, O’Connor issued an injunction limiting American’s ability to work with BlackRock Inc. and blocking the airline from allowing any “proxy voting, shareholder proposals, or other stewardship activities on behalf of the Plan” that are motivated by ESG objectives or other non-financial concerns.
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