Spence v. American Airlines, Inc., et al

Filing 98

ORDER denying 44 Motion to Dismiss. See order for details. (Ordered by Judge Reed C. O'Connor on 2/21/2024) (chmb)

UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF TEXAS
FORT WORTH DIVISION
BRYAN P. SPENCE,
Plaintiff,
v.
AMERICAN AIRLINES, INC., and
AMERICAN AIRLINES EMPLOYEE
BENEFITS COMMITTEE,
Defendants.

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Civil Action No. 4:23-cv-00552-O

MEMORANDUM OPINION AND ORDER
Before the Court are Defendants’ Motion to Dismiss Amended Complaint (ECF No. 44);
Plaintiff’s Response (ECF No. 46); and Defendants’ Reply (ECF No. 48). Having considered the
briefing and applicable law, the Court DENIES Defendants’ Motion to Dismiss.
I.

BACKROUND 1
Bryan T. Spence (“Spence” or “Plaintiff”) is a pilot for American Airlines and a F-16

Instructor Pilot at the Naval Air Station Joint Reserve Base in Fort Worth. American Airlines, Inc.
(“American”) and American Airlines Employee Benefits Committee (“Committee” and, together
with American, “Defendants”) manage the American Airlines 401(k) Plan and the American
Airlines 401(k) Plan for Pilots (collectively, “the Plan”). In so doing, they are fiduciaries under the
Employee Retirement Income Security Act of 1974 (“ERISA”). 29 U.S.C. § 1011, et seq.
Plaintiff’s lawsuit arises out of Defendants’ management of the Plan to invest the retirement
savings of Plan participants to pursue environmental, social, and governance (“ESG”) initiatives.

1

All undisputed facts are drawn from Plaintiff’s Amended Complaint (ECF No. 41) unless otherwise
specified. At the 12(b)(6) stage, these facts are taken as true and viewed in the light most favorable to
Plaintiff. Sonnier v. State Farm Mut. Auto. Ins., 509 F.3d 673, 675 (5th Cir. 2007).

1

ESG interests include environmental sustainability, social justice concerns, and leadership
accountability to shareholders.
The Amended Complaint asserts two causes of action under ERISA: (1) Defendants
breached their duties of loyalty and prudence and (2) Defendants breached their duty to monitor.
Plaintiff initially argued that these breaches manifested in two ways. The first theory of liability is
that Defendants used the Plan to invest in ESG funds. By including these ESG funds in the Plan
that underperformed compared to similar funds in the broader market, Plaintiff contends that
Defendants breached their duties of loyalty and prudence by failing to act solely in the Plan
participants’ financial interests and remove the imprudent ESG funds (the “Challenged Fund
Theory”). However, in subsequent briefing on the class certification issue, Plaintiff expressly
abandoned the Challenged Fund Theory to streamline this case and focus on the primary issue. 2
Plaintiff’s second—and remaining—theory of liability is that Defendants violated their
fiduciary duty by knowingly including funds “that are managed by investment managers that
pursue non-financial and nonpecuniary ESG policy goals through proxy voting and shareholder
activism” on their investment portal (the “Challenged Manager Theory”). Specifically, Spence
contends that Defendants’ Plan primarily contains funds administered by investment management
firms like BlackRock, Inc. (“BlackRock”). According to Spence, certain managers like BlackRock
pursue pervasive ESG agendas. That is, BlackRock’s “engagement strategy . . . covertly converts
the Plan’s core index portfolios to ESG funds.” As a result, BlackRock’s investments harm the
Plan participants’ financial interests because BlackRock focuses on socio-political outcomes
instead of exclusively on financial returns. BlackRock is just one of the many investment managers

2

Pl.’s Reply in Support of Mot. for Class Cert. 1, ECF No. 76 (stating that Plaintiff is “narrowing . . . the
class definition to exclude the self-directed brokerage window [or the Challenged Fund Theory]” because
“focusing this case on proxy voting activism will streamline it”).

2

Spence references by name. Due to such actions by Plan investment managers, Spence argues that
Defendants violated their fiduciary duties to act in the Plan participants’ financial interests by
investing in funds managed by BlackRock and others who engage in conduct, such as proxy voting,
to support ESG policies rather than purely pursuing financial gain.
Spence filed this lawsuit as a result of this alleged Plan mismanagement. Defendants filed
their Motion to Dismiss on September 1, 2023. 3 Spence responded on September 29, 2023. 4 And
Defendants replied on October 13, 2023. 5 The motion is now ripe for the Court’s consideration.
II.

LEGAL STANDARD
A. Rule 12(b)(6)
The Federal Rules of Civil Procedure require that a complaint contain “a short and plain

statement of the claim showing that the pleader is entitled to relief.” FED. R. CIV. P. 8(a)(2). The
Rule “does not require ‘detailed factual allegations,’ but it demands more than an unadorned, thedefendant-unlawfully-harmed-me accusation.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)
(quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)). If a plaintiff fails to satisfy this
standard, the defendant may file a motion to dismiss for “failure to state a claim upon which relief
can be granted.” FED. R. CIV. P. 12(b)(6).
To survive a motion to dismiss under Rule 12(b)(6), a plaintiff must plead “enough facts
to state a claim to relief that is plausible on its face.” Twombly, 550 U.S. at 570. A claim is facially
plausible when the plaintiff pleads factual content that allows a court to reasonably infer that the
defendant is liable for the alleged misconduct. Iqbal, 556 U.S. at 678. Unlike a “probability
requirement,” the plausibility standard instead demands “more than a sheer possibility that a

3

Defs.’ Mot. to Dismiss Am. Compl., ECF No. 41.
Pl’s Resp. to Defs.’ Mot. to Dismiss Am. Compl., ECF No. 46.
5
Defs.’ Reply in Support of Dismissal, ECF No. 48.
4

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defendant has acted unlawfully.” Id. Where a complaint contains facts that are “merely consistent
with a defendant’s liability, it stops short of the line between possibility and plausibility of
entitlement to relief.” Id. (quoting Twombly, 550 U.S. at 557) (internal quotation marks omitted).
When reviewing a Rule 12(b)(6) motion, the Court must accept all well-pleaded facts in
the complaint as true and view them in the light most favorable to the plaintiff. Sonnier, 509 F.3d
at 675. However, the Court is not bound to accept legal conclusions as true. Iqbal, 556 U.S. at
678–79. To avoid dismissal, pleadings must show specific, well-pleaded facts rather than
conclusory allegations. Guidry v. Bank of LaPlace, 954 F.2d 278, 281 (5th Cir. 1992). A court
ruling on a motion to dismiss “may rely on the complaint, its proper attachments, documents
incorporated into the complaint by reference, and matters of which a court may take judicial
notice.” Randall D. Wolcott, M.D., P.A. v. Sebelsius, 635 F.3d 757, 763 (5th Cir. 2011) (citations
and internal quotation marks omitted).
III.

ANALYSIS
The primary purpose of ERISA is to protect participants and beneficiaries of employee

retirement plans. Pilot Life Ins. Co v. Dedeaux, 481 U.S. 41, 44 (1987). One way in which ERISA
achieves this purpose is by imposing fiduciary duties. Langbecker v. Elec. Data Sys. Corp., 476
F.3d 299, 307 (5th Cir. 2007). “An ERISA fiduciary must act with prudence, loyalty and
disinterestedness, requirements carefully delineated in the statute.” Id. (citing 29 U.S.C. §
1104(a)). To state a claim for breach of a fiduciary duty under ERISA, a plaintiff must allege, or
set forth facts from which the court could reasonably infer, that: (1) the plan is governed by ERISA,
(2) the defendant is a fiduciary of the plan, and (3) the defendant breached its fiduciary duties
under ERISA, resulting in losses to the plan’s participants. Seidner v. KimberlyClark Corp., No.

4

3:21-CV-867-L, 2023 WL 2728714, at *6 (N.D. Tex. Mar. 30, 2023); Blackmon v. Zachary
Holdings, Inc., No. 5:20-CV-988-DAE, 2021 WL 2190907, at *3 (W.D. Tex. Apr. 22, 2021).
At the outset, there is no dispute that the first two elements are met: the Plan is governed
by ERISA and Defendants are fiduciaries of the Plan. The focus of Defendants’ challenge centers
entirely on the sufficiency of the third element—breach of a fiduciary duty. Plaintiff alleges that
Defendants’ breached their fiduciary duties by “select[ing], includ[ing], and retain[ing]” funds
whose managers pursue non-economic ESG objectives instead of focusing exclusively on
maximizing financial benefits for Plan participants. 6 And at no point did Defendants “take prompt
and effective action to protect the [P]lan and [P]lan participants when the monitored fiduciaries
fail[ed] to perform their fiduciary obligations.” 7 As explained below, the Court finds that Plaintiff
pleads sufficient facts at this stage to survive the Motion to Dismiss.
A. Breach of Duty of Prudence 8
Under ERISA, a fiduciary must act “with the care, skill, prudence, and diligence under the
circumstances then prevailing that a prudent man acting in a like capacity and familiar with such
matters would use.” 29 U.S.C. § 1104(a)(1)(B). This includes “exercis[ing] prudence in selecting
investments,” along with “a continuing duty of some kind to monitor investments and remove
imprudent ones.” Tibble v. Edison Int’l, 575 U.S. 523, 529–30 (2015). The prudence standard
normally focuses on the fiduciary’s conduct in making investment decisions—not on the results.
Pension Benefits Guar. Corp. ex rel. St. Vincent Catholic Med. Ctrs. Ret. Plan v. Morgan Stanley
Inv. Mgmt. Inc., 712 F.3d 705, 716 (2d Cir. 2013).

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Pl.’s Am. Compl. 48, ECF No. 41.
Id. at 51.
8
Because the duty of prudence includes the duty to monitor, Count II is subsumed within Count I.
Therefore, the Court addresses the two duties together.
7

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In acting prudently, the fiduciary’s conduct must “give[] appropriate consideration to those
facts and circumstances that, given the scope of such fiduciary's investment duties, the fiduciary
knows or should know are relevant to the particular investment.” 29 C.F.R. § 2550.404a-1(b)(1)(i).
The fiduciary’s process must also “take[] into consideration the risk of loss and the opportunity
for gain (or other return) associated with the investment or investment course of action compared
to the opportunity for gain (or other return) associated with reasonably available alternatives with
similar risks.” Id. § 2550.404a-1(b)(2)(i). But when the alleged facts do not “‘directly address[]
the process by which the Plan was managed,’ a claim alleging a breach of fiduciary duty may still
survive a motion to dismiss if the court, based on circumstantial factual allegations, may
reasonably ‘infer from what is alleged that the process was flawed.’” Pension Benefits Guar.
Corp., 712 F.3d at 718 (quoting Braden v. Wal-Mart Stores, Inc., 588 F.3d 585, 596 (8th Cir.
2009)).
Plaintiff alleges that Defendants breached their fiduciary duty of prudence 9 in two ways:
(1) imprudently choosing to invest Plan assets with investment managers who pursue ESG
objectives and (2) failing to monitor or stop these managers from pursuing objectives harmful to
the Plan participants’ investments. 10 According to Plaintiff, funds managed by ESG-focused
investment managers have continually underperformed compared to other similarly situated funds
due, for example, to investment managers casting proxy votes for ESG measures. 11 Plaintiff
contends that Defendants knew or should have known of this underperformance yet selected and
retained these investment managers despite knowledge that those managers pursued nonpecuniary

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Although the Court recognizes that Plaintiff separates the duty of prudence and duty to monitor in distinct
counts, the Court treats the duty to monitor as part of the duty of prudence in this analysis.
10
Pl.’s Am. Compl. 47–53, ECF No. 41.
11
Id. ¶¶ 47, 68–69, 93–95.

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ends. 12 In response, Defendants argue that these allegations are insufficient to state a claim because
Plaintiff provides no benchmark by which to compare performance. 13 Defendants further contend
that Plaintiff neither alleges any facts specifically showing how investment managers’ funds
underperformed nor provides facts connecting the investment managers’ proxy votes for ESG
measures to the alleged underperformance. 14 At this stage, the Court finds that Plaintiff has
provided sufficient facts to support his breach of prudence claim.
In his Amended Complaint, Plaintiff alleges that Defendants failed to appropriately
consider certain facts and circumstances they knew—or should have known—are relevant to
particular investments. 15 These facts and circumstances derive from “the known poor performance
[of ESG funds] relative to . . . similar investments . . . available in the marketplace,” along with
the particular “proxy voting and shareholder activism of the investment managers that
[Defendants] selected, included, and retain in the Plan.” 16 It is plausible that these considerations
are “relevant to the particular investment[s].” 29 C.F.R. § 2550.404a-1(b)(1)(i). They are also facts
that the fiduciary’s process must “take[] into consideration” when evaluating “the risk of loss and
the opportunity for gain (or other return) associated with the investment or investment course of
action compared to the opportunity for gain (or other return) associated with reasonably available
alternatives with similar risks.” Id. § 2550.404a-1(b)(2)(i). Failure to consider this information
gives rise to a plausible inference that Defendants’ conduct was imprudent. Just as continuing to
invest Plan assets with investment managers despite their ESG objectives likewise allows for the

12

Id. ¶¶ 6, 68–69, 94, 98.
Defs.’ Mot to Dismiss 16, ECF No. 44.
14
Id. at 16–17.
15
Pl.’s Am. Compl. ¶¶ 9, 17, 121, 123, ECF No. 41.
16
Id. ¶ 118.
13

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plausible inference that Defendants failed to “monitor investment and remove imprudent ones.”
Tibble, 575 U.S. at 529–30.
At this stage, Plaintiff need not plead the exact connection between the investment
managers’ alleged ESG proxy voting and the financial harm Plaintiff suffered as a result. Pension
Benefits Guar. Corp., 712 F.3d at 718 (stating that a complaint survives when there are sufficient
facts for the court to make a reasonable inference that the process of choosing investment fund
was flawed). Instead, there need only be sufficient facts from which the Court can sufficiently infer
a flawed process. Such an inference is possible here. Even so, Plaintiff still pleads more than is
required. For example, Plaintiff alleges that investment managers, such as BlackRock, cast proxy
votes causing ExxonMobil and Chevron stocks to fall, thereby reducing Plan participants’ returns
on those investments. BlackRock is a large shareholder in both of those companies and a major
manager of the Plan. As Plaintiff points out, various sources have reported on the
underperformance of ESG funds, including those managed by BlackRock. 17 Combined, these
allegations give rise to a plausible inference that Defendants should have known about these facts
and circumstances. It is this failure to consider such information that gives rise to a plausible
inference about Defendants’ flawed process.
Defendants repeatedly argue that Plaintiff does not “provide a sound basis for
comparison—a meaningful benchmark.” 18 However, the Court determines that requiring a
benchmark for measuring performance is not required at this stage given the inherent fact questions
such a comparison involves. And, importantly, the Fifth Circuit has not imposed a performancebenchmark requirement. See Blackmon, 2021 WL 2190907, at *5 (declining to dismiss the
complaint when the plaintiff did not provide a performance benchmark); Seidner, 2023 WL
17
18

Pl.’s Am. Compl. ¶¶ 45, 47, ECF No. 41.
Defs.’ Mot to Dismiss 16, ECF No. 44.

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2728714, at *7 (“The Fifth Circuit has yet to adopt or express an opinion regarding application of
the Eight Circuit's “meaningful benchmark” standard in ERISA fiduciary duty cases.”). Thus,
while Plaintiff indicates that ESG investment funds have “known poor performance relative to
benchmark indices and to similar investments . . . available in the marketplace,” 19 the Court will
defer evaluation of any comparators for future stages of this litigation. Contrary to Defendants’
characterization, the Court finds that Plaintiff has pointed to at least some benchmark for inferring
the quality of the investment managers’ performance given the data provided on ESG funds’
“established record of underperformance.” 20
Importantly, Plaintiff need not marshal evidence of every ESG investment that has
financially harmed Plaintiff and the other Plan participants at the pleading stage. Instead, Plaintiff
has adequately alleged that Defendants breached their duty of prudence by selecting, including,
and retaining investment managers who pursue ESG objectives rather than focusing exclusively
on maximizing financial benefits. These specific actions—selecting, including, and retaining ESGoriented investment managers—allow the Court to reasonably infer that Defendants’ process is
flawed because it allowed Plan assets to be used to support ESG strategies. Combined with the
allegations that Defendants failed to monitor those responsible for Plan assets, the Court finds that
Plaintiff has alleged sufficient facts supporting his allegations of breach of prudence at this stage.
Therefore, Plaintiff’s breach of prudence and monitoring claims survive the Motion to Dismiss.
B. Breach of Duty of Loyalty
“ERISA’s duty of loyalty is ‘the highest known to the law.’” Bussian v. RJR Nabisco, Inc.,
223 F.3d 286, 294 (5th Cir. 2000) (quoting Donovan v. Bierwirth, 680 F.2d 263, 272 n.8 (2d Cir.
1982)). As part of the duty of loyalty, an ERISA plan fiduciary must “discharge his duties with
19
20

Pl.’s Am. Compl. ¶ 118, ECF No. 41.
Id. ¶¶ 44–45.

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respect to a plan solely in the interest of the participants and beneficiaries and for the exclusive
purpose of providing benefits to participants and their beneficiaries.” 29 U.S.C. § 1104(a). These
benefits are “financial benefits . . . that trustees who manage investments typically seek to secure
for the trust’s beneficiaries.” Fifth Third Bancorp v. Dudenhoeffer, 573 U.S. 409, 421 (2014). This
loyalty requires the fiduciary to “not subordinate the interests of the participants and beneficiaries
in their retirement income or financial benefits under the plan to other objectives, and may not
sacrifice investment return or take on additional investment risk to promote benefits or goals
unrelated to interests of the participants.” 29 C.F.R. § 2550.404a-1(c)(1). Neither may the fiduciary
“accept expected reduced returns or greater risks to secure [collateral] benefits [other than
investment returns].” 29 C.F.R. 2550.404a-1(c)(2).
Plaintiff alleges that Defendants breached their duty of loyalty in choosing to invest Plan
assets with investment managers who pursue ESG objectives instead of exclusively financial
ends. 21 According to Plaintiff, Defendants did so as part of a company-wide commitment to ESG
goals, knowing that investment managers—such as BlackRock—invest in and vote for ESG
policies. 22 Therefore, Plaintiff contends that this company-wide focus on ESG goals violated
Defendants’ duty of loyalty. In response, Defendants concede that they have a company
commitment to ESG initiatives. 23 However, they argue that such a commitment is made pursuant
to their “corporate hat,” which separate from, and does not affect, their obligations when wearing
their “fiduciary hat.” 24 According to Defendants, Plaintiff also “says absolutely nothing regarding
the Committee’s motivations in selecting investment options, and nothing regarding how those

21

Id. ¶¶ 6, 9, 118, 120.
Id. ¶¶ 40–41,
23
Defs.’ Mot to Dismiss 21–22, ECF No. 44.
24
Id.
22

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selections supposedly benefited Defendants personally, financially or otherwise.” 25 Without
pointing to specific motivations, Defendants argue that there is no plausible basis for suggesting
that investment managers were motivated by anything but financial aims. 26 Notwithstanding
Defendants’ arguments, the Court finds that Plaintiff has alleged sufficient facts at this stage to
establish a breach of the duty of loyalty.
To begin, whether the company-wide ESG policy motivated Defendants’ choice to invest
Plan funds with ESG-oriented investment managers is a fact question that is not appropriate to
resolve at this stage. Cf. Espinoza v. Mo. Pac. R. Co., 754 F.2d 1247, 1248 n.1 (5th Cir. 1985)
(“On a Rule 12(b)(6) motion to dismiss for failure to state a claim . . . the district court must accept
the truth of plaintiff's allegations or rely upon only those matters outside of the pleadings with
respect to which there is no genuine issue of fact.”). And even though Defendants are allowed to
wear “multiple hats”—wearing the “corporate hat” on the one hand and the “fiduciary hat” on the
other—this reality does not relieve Defendants of their fiduciary duties under ERISA. See Main v.
Am. Airlines Inc., 248 F. Supp. 3d 786, 792–93 (N.D. Tex. 2017) (rejecting the argument that it is
illogical to infer disloyalty from investment practice allowed by federal regulation in a different
context because Defendants are not otherwise relieved from their fiduciary duties). The cases
Defendants cite in support of their “multiple hat” argument involve challenges to whether the
defendant was actually a fiduciary. See, e.g., Pegram v. Herdich, 530 U.S. 211, 214 (2000) (“The
question in this case is whether [the defendant’s actions] are fiduciary acts.”). No such challenge exists

here.
Next, the argument that Plaintiff does not allege supporting facts about the Defendants’
motivations and personal benefit is not fatal. Indeed, it would be unreasonable for Plaintiff to plead
25
26

Id. at 21.
Id. at 21–22.

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such facts at this early stage when this information resides with the Defendants. Cf. Innova Hosp.
San Antonio, Ltd. P’ship v. Blue Cross & Blue Shield of Ga., Inc., 892 F.3d 719, 730 (5th Cir.
2018) (“[W]hen discoverable information is in the control and possession of a defendant, it is not
necessarily the plaintiff's responsibility to provide that information in her complaint.”). To require
such a heightened standard of pleading at the beginning of the lawsuit would cause “the remedial
scheme of the statute [to] fail, and the crucial rights secured by ERISA [to] suffer.” Braden v. WalMart Stores, Inc., 588 F.3d 585, 598 (8th Cir. 2009). The Court declines to require “an ERISA
plaintiff alleging breach of fiduciary duty . . . to plead details to which [he] has no access” when
“the facts alleged tell a plausible story.” Allen v. GreatBanc Tr. Co., 835 F.3d 670, 678 (7th Cir.
2016).
In the Amended Complaint, Plaintiff articulates a plausible story: Defendants’ public
commitment to ESG initiatives motivated the disloyal decision to invest Plan assets with managers
who pursue non-economic ESG objectives through select investments that underperform relative
to non-ESG investments, all while failing to faithfully investigate the availability of other
investment managers whose exclusive focus would maximize financial benefits for Plan
participants. Taking these allegations as true, the Court finds that Plaintiff plausibly alleges at this
stage that Defendants violated their duty of loyalty under ERISA by not acting with an “eye single
to the interests of the participants and beneficiaries.” Main, 248 F. Supp. 3d. at 793 (quoting
Donovan, 680 F.2d at 271). These allegations do more than reach the mere conclusion that
Defendants acted disloyally. Instead, Plaintiff’s allegations provide specific facts outlining a
plausible theory for how Defendants breached their duty of loyalty by allowing their corporate
goals to influence their fiduciary role. Therefore, Plaintiff’s breach of loyalty claim survives the
Motion to Dismiss.

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IV.

CONCLUSION
For these reasons, the Court determines that Plaintiff pleads sufficient facts at this stage to

state plausible claims in Count I and Count II of his Amended Complaint. Therefore, the Court
DENIES Defendants’ Motion to Dismiss. 27
SO ORDERED this 21st day of February, 2024.

_____________________________________
Reed O’Connor
UNITED STATES DISTRICT JUDGE

27

Because Counts I and II simultaneously rest on separate theories of liability—the Challenged Fund
Theory and the Challenged Managers Theory—the Court denies Defendants’ motion based on plausible
facts supporting the Challenged Managers Theory. Given this determination, the Court need not also
consider the Challenged Fund Theory that Plaintiff no longer intends to pursue.

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