Introduction
Recent putative class action lawsuits filed against Delta Air Lines, Inc. (Delta) and American Airlines, Inc. (American Airlines) appear to raise "firsts" when it comes to ESG-driven litigation. The Delta lawsuit is the first that focuses on a company's statement that it is "carbon neutral" and the use of voluntary carbon offsets,1 while the American Airlines lawsuit is the first that focuses on the use of ESG factors by investment managers in a defined contribution plan. Both highlight the need for companies to pay attention to the evolving ESG legal landscape in order to mitigate risk.
The Delta Complaint
On May 30, 2023, plaintiff, a purchaser of a Delta flight, filed a putative class action against Delta in the Central District of California on behalf of herself and other consumers.2 The crux of plaintiff's complaint concerns Delta's statement that it is "the world's first carbon-neutral airline," which was made in various forms, including on in-flight napkins.3
According to the lawsuit, Delta's representation that it is carbon-neutral is false and misleading because it hinges on Delta's participation in the voluntary carbon offset market.4 Although the complaint recognizes that Delta's voluntary carbon offsets were verified, plaintiff alleges that Delta knew or should have known that its carbon-neutral claim was false and misleading given purportedly known "foundational issues" with voluntary carbon offsets.5 For example, plaintiff points to so-called "phantom credits" that result from inaccurate projections by voluntary carbon credit vendors, as well as timing issues related to voluntary carbon offsets.6 According to the complaint, "[c]onsumers [] expect that carbon neutral claims are based on immediate carbon reductions" – as opposed to offsets being achieved much later.7 Plaintiff was allegedly harmed by Delta's representation because she would not have purchased Delta's services, or at the very least would have paid substantially less for those services, if she understood at the time of purchase that Delta's carbon neutral representations were false.8
The complaint brings three causes of action under California consumer protection statutes: (1) the Consumers Legal Remedies Act, Cal. Civ. Code § 1750, et seq.; (2) the False Advertising Law, Cal. Bus. & Prof. Code § 17500, et seq.; and (3) the Unfair Competition Law, id. §17200, et seq.9
Although the first lawsuit of its kind, the criticisms launched in the Delta complaint against the voluntary carbon offset market are not new. Thus, the lawsuit likely will not be the last to challenge companies' carbon-neutral statements and carbon offsetting.10
The American Airlines Complaint
On June 2, 2023, a pilot employed by American Airlines filed a complaint against the company on behalf of himself and a class of participants and beneficiaries of the American Airlines, Inc. 401(k) Plan and the American Airlines, Inc. 401(k) Plan for Pilots.11 The complaint alleges that defendants breached their fiduciary duties in violation of the Employee Retirement Income Security Act, as amended, 29 U.S.C. § 1001, et seq. (ERISA), by investing employees' retirement savings with investment managers and investment funds that pursue ESG strategies.12
More specifically, plaintiff alleges that the American Airlines defendants "have violated ERISA by selecting and retaining ESG funds that pursue nonfinancial or nonpecuniary objectives . . . ."13 The complaint also claims that defendants have prioritized "political biases and ESG priorities over financial performance" through proxy voting and shareholder activism.14
The lawsuit is not surprising given recent political clashes over consideration of ESG factors in corporate retirement plans. Indeed, the first veto of President Biden's presidency was of a Congressional resolution that sought to nullify the Department of Labor's final rule concerning the consideration of ESG factors in corporate retirement plans.15 Our prior coverage of this issue is here.
Key Take-Aways
- Monitor ESG-driven litigation and regulatory action to identify emerging risks
- Periodically review regulatory disclosures and marketing materials in coordination with legal department
- Be able to substantiate ESG disclosures and claims, which includes having processes in place to manage and report on ESG data
- Approach ESG as you would other business decisions and align ESG initiatives with your company's values and mission
Footnotes
1. A putative class action complaint against Danone about a product being labeled carbon-neutral is currently pending in the Southern District of New York. See Dorris v. Danone Waters of America, 7:22-cv-08717 (S.D.N.Y.).
2. Compl., Mayanna Berrin v. Delta Airlines Inc., No. 2:23-cv-04150 (C.D. Cal. May 30, 2023),
3. Id. at 2.
4. Id. at 2-3.
5. Id. at 3.
6. Id. at 19, 25.
7. Id. at 25.
8. Id. at 4.
9. Id. at 33-40.
10. Greenpeace has described carbon offsetting as "the next big thing in greenwashing." Chris Greenberg, Carbon offsets are a scam, Greenpeace (Nov. 10, 2021), https://www.greenpeace.org/international/story/50689/carbon-offsets-net-zero-greenwashing-scam/.
11. Compl., Spence v. American Airlines, Inc., et al., No. 4:23-cv-00552 (N.D. Tex. Jun. 2, 2023), at 2. American Airlines Employee Benefits Committee, Fidelity Investments Institutional, and Financial Engines Advisors, LLC are also named as defendants.
12. Id. at 2.
13. Id. at 5.
14. Id. at 19.
15. See White House, Message to the House of Representatives – President's Veto of H.J. Res 30 (Mar. 20, 2023), https://www.whitehouse.gov/briefing-room/presidential-actions/2023/03/20/message-to-the-house-of-representatives-presidents-veto-of-h-j-res-30/.
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