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On September 30, 2025, following a bench trial and earlier findings that American Airlines and its Employee Benefits Committee ("EBC") breached ERISA's duty of loyalty but not the duty of prudence, Judge Reed O'Connor of the Northern District of Texas issued his much-anticipated final judgment on the question of damages in Spence v. American Airlines, Inc., 4:23-cv-00552 (N.D. Tex.). Judge O'Connor denied the plaintiffs all monetary relief due to the absence of proof of actual losses causally linked to the fiduciary breach; however, he entered a permanent injunction imposing governance, stewardship and transparency measures designed to prevent nonpecuniary influence on the management and proxy voting activities on behalf of the American Airlines retirement plans going forward.
The court underscored that ERISA fiduciary breach claims in the Fifth Circuit require a demonstrated causal connection between the breach and actual economic loss to the plan and that generalized critiques of proxy voting or ESG-related engagement were insufficient. Furthermore, although there is no single methodology established under ERISA case law for the calculation of damages resulting from breach of fiduciary duty, the central requirement under any approach is establishing the difference between the investment performance of the portfolio at issue and how the portfolio would have performed in the absence of the defendants' alleged breach. Leading up to Judge O'Connor's prior ruling in January 2025 (See our Alert here for additional discussion) where he deferred ruling on the question of remedies pending further briefing by the parties, the case record suggested it would be (i) far-fetched to conclude that the challenged proxy votes resulted in underperformance of the plans' investment portfolio and (ii) difficult to demonstrate that any participants actually lost money by changing their investment allocations in a way that crystalized such short-term paper losses. Following the parties' additional briefing, the court concluded that the plaintiff failed to establish a causal link between the loyalty breach and compensable losses to the plan. Accordingly, the court denied compensatory damages, disgorgement, fee reimbursement and other monetary equitable relief, finding the trial record did not support any monetary award.
In reliance on ERISA Section 409(a) and Fifth Circuit case law, however, the court ruled that forward-looking equitable remedies are warranted to prevent recurrence of disloyal conduct even when losses cannot be quantified. The court issued tailored injunctions aimed at stewardship practices, fiduciary independence and transparency while declining to disturb the plans' investment structure:
- Prohibition on Proxy Voting Motivated by Nonpecuniary Aims – American Airlines is enjoined from permitting proxy voting, shareholder proposals or other stewardship activities on behalf of its retirement plans that are motivated by, or directed toward, nonpecuniary ends (including ESG-oriented objectives) that are not in the exclusive best financial interest of participants and beneficiaries.
- New Independent EBC Members – American Airlines must appoint at least two independent EBC members for five years. These members must have no relationship (financial or otherwise) with the Investment Manager in question, EBC's investment consultant, or any other administrator, advisor or investment manager of plan assets, including their affiliates and subsidiaries.
- Annual Participant Disclosures and
Certifications – The EBC must provide an annual
written report to participants disclosing any financial
transactions or relationships between American Airlines and each
plan administrator, advisor, and investment manager (including
affiliates/subsidiaries). Moreover, the EBC must make annual
written certifications to participants that the EBC and all
administrators, advisors, and investment managers:
- Will pursue investment objectives solely on demonstrable financial performance, not DEI, ESG, sustainability, or other nonfinancial criteria; and
- Will cast proxy votes solely to maximize long-term financial returns, not DEI, ESG, sustainability or other nonfinancial criteria.
- Public Disclosure of Memberships in Climate Coalitions or Initiatives – American Airlines must publish on an easily accessible corporate webpage information about the company's and each plan administrator's/advisor's/manager's membership in organizations such as UN PRI, Net Zero Asset Managers Initiative, Ceres Investor Network or any principally DEI/ESG/climate-focused stewardship organization. The website must link to each group's terms, including, sign-on statements and disclaimers. The new, independent members of the EBC must be able to scrutinize these memberships for compliance with the injunction.
- Structural Conflict Management Related to Asset Managers – American Airlines is enjoined from using the Investment Manager—or any asset manager that is (i) a significant company shareholder (≥3%) or (ii) a holder of the company's fixed debt—to manage plan assets unless policies are in place preventing those who maintain the corporate-side relationship with the Investment Manager from also serving as plan fiduciaries or participating in plan management.
Key Takeaways for Plan Fiduciaries
The judgment raises important questions, including whether American Airlines will decide to appeal, because even though there are no monetary damages, it imposes significant restrictions on how American Airlines and its plan fiduciaries can manage their plans going forward.
In light of the broader anti-ESG sentiment that is taking hold in the United States this year (see for example, the U.S. Department of Labor's decision to cease defending the Biden-era ESG rule and instead propose new rules next year), this judgment underscores the need to ensure that any ESG factors will be considered only with respect to their anticipated impact on pecuniary returns.
More generally, ERISA fiduciaries should be taking steps to demonstrate how all investment decisions and shareholder engagement/proxy voting activities are driven by pecuniary objectives. Among other things, these could entail:
- Reviewing and aligning proxy voting delegation, guidelines and monitoring practices with exclusive-financial-benefit standards;
- Coordinating with investment managers and consultants to ensure proxy voting and stewardship reporting focuses on financial risk and return; and
- Reviewing and revising investment management agreements and policies to require that proxy voting and engagement be solely in participants' financial interests.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
