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The success of conservative legal challenges to the way American companies do business has become a recurring surprise of late. American companies need to stop being so grumpy.
In December, U.S. District Judge Reed O’Connor rejected Boeing’s efforts to resolve the investigation into the twin Max jet crashes. The Texas-based judge objected to considering diversity, equity, and inclusion in selecting monitors to monitor compliance with plea agreements.
That same month, in Florida, federal Judge John Badalamenti ordered retailer Target to face shareholder allegations that it failed to warn the retailer of the risks associated with its DEI and environmental, social and governance initiatives. The lawsuit focuses on the 2023 backlash caused by a “Pride” marketing campaign that included gay- and transgender-friendly products.
And in January, O’Connor criticized American Airlines for failing its employees by including BlackRock index funds in its pension plan after the $11.5 trillion asset manager said climate risks would impact company profits. It was decided that The airline “turned a blind eye to BlackRock’s ESG practices,” O’Connor wrote. BlackRock was not a party to the lawsuit, but says its “only challenge is to maximize profits.”
In a highly polarized society like the United States, politically charged lawsuits are common, with both liberals and conservatives taking positions on important issues such as gay rights and climate change. Trying to punish companies. This trend is likely to increase as the Trump administration takes its own controversial stances.
Lululemon shareholders recently sued Lululemon, accusing the sportswear company of failing to deliver on its diversity promise. And New York City recently went after ExxonMobil, BP, and Shell, alleging they misled residents about their sustainability efforts.
“This is a culture war in a very specific sense. There’s political propaganda in showing that the policies you like have benefits. . . . Because if it pays off, it’s popular. ” says Anne Lipton, a law professor at Tulane University. “I don’t think companies are ready.”
What differentiates the plaintiffs from Target, American Airlines, and Boeing from a typical trial is that they persuaded a judge to agree with them.
Until now, most lawyers have tended to give corporations and pension funds the benefit of the doubt when it comes to litigation over DEI and sustainability policies. For example, a Delaware court denied Disney shareholders access to 2023 company records related to the state’s battle with Florida over the state’s “Don’t Tell Me Gay” law. And New York City courts have been indifferent to challenges to New York City pension funds’ divestment from fossil fuel companies.
But O’Connor and Badalamenti take a different view, which some lawyers find disturbing. Rob Skinner, a securities litigation partner at Ropes & Gray, said: “Judges who accept the false premise of conservative politicians that climate risks are considered social policy, not financial outcomes, simply ignore the evidence.” I’m just doing it.” “That’s such a one-sided view. . . . If other judges follow suit, it would be a very worrying trend.”
It is not clear whether these rulings will stand. The Supreme Court intervened when another federal judge in Texas questioned the entire U.S. drug approval process as part of a 2023 anti-abortion ruling. The justices also heard a case this week regarding restrictions on the practice of seeking friendly judges to obtain favorable rulings.
But unless the high court cracks down on such “forum shopping” altogether, doing business in the United States will become even more complicated. Now that activists have found a judicial ally, companies should expect more challenges to their day-to-day operations. The American Airlines pension case is likely to inspire copycats because so many companies use BlackRock’s low-fee index funds, while the targets are negotiating settlements and marketing campaigns are If that doesn’t work out, there is a possibility of further litigation.
There is precedent for judge shopping. Business groups are looking for conservative justices willing to challenge Biden administration regulations they dislike, such as O’Connor and the 5th Circuit, which hears the Texas appeal. They supported challenges to the Securities and Exchange Commission’s efforts to tighten regulation of the U.S. Treasury market and private fund managers, and rejected the Nasdaq Stock Market’s attempt to impose diversity requirements on publicly traded companies.
Now, conservative activists have turned the tables, and Mr. Trump is likely to appoint more judges who will give them a sympathetic ear. American companies only have themselves to blame.
brook.masters@ft.com
Follow Brooke Masters on myFT
