Every year millions of workers set aside their hard-earned dollars to save for retirement. To protect the interests of these workers, Congress passed the Employee Retirement Income Security Act of 1974 (“ERISA”), to remedy “the great personal tragedy” caused by mismanagement of retirement plans that left workers with little to no savings.
This class action lawsuit is about whether American Airlines (“American”) and the American Airlines Employee Benefits Committee (“EBC” and, together with American, “Defendants”) breached certain fiduciary duties under ERISA when investing—or relying on others to invest—their employees’ retirement assets towards environmental, social, and governance (“ESG”) objectives. In response to Defendants’ ESG-focused investment practices, Plaintiff Bryan Spence, on behalf of the class members, 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 argued that Defendants violated these fiduciary duties by mismanaging the retirement plan when they utilized “investment managers pursuing non-financial and non-pecuniary ESG policy goals through proxy voting and shareholder activism” — specifically, BlackRock Institutional Trust Company, Inc. According to Plaintiff, BlackRock pursues a pervasive ESG agenda that “covertly converts the [retirement] [p]lan’s core index portfolios to ESG funds.”
As a result, Plaintiff contended that BlackRock’s inclusion as an investment manager harmed the financial interests of retirement plan participants and their beneficiaries due to pursuing socio-political outcomes rather than exclusively financial returns.
Defendants filed a motion to partially exclude Plaintiff’s expert witness, J.B. Heaton.
Finance Expert Witness
James Breckenridge Heaton, III received Ph.D. and MBA degrees from respected programs at the University of Chicago Booth School of Business. He likewise graduated from the University of Chicago School of Law. His professional experience includes publishing extensively in several peer-reviewed journals on finance topics, including key issues in this case: asset management, index investing, shareholder activism, hedge fund activism, event studies and price impact in securities litigation, corporate finance, corporate governance, and ESG investing. Given his expertise in these subject areas, Heaton has also taught law and finance courses at law schools and business schools across the nation. Beyond his academic experience, Heaton practiced law at the litigation boutique Bartlit Beck LLP for nearly two decades and even served as a fiduciary member of Bartlit Beck’s 401(k) plan committee. During his fiduciary tenure, he monitored the 401(k) plan’s investment options and performance.
Defendants’ motion largely challenged Heaton’s methodology for calculating losses to the Plan as well as the economic value of a potential injunction. Defendants also sought exclusion of any testimony from Heaton about whether Defendants met their fiduciary obligations in accordance with then-prevailing standards and practices, as well as how BlackRock would have responded to a hypothetical proxy voting intervention.
It should be noted that the the standards for admitting expert testimony in a bench trial are lower than a jury trial.
Qualifications
Starting with Heaton’s qualifications, the Court held that his research and background fit squarely with Plaintiff’s theory of the case and his expert testimony is precisely what the Federal Rules of Evidence contemplate by requiring an “expert by knowledge, skill, experience, training, or education” who will apply that “specialized knowledge” to “help the trier of fact to understand the evidence or to determine a fact in issue.”
Due to his extensive education, research, and overall experience, it should be noted that Heaton has developed particular skills and specialized knowledge to help the Court—the trier of fact in this case—understand the evidence and determine facts in issue.
Relevance
Plaintiff has shown by a preponderance of the evidence that both the nature of Heaton’s testimony and purpose for which he offers it are relevant to key issues in this case, including whether BlackRock engaged in ESG activism through proxy voting and whether any losses occurred as a result. The Court held that such testimony can properly be applied to the facts at issue and will assist the Court with understanding the evidence. To the extent Heaton’s testimony could be viewed in any way as attempting to opine on whether Defendants qualified as ERISA fiduciaries or whether they breached their fiduciaries duties, those are questions of law for the Court to determine—not Heaton.
According to the Court, the closest any expert testimony may permissibly get to these legal questions is by offering an opinion as to whether a particular party’s conduct fell short of prevailing fiduciary practices. Because Heaton’s reports offered no such opinions and his testimony at trial focused on (1) “whether and how BlackRock engaged in ESG-driven proxy voting and shareholder activism, and (2) “whether that ESG-driven proxy voting and shareholder activism injured [P]lan participants,” there is no reason to exclude Heaton’s non-existent testimony regarding prevailing fiduciary standards.
Reliability
Plaintiff has proved by a preponderance of the evidence that Heaton’s testimony is reliable. The Court held that many of Heaton’s opinions are based on, among other things, his clear experience in asset management and research on shareholder activism. His opinions regarding BlackRock’s ESG activism do not require specific scientific support because Heaton relies on his personal observations, professional experience, training, and education. Given Heaton’s qualifications, the Court found him sufficiently qualified to opine on this topic. As to his opinions regarding the economic effects of BlackRock’s ESG activism on the Plan, the event studies used by Heaton are widely accepted. Even Defendants’ own expert uses the event study methodology. Courts across the country have also cited Heaton’s article regarding statistical power.
Although Defendants challenged the statistical significance of Heaton’s results and argued his methodology diverges from standard scientific practices, the Court held that these arguments are more properly applied to the weight of Heaton’s testimony rather than its admissibility.
While the Court takes note of Defendants’ arguments—particularly those regarding the reliability and relevance of Heaton’s expert testimony—these are not grounds for exclusion.
Held
The Court therefore denied Defendants’ motion to partially exclude and admitted J.B Heaton as an expert.
Key Takeaway:
The Court concluded that Heaton’s testimony is unquestionably relevant to this case and sufficiently reliable to permit admission. Instead, Defendants’ arguments (and any counter-expert testimony) bear on the weight assigned to Heaton’s testimony, which will matter when the Court addresses in a subsequent ruling the deferred issues of any losses suffered by the Plan and the appropriateness of an injunction.
Plaintiff, Wheel Pros, LLC and Defendants, Rhino Tire USA, LLC are engaged in the business of selling wheels and tires for vehicles and each owns trademarks in its respective brand. Wheel Pros owns various trademarks related to its “Black Rhino” brand and Rhino Tire own trademarks for their “Rhino” brand.
Plaintiff brought this action against Defendants for trademark infringement alleging the the public is likely to be confused by the similarities between the marks. In support of its case, Plaintiff proffered the expert report of Dr. Robert A. Peterson. Peterson conducted a forward likelihood of confusion survey designed to determine the likelihood of confusion between Plaintiff’s “Black Rhino” trademarks and Defendant’s “Rhino” trademarks within a target universe of survey respondents.
In rebuttal to Peterson’s report, Defendants proffered the expert report of Dr. Henry D. Ostberg. Ostberg offered opinions as to what he termed “significant problems and fatal defects” with Peterson’s survey.
Henry D. Ostberg has over 40 years of experience in conducting marketing research and has conducted or overseen over 2,000 consumer surveys for various clients over that time. He earned an M.B.A. degree and a Ph.D. degree in marketing from Ohio State University and earned an L.L.B. law degree from New York Law School. Moreover, Ostberg has served as a marketing research expert in connection with trademark and intellectual property litigation in over 200 cases, has been a frequent speaker “on the subject of marketing, the use of surveys and related topics before a variety of professional organizations,” and was on the faculty of both New York University and Ohio State University.
First, Plaintiff argued that Ostberg was not qualified because he testified and stated in his report that he was not familiar with Peterson’s methodology.
At his deposition, Ostberg admitted his lack of familiarity with Peterson’s “modified sequential evaluation” approach. However, Ostberg made these statements based on his experience in the field of conducting surveys in similar circumstances rather than due to any purported lack of experience or qualification.
Upon consideration of Ostberg’s qualifications, the Court held that he is sufficiently qualified to criticize Peterson’s methodology in his rebuttal report and at trial.
Reliability of Opinions
1. Improper Research Design
To begin with, Plaintiff argued that Ostberg’s opinions were unreliable because his conclusions were not based on his status as an expert or any research into that area, he was not familiar with the method employed by Peterson, and he mischaracterized the way in which Peterson’s survey was conducted.
The Court found that Ostberg relied on his experience in conducting surveys under similar circumstances, his review of Defendants’ website in marketing its products, conversations with Defendants’ attorney, and his experience as a consumer to conclude that the methodology employed by Peterson was inappropriate.
In other words, Ostberg’s methodology in criticizing Peterson’s research design was sufficiently reliable to permit his testimony at trial.
2. Wrong Respondents Interviewed
Ostberg next opined that Peterson’s survey was flawed because it failed to base its data on respondents who were likely to be future purchasers of Defendants’ products.
The Court found Ostberg’s methodology in raising such “technical deficiencies” with Peterson’s survey pursuant to the prevailing literature and practice to be sufficiently reliable to survive Plaintiff’s Daubert motion.
3. Research Design Changed Midway
Ostberg criticized Peterson’s use of a pilot study that resulted in a change to the survey. In particular, Ostberg stated that Peterson’s report failed to include a “credible explanation” for modifying his survey after the pilot study. The Court found Ostberg’s methodology in reaching this opinion sufficiently reliable. In other words, Plaintiff’s arguments challenging this opinion largely go towards whether Ostberg reached the right conclusion in applying his method and are therefore inappropriate to justify excluding Ostberg at this stage.
4. Inappropriate Statistical Calculations
Ostberg also opined regarding the statistical calculations in Peterson’s survey. Specifically, Ostberg noted that Peterson’s survey “did not have a probability sample,” yet the statistical calculations used are “applicable only to surveys based on true probability samples of respondents, according to many statistical texts.”
The Court noted Ostberg’s experience conducting consumer surveys in trademark litigation and, once again, found Ostberg’s method sufficiently reliable to permit his testimony.
5. Internal Data Casts Doubt on the Validity of the Findings
Now, Ostberg opined that the data collected in Peterson’s control group survey casts doubt on the validity of the survey itself because a 51.7% likelihood of confusion between Plaintiff’s trademark and the non-infringing control mark was abnormally high. Ostberg’s conclusion in this opinion did not cite to specific authority, but rather impliedly relied on his own education and experience with conducting similar surveys for over four decades. As with Ostberg’s other opinions, the Court found this opinion sufficiently reliable to preclude exclusion of the opinion at this stage.
Helpfulness to Trier of Fact
Finally, Plaintiff argued that Ostberg’s opinions will not be helpful to the jury.
The Court held that since Ostberg is being proffered to criticize Peterson’s forward likelihood of confusion survey, a technical matter in which Ostberg has sufficient experience and that is beyond the understanding of the average lay person, Ostberg’s opinions will be of assistance to the jury at trial.
Held
To conclude, the Court denied Plaintiff’s Daubert motion to strike testimony and opinions of Henry D. Ostberg, Ph.D.
Key Takeaways:
Ostberg relied on his experience in conducting surveys under similar circumstances, his review of Defendants’ website for marketing their products, conversations with Defendants’ attorney, and his experience as a consumer to reach his conclusions.
Moreover, Ostberg’s analysis is grounded in his experience conducting consumer surveys in trademark litigation, as well as scholarly literature regarding the type of statistical analysis necessary in the survey conducted by Peterson.
Because Peterson’s forward likelihood of confusion survey is a technical matter that is beyond the understanding of the average lay person, Ostberg’s opinions were considered helpful to the trier of fact.
On March 13, 2020, sixteen Montana youth (collectively Plaintiffs or Youth Plaintiffs), then between two and 18 years old, filed a complaint against the State of Montana challenging the constitutionality of the State’s fossil fuel-based state energy system, which they alleged caused and contributed to climate change in violation of their constitutional rights guaranteed under Article II, Section 3; Article II, Section 4; Article II, Section 15; Article II, Section 17; Article IX, Section 1; Article IX, Section 3 of the Montana Constitution; and the Public Trust Doctrine.
Specifically, the complaint challenged the constitutionality of certain fossil fuel-based provisions which prohibited the State and its agents from considering the impacts of greenhouse gas (GHG) emissions or climate change in their environmental reviews; and the aggregate acts the State took to implement and perpetuate a fossil fuel-based energy system.
Youth Plaintiffs asked the Court to acknowledge the [Montana Environmental Policy Act] Limitation’s contribution to the depletion and degradation of Montana’s environment and natural resources.
Ecology Expert Witnesses
Dr. Steven Running is a University Regents Professor Emeritus of Global Ecology in the College of Forestry and Conservation at the University of Montana. Running currently co-chairs the standing Committee for Earth Science and Application from Space of the National Academy of Science. In 2007, Running shared the honor of the Nobel Peace Prize as a chapter Lead Author for the 4th Assessment Report of the Intergovernmental Panel on Climate Change (IPCC).
Dr. Dan Fagre holds a Ph.D. from the University of California, Davis. He joined the National Park Service as a research scientist in 1989 and, in 1991, he became the Climate Change Research Coordinator at Glacier National Park as part of the nationwide United States Global Change Research Program. His position was transferred to the United States Geological Survey (USGS), where he served until his retirement in 2020, after which he has continued as Scientist Emeritus. He also served as a Research Ecologist at the Northern Rocky Mountain Science Center.
Dr. Jack Stanford received his Ph.D. in Freshwater Ecology at the University of Utah.He is Professor Emeritus at the Flathead Lake Biological Station (FLBS) of the University of Montana. He was the Director and Bierman Professor of Ecology at the University of Montana (1980-2016). His primary area of research is aquatic ecosystem processes, including influences of human activities.
Dr. Cathy Whitlock is Regents Professor Emerita of Earth Sciences and a Fellow of the Montana Institute on Ecosystems at Montana State University (MSU). Whitlock was lead author of the 2017 Montana Climate Assessment, and in 2020 co-authored a state-level Montana Climate Solutions Plan and a 2021 special report of the Montana Climate Assessment entitled Climate Change and Human Health in Montana. Whitlock was also co-lead author of the 2021 Greater Yellowstone Climate Assessment.
Dr. Lori Byron obtained a Doctor of Medicine degree in 1984. She has been a board-certified pediatrician since 1988. Byron earned a M.S. in Energy Policy and Climate from Johns Hopkins in 2020. From 1988-2015, Byron worked with the Indian Health Service in Crow Agency, Montana, providing primary care, emergency care, and public health services to Crow Indian children. Byron now works as a pediatric hospitalist at SCL Health in Billings, Montana. Byron has decades of experience caring for children who have suffered Adverse Childhood Events (ACEs). Over the past decade, Lori Byron and her husband, Rob Byron, have made presentations on climate change and health locally, nationally, and internationally.
Dr. Lise Van Susteren is a board certified general and forensics clinical psychiatrist, in practice for thirty years. She is a Clinical Associate Professor of Psychiatry and Behavioral Sciences at George Washington University in Washington, D.C. In 2009, Van Susteren co-convened one of the first conferences on the psychological effects of climate change. In 2013, Van Susteren worked with Dr. James Hansen and other experts on a paper, Assessing “Dangerous Climate Change”: Required Reductions of Carbon Emissions to Protect Young People, Future Generations and Nature. She received the Distinguished Fellow award of the American Psychiatric Association, its highest membership honor in May 2018. Van Susteren has helped develop youth climate anxiety assessment tools, conducted research and reviewed data in assessing the mental health of young people faced with climate change.
Michael Durglo, Jr., is a member of the Confederated Salish and Kootenai Tribes (CSKT). He has a Bachelor of Science degree in Environmental Science from Salish Kootenai College. Durglo has worked in different capacities for the CSKT for over three decades. In his current role as Head of the Tribal Preservation Department and Chairman of the Climate Change Advisory (CCAC), Durglo has worked extensively with tribal elders and youth on climate related issues.
Anne Hedges received a B.S. in environmental policy analysis and planning from the University of California at Davis in 1988 and a Master of Environmental Law, magna cum laude, from Vermont Law School in 1993. She is Co-Director and Director of Policy and Legislative Affairs at the Montana Environmental Information Center (MEIC). She directs MEIC’s program work, including its legislative, regulatory, policy, and legal activities.
Peter Erickson received a bachelor’s degree in Geology in 1998 at Carleton College, Minnesota, as well as coursework in intermediate microeconomics and macroeconomics at the University of Washington. Erickson has worked as an environmental and climate policy and technical analyst in greenhouse gas emission accounting, most recently with the Stockholm Environment Institute, an international research institution providing, in part, technical analysis to government and NGOs on the details of climate policy and emissions accounting.
Terry Anderson has published widely in the popular press and professional journals, including The Wall Street Journal, Christian Science Monitor, Fly Fisherman, Journal of Law and Economics, and Economic Inquiry. During his career at Montana State University, Anderson received several outstanding teaching awards and is now professor emeritus of economics. He received his B.S. from the University of Montana and earned a Ph.D. in economics from the University of Washington.
Mark Jacobson obtained a M.S. in Environmental Engineering, from Stanford University. Dr. Jacobson also obtained both a M.S. and later a Ph.D. in Atmospheric Sciences from UCLA. In 1994, Jacobson became an Assistant Professor in the Department of Civil & Environmental Engineering at Stanford. Since 2007, he has been a full professor in that Department. Jacobson was a co-founder and is Director of Stanford’s Atmosphere/Energy Program, as well as a Senior Fellow at Stanford’s Precourt Institute for Energy, and Stanford’s Woods Institute for the Environment.
Steven Running provided testimony in the general areas of the climate system, including the energy balance and imbalance, the physics of GHG emissions that are driving climate change, the global carbon cycle, the global hydrologic cycle, how they control this energy imbalance, and then how human caused fossil fuel development is harming Montana’s ecosystems and hydrology while Cathy Whitlock explained how human-caused fossil fuel development and the resulting release of CO2 into the atmosphere are harming Montana’s ecosystems, water supplies, communities, and the Plaintiffs themselves. Whitlock’s testimony included projections for Montana’s future based on continuing or increasing the present rate of GHG emissions.
CLIMATE CHANGE HARMS CHILDREN AND SPECIFICALLY THE YOUTH PLAINTIFFS
Lori Byron provided testimony that climate change and the air pollution associated with it are negatively affecting children in Montana, including Youth Plaintiffs, with a strong likelihood that those impacts Will worsen in the absence of aggressive actions to mitigate climate change. Lise Van Susteren provided testimony on the physiological harms caused by climate change to Montana’s youth, including the Youth Plaintiffs, the psychological harms caused by the MEPA Limitation, and the availability of remedies to alleviate Plaintiffs’ psychological injuries. Michael Durglo brought to the table his extensive experience working with tribal elders and youth on climate related issues. The Court found their testimony informative and credible.
CLIMATE CHANGE IS ALREADY ADVERSELY AFFECTING MONTANA’S NATURAL ENVIRONMENT
Dan Fagre helped develop a national climate change research program within the National Park Service, coordinating with other scientists at national parks from Florida to Alaska. He built a research program centered on Glacier Park as a representative mountain ecosystem, engaging faculty and scientists from Montana universities and across the U.S.
Jack Stanford has published over 220 scientific papers and books on aquatic ecosystem processes, including influences of human activities.
Both Stanford and Fagre were of the opinion that anthropogenic climate change was impacting, degrading, and depleting Montana’s environment and natural resources.
The Court observed that of the approximately 146 glaciers present in Glacier National Park in 1850, only twenty-six glaciers larger than twenty-five acres remained in 2015. 82% of Glacier Park’s glaciers were gone and there had been a 70% loss of area of all glaciers. Moreover, Montana’s water resources were critically important to Youth Plaintiffs and all Montana citizens and to many people beyond the State’s borders. Anthropogenic climate change was disrupting the natural range of variation in the flow paths of Montana’s river systems.
DEFENDANTS’ ACTIONS CONTRIBUTE TO CLIMATE CHANGE AND HARM PLAINTIFFS
Anne Hedges shed light on pollution-related policy issues in Montana, emphasizing on impacts to air, water, landscapes, and climate from fossil fuels.
Peter Erickson testified about Montana’s fossil fuel consumption, extraction, and infrastructure, focusing on three categories: (1) extraction of fossil fuels; (2) processing and transportation of fossil fuels; and (3) consumption of fossil fuels by end users. For each of these categories, Erickson quantified the amount of coal, oil, and gas and translated that in units of carbon dioxide (CO2) emissions released from the fuels once they are combusted. Erickson added up all the coal, oil, and gas to determine the emissions associated with the extraction, consumption, and transportation of those fuels. In his opinion, emissions from Montana’s fossil fuel consumption, extraction, and infrastructure were globally significant quantities.
Defendants offered the testimony of Terry Anderson as an expert economist. Purporting to be based on data from the Energy Information Agency (EIA), Anderson provided extremely limited testimony in response to three questions: (1) the total greenhouse gas emissions for the world; (2) the 2020 greenhouse gas consumption emissions for the state of Montana; and (3) the 2022 greenhouse gas consumption emissions for the state of Montana.
The Court held that Anderson’s testimony was not well-supported and contained errors.
Defendants permitted three types of fossil fuel-related activities: (1) extraction of fossil fuels; (2) processing and transportation of fossil fuels; and (3) consumption of fossil fuels by end users.
Data indicated that in 2019, total annual fossil fuels consumed in Montana led to about 32 million tons of CO2 being released into the Atmosphere.
THE MEPA LIMITATION PREVENTS FULL REVIEW OF THE TECHNOLOGICALLY AND ECONOMICALLY AVAILABLE ALTERNATIVES TO FOSSIL FUEL ENERGY IN MONTANA
In this case, Mark Jacobson summarized his research related to Montana and the feasibility of transitioning Montana swiftly from fossil fuels to clean and renewable energy in all sectors by mid-century, where all energy sectors include electricity, transportation, heating/cooling, and industry.
Data indicated that it was technically and economically feasible for Montana to replace 80% of existing fossil fuel energy by 2030 and 100% by no later than 2050, but as early as 2035.
Held
The Court ruled that the MEPA Limitation deprived Plaintiffs of their constitutionally guaranteed rights. It upheld Plaintiff’s fundamental constitutional right to a clean and healthful environment, which includes climate as part of the environmental life-support system.
Key Takeaways:
Informative and credible testimony presented by experts helped the Court see that Montana has already warmed significantly more than the global average. The science is clear that there are catastrophic harms to the natural environment of Montana and Plaintiffs and future generations of the State due to anthropogenic climate change.
In terms of per capita emissions, Montana’s consumption of fossil fuels is disproportionately large and only five states have greater per capita emissions. Montana is a major emitter of [greenhouse gas] emissions in the world in absolute terms, in per person terms, and historically. The current barriers to implementing renewable energy systems are not technical or economic, but social and political. Such barriers primarily result from government policies that slow down and inhibit the transition to renewables, and laws that allow utilization of fossil fuel development and preclude a faster transition to a clean, renewable energy system.
Case Details:
Case Caption:
Held V. State
Docket Number:
CDV-2020-307
Court:
First Judicial District Court of Montana, Lewis and Clark County
