Fifth Circuit Remands Challenge of DOL’s Final Rule Regarding ERISA Fiduciary Consideration of ESG Factors to the District Court in Light of Loper Bright Decision

In Utah v. Su, No. 23-11097, __F.4th__, 2024 WL 3451820 (5th Cir. July 18, 2024) (Before: Haynes, Willett, and Oldham, Circuit Judges), the Fifth Circuit returned the question of whether ERISA allows retirement plan managers to consider factors that are not material to financial performance when making investment decisions affecting workers’ retirement savings to the district court considering the Supreme Court’s decisions in Loper Bright Enterprises v. Raimondo and Relentless, Inc. v. Department of Commerce, which overruled Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc. and the deference afforded to agency interpretations of the law when a statute is silent or ambiguous.

Following President Biden’s day-one executive order, the Department of Labor released a final Rule attempting to guide ERISA fiduciaries on when they may consider “collateral benefits” when making investment decisions. The Rule permits fiduciaries to consider “the economic effects of climate change and other environmental, social, or governance factors” in the event that competing investment options “equally serve the financial interests of the plan.” This Rule was challenged by a group of various states, corporations, trade associations, and individuals as arbitrary under the Administrative Procedure Act. The district court rejected the challenge, deferring to the DOL’s interpretation of ERISA under Chevron and finding that the Rule was not manifestly contrary to ERISA.

In sending the matter back to the district court, the Fifth Circuit explained that the normal practice when intervening Supreme Court precedent affects a case pending before the court on appeal is to vacate the judgment below and remand for reconsideration in light of the new decision. Appellate courts generally sit as courts of review, not first view. The court also noted that nothing prohibits the court from answering legal questions in the first instance, but it reserves doing so to situations when a failure to address the issue would lead to an incorrect result or miscarriage of justice. The court remanded the matter to the district court for the limited purposes of reconsidering Plaintiffs’ challenge in light of the Loper Bright decision. If there is a further appeal, it will be heard by the same Fifth Circuit panel for efficiency and economy.