A U.S. Court of Appeals for the Fifth Circuit panel appeared skeptical during oral arguments in which conservative states and Texas-based energy interests sought to reverse a district judge's order upholding an environmental, governance, and social (ESG) rule in an Administrative Procedure Act (APA) case. The states also have asked the Fifth Circuit to remand the case and vacate the U.S. Department of Labor (DOL) rule as in conflict with the Employment Retirement Income Security Act (ERISA).
The case is State of Utah v. Su, Case Number 23-11097, U.S. Court of Appeals for the Fifth Circuit.
The judges on the Fifth Circuit panel immediately addressed whether the U.S. Supreme Court's decision in Loper Bright Enterprises v. Raimundo, 2024 WL 3208360 (U.S. 2024), which overturned the "Chevron doctrine," required the lower Court to reconsider its opinion. The federal district court judge upheld the ESG rule on a motion for summary judgment based on the precedent outlined in Chevron USA Inc. v. Natural Resources Defense Council, which required courts to defer to federal agencies' interpretations of ambiguous statutes. In Loper, the Supreme Court overturned that long-held precedent and held that judges need not defer to agency interpretation of such statutes. Discussion among the judges on the panel indicated that a remand to the district court to reconsider the decision considering Loper was a more likely result than the panel considering the legality of the ESG rule itself.
The other major discussion during oral arguments focused on the "tiebreaker test" outlined in the 2022 rule. The test allows – but does not require – an ERISA plan manager to use ESG factors when deciding between two equivalent investment options. Challengers to the rule argue that using the tiebreaker test is not based on ERISA and should not break a tie over other potential factors. On the other hand, the DOL argues that ERISA plan fiduciaries should retain the option based on what is in the best interest of the plan.
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