In January, Republican attorneys general from the 25 states, co-led by Ken Paxton of Texas and Sean D. Reyes of Utah, filed a lawsuit in U.S. District Court in Amarillo, Texas, arguing that the Labor Department's rule undermines key protections for retirement savers, oversteps the department's authority under the Employment Retirement Income Security Act and is arbitrary and capricious.
The states subsequently amended their complaint to include Alex L. Fairly, a resident of Amarillo, as a plaintiff, the court noted.
In a motion filed in February, the Labor Department argued that the case should be moved to Washington because the "challenged policy was conceived and promulgated in Washington, D.C., and the administrative record — upon which this (Administrative Procedures Act) case will be decided — is also located there."
Also, the Labor Department said the "plaintiffs' decision to forum shop by filing in the Northern District — and, in particular, in the single-judge Amarillo Division, which has no connection whatsoever to this dispute — undermines public confidence in the administration of justice."
But Mr. Kacsmaryk disagreed, saying that the states have demonstrated the venue is proper because there are plaintiffs who live in the district.
"Because venue is proper in the Amarillo Division, it is defendants' burden to show the transferee venue is 'clearly more convenient,' the judge wrote. "Otherwise, 'the plaintiffs' choice should be respected.' Defendants come nowhere close to making this showing."
The rule in question — Prudence and Loyalty in Selecting Plan Investments and Exercising Shareholder Rights — took effect Jan. 30 and allows ERISA fiduciaries to consider ESG factors. It also maintains the department's position that fiduciaries may not sacrifice investment returns or assume greater investment risks as a means of promoting collateral social policy goals.
In a separate filing Tuesday, the Labor Department said the lawsuit "rests on a false premise that the rule permits fiduciaries to pursue non-financial goals in violation of their statutory duties under ERISA. Not so. A proper reading of the rule reveals this lawsuit to be a thinly veiled attempt to roll back the rule's placement of the economic effects of ESG considerations on an equal footing with other risk-return factors."
Led by congressional Republicans, lawmakers in the House and Senate passed joint resolutions in February and March, respectively, to nullify the rule under the Congressional Review Act. But on March 20, President Joe Biden vetoed the resolution and an effort to override the veto failed in the House last week.
A similar lawsuit challenging the rule was filed in February by two Wisconsin-based 401(k) plan participants.
