Dive Brief:
- A federal judge denied BlackRock, Vanguard and State Street’s motion to dismiss an antitrust lawsuit, brought by Texas and nine other states, that alleges the nation’s three largest asset managers collectively conspired to constrict coal production through their public holdings and engagements, according to court documents.
- U.S. District Court Judge Jeremy Kernodle, for the U.S. Eastern Texas District Court, denied the asset managers’ bids to toss the case and said in an Aug. 1 opinion and order, that “at this stage in the proceeding, the court must assume that Plaintiffs’ allegations are true.”
- The asset managers had a high burden of proof to meet in order to have the case dismissed, Victor Flatt, Case Western Reserve University’s environmental law chair, told ESG Dive Thursday. “Simply because the court is allowing the case to go forward does not mean that there will ultimately be a finding of anti-competitive behavior.”
Dive Insight:
The lawsuit was filed in December by Texas Attorney General Ken Paxton and nine other Republican-led states, alleging BlackRock, Vanguard and State Street had “formed a cartel to rig the coal market” and conspired “to artificially constrict” the coal market. BlackRock and State Street called the initial filing “baseless” in separate statements to ESG Dive at the time, and all three of the asset managers initially filed the motion to dismiss the lawsuit in March. BlackRock also filed a separate motion to dismiss state claims of deceptive marketing levied against the institution.
Kenodle rejected the bulk of those motions, but dismissed three state-level consumer protection suits against BlackRock, two from Louisiana and one from Nebraska.
The case at this point relies heavily on the attorneys general’s accusations that the three asset managers — as part of their commitments under climate alliances like the Net Zero Asset Managers initiative and Climate Action 100+ — sought to decrease coal production and used their public holdings to do so.
“Taken as true, these allegations plausibly state that Defendants’ acquisition and use of stocks, by proxy voting or otherwise, is reasonably likely to have the effect of substantially lessening competition by decreasing output of coal and creating supracompetitive prices,” Kernodle said.
“It is plausible that Defendants did what they publicly said they were going to do: use their stock to decrease the output of coal,” he added. “Plaintiffs may ultimately be unable to prove this claim.”
As far as the allegations of a conspiracy to artificially deflate coal production, Kernodle said the states “lack direct evidence of a conspiracy.”
“Plaintiffs do, however, plausibly allege the existence of a conspiracy among Defendants based on circumstantial evidence,” the judge wrote. “This is a close call.”
Kernodle said that while the asset managers’ choices to join NZAM and CA100+ “announces a commitment to the public, it is not necessarily a commitment by Defendants to each other — at least as alleged in the amended complaint.”
Following the ruling, Paxton again accused the asset managers of forming “an investment cartel to illegally control national energy markets” and said in an Aug. 1 press release that the court win “represents a major step in holding them accountable.”
Prior to the ruling, the Federal Trade Commission and Department of Justice issued a joint statement in support of the states’ arguments. The government’s official stance is that — while antitrust laws allow for passive investing, corporate governance-focused shareholder advocacy and active investing “that doesn’t harm competition” — BlackRock, Vanguard and State Street went beyond those bounds in this case.
“In failing to grant the case dismissal, the court gives plausibility to certain theories that the very concept of net-zero policies may implicate anti-competitive behavior rather than it being a response to the financial risks for companies that are large [greenhouse gas] producers in a climate changing world,” Flatt said in emailed comments. “That certainly has to give pause to companies seeking to work together to reduce GHGs in specific industries."
In separate statements to ESG Dive last week, the asset managers said they remain resolute in fighting the charges.
Vanguard said in an emailed statement that it was “disappointed in the court’s decision,” but “looks forward to the opportunity to vigorously defend against plaintiffs' claims and will continue to give investors the best chance for investment success.
State Street told ESG Dive that it still believes the lawsuit to be “baseless and without merit” and said it “poses unnecessary risk to investors and energy markets.”
“There is no collusion here, and we remain confident that the facts and legal substance are on our side,” State Street said in an emailed statement.
BlackRock said it is pleased to have some of the state-level claims dismissed, but said that the states’ goal of forcing the companies to divest their coal holdings risks “undermining the Trump administration’s goal of American energy independence.”
“This case is based on an absurd theory that coal companies conspired with their shareholders to reduce coal production,” BlackRock said in an emailed statement. “This case is not supported by the facts, and we will demonstrate that.”
