The plaintiff in Drew George & Partners, Inc. v. Farmer et al. (Case No. 37-2011-00101909) has filed an 8-count complaint againts two of its former employees and their new green building consultancy for, among other things, unfair competition and breach of contract. DGP is a LEED consulting and commissioning firm, and the allegations in its complaint are relatively straightforward: it claims that two former employees diverted business opportunities to their new company while still in DGP’s employ.

Of particular interest, the complaint also alleges that the defendants misappropriated the plaintiff’s proprietary “LEED Scorecard:” an “approximately twenty-page document that DGP, at substantial time and expense, created in order to manage all technical aspects of LEED consulting assignments” which “consolidates the information typically included in meeting minutes and/or status reports into one project status tracking tool.” While still employed by DGP, the defendants allegedly “devised a plan to set up a competing LEED consulting firm and to rapidly acquire new business by raiding [the plaintiff's] current and prospective clients.”

The suit was filed on December 2, 2011; no additional details appear presently available but we’ll follow up if anything else of interest arises in connection with the matter. A copy of the complaint is available upon request.

In a written Memorandum and Order that was issued on Monday, U.S. District Court Judge Leonard Sand granted USGBC’s motion to dismiss Henry Gifford’s amended complaint in Gifford et al. v. USGBC. As you will recall, the motion was fully submitted to the Southern District of New York on May 6 and Judge Sand heard oral argument back on July 26. Again, the motion was based on Rule 12(b) of the Federal Rules of Civil Procedure and claimed that (1) Mr. Gifford and his fellow plaintiffs lacked standing to maintain their suit; and (2) the amended complaint failed to state a cause of action upon which the SDNY could grant relief to Mr. Gifford and his fellow plaintiffs.

Unfortunately for those of us who were hoping that the Southern District would analyze the 2008 NBI study – and USGBC’s dissemination thereof – as part of its analysis, Judge Sand’s decision rested squarely on his finding that Mr. Gifford and his fellow plaintiffs lacked standing to assert their claims under Section 43(a) of the Lanham Act. (In other words, the opinion does not address the underlying merits of Mr. Gifford’s claims against USGBC.)

Judge Sand identified two tests that Second Circuit courts have used to assess standing under the Lanham Act: the “strong categorical” and the “reasonable commercial interest” tests. The former requires a plaintiff to “be a competitor of the defendant and allege a competitive injury.” The latter requires a plaintiff to demonstrate “(1) a reasonable interest to be protected against the false advertising; and (2) a reasonable basis for believing that the interest is likely to be damaged by the alleged false advertising.”

After quickly disposing of any standing argument under this first test, Judge Sand turned to the second test:

Plaintiffs do not adequately allege a reasonable commercial interest that is likely to be damaged by USGBC’s alleged false statement: the press release indicating that new LEED-certified buildings perform on average “25-30% better than non-LEED-certified buildings in terms of energy use.” The “reasonable basis” prong requires the plaintiff to show “both likely injury and a causal nexus to the false advertising.” As to likely injury, Plaintiffs’ allegation that “LEED has begun to subsume the Plaintiffs’ roles’ is entirely speculative.” . . . Because there is no requirement that a builder hire LEED-accredited professionals at any level, let alone every level, to attain LEED certification, it is not plausible that each customer who opts for LEED certification is a customer lost to Plaintiffs. . . . Whatever the merits of Plaintiffs’ claim that the conclusion of the [NBI study] was false, their allegation that their “sales are specifically affected by [USGBC's] behavior” is too speculative to permit recovery under the Lanham Act.

By dismissing Mr. Gifford’s federal claims, Judge Sand was also able to dismiss his state law claims (alleging false advertising and deceptive trade practices) on jurisdictional grounds.

Earlier today, USGBC issued a press release with comments on the decision from Rick Fedrizzi. We’ve reached out to Mr. Gifford’s attorneys – who could still, among other things, appeal the decision up to the Second Circuit – for a reaction and will follow up here at GRELJ as warranted.

A copy of the decision is available for download here.

In a per curiam decision, the Supreme Court of Pennsylvania last month rejected a bid protest brought by an electrical contractor arising out of the award of a $20 million contract for a new 14-story, Ewing Cole-designed Family Court building in center city Philadelphia (pictured). Two justices filed dissenting opinions (both of which are available at 2011 WL 2507091 and were filed on June 24). Although there is little in the way of novel green building legal precedent in either dissent, the decision is notable for a number of key reasons that we have discussed previously here at GRELJ in the context of public contracts.

Back in January, the contractor (Hampton Technologies, Inc.) filed an emergency application for a stay of the Pennsylvania Department of General Services’ final determination denying its protest of the award of an electrical contract to another contractor (which was an intervenor in the proceeding) even though Hampton was the lowest bidder. After the award, DGS told Hampton that it received “weak” scores in certain evaluative categories. But DGS refused to provide the detailed score sheets used in the determination. So Hampton proceeded to file the protest in writing under the applicable Pennsylvania statute.

In its protest, Hampton claimed that DGS inappropriately considered each of the bidders’ “experience with LEED certification” and alleged that “the factor was not included in the solicitation criteria of the RFP for the Family Court Project.” Hampton argued that any award based on LEED-related criteria would therefore be arbitrary and capricious.

In March, DGS rejected the bid protest. It determined that the winning bidder had, in fact, earned the highest technical score in its response to the RFP. It also specifically addressed Hampton’s claim that it had improperly considered the bidders’ LEED-related expertise, noting that an appendix to the RFP “specifically referenced LEED experience in two categories worth 21 of the potential 400 points.”

The reasons why the dissenting justices would have granted the emergency stay were unrelated to the LEED-related issues (and had to do with questions about the winning bidder’s licensing status). But the protest itself demonstrates how LEED- and green building-related requirements are winding their way into RFPs and other contracting guidelines. For project teams, it also emphasizes the increasing importance in accurately presenting green building credentials in RFP responses, particularly as federal, state, and local government entities continue to require third-party certification for public projects.

This past Tuesday, July 26, U.S. District Court Judge Leonard Sand heard oral argument on USGBC’s motion to dismiss Henry Gifford’s amended complaint in Gifford et al. v. USGBC, still pending in the Southern District of New York. As you may recall, USGBC’s motion was fully submitted to the court on May 6. Based on Rule 12(b) of the Federal Rules of Civil Procedure, the motion claims that (1) Mr. Gifford and his fellow plaintiffs lack standing to maintain their suit; and (2) the amended complaint fails to state a cause of action upon which the SDNY can grant relief to Mr. Gifford and his fellow plaintiffs.

Although we don’t have a copy (yet) of a written transcript of the proceedings, Norah Hart, who serves as counsel for Mr. Gifford was kind enough to share some thoughts with GRELJ about what took place during the oral argument, which apparently focused on whether the 2008 New Buildings Institute study (claiming 25 to 30 percent energy savings in LEED-certified buildings) should be considered advertising under the federal Lanham Act.

“Judge Sand was skeptical about two critical aspects of the case: (1) whether the claim of ’25 to 30 percent energy savings’ in LEED-rated buildings can be attributed to USGBC (never mind that the NBI study that arrived at that conclusion was commissioned by USGBC and that USGBC propagates that myth relentlessly); and (2) whether the NBI study’s conclusions can be considered advertising,” Ms. Hart wrote to us in an email.

Whether the NBI study is advertising is a key threshold issue because USGBC’s moving papers argued that Mr. Gifford’s amended complaint failed to “plausibly allege” a Lanham Act claim for false advertising, and that “the 2008 [press] release [describing the results of the NBI study, concluding that new LEED-certified buildings are on average performing 25 percent to 30 percent better than non-LEED buildings in terms of energy use] does nothing more than accurately report the conclusion of the NBI study and provide a link to the study itself, so that persons in the building industry could make their own judgments about that study.”

No word on when we can expect to see a written decision from Judge Sand, but we’ll keep you posted. The Southern District’s case number is 1:10-CV-07747.

Recently, in Tagliarini v. New Haven Board of Aldermen et al., the Superior Court of Connecticut denied an appeal from a decision of New Haven’s zoning board that authorized a zoning amendment creating a Planned Development District for the Yale School of Management’s new Norman Foster-designed campus. The amendment has allowed Yale to proceed with the construction of a 230,000-square-foot, LEED Gold-hopeful building that is the centerpiece of the development. (A PDD is a New Haven-specific tool that effectively allows large-scale projects to proceed expeditiously by carving out a new zoning area within an existing one. The enabling legislation calls it “a legitimate legislative act by the city to regulate growth and meet the need for flexibility in modern zoning ordinances.”)

In order to determine the legality of a PDD, Connecticut courts must consider (1) whether the zoning amendment is in accordance with the comprehensive plan; and (2) whether it is reasonably related to the city’s police power. The purpose of a comprehensive plan – as opposed to a master plan – is to prevent the arbitrary, unreasonable, and discriminatory exercise of a city’s zoning power.  Effectively, the comprehensive plan “serves as an effective brake upon spot zoning.” (Spot zoning is the application of zoning to particular parcels of land within a larger zoned area where the new zoning is contrary to the jurisdiction’s master development plan and general zoning restrictions.)

The appeal is notable for our purposes here at GRELJ because New Haven’s Comprehensive Plan:

underlines a concern with the environment. [It] states as a goal: “to promote the urban environment through energy efficient design, green spaces, community gardens, and other pervious landscape treatments. . . . To achieve [high-end business development], attention must be paid to environmental design, pollution control, aesthetics, transportation/access, and the public infrastructure within and around the city’s business districts.” In a following paragraph entitled Green Design it notes . . . “attention must be paid to green building design by encouraging the development of environmentally-sustainable buildings that meet or exceed energy targets (e.g. Energy Star, LEED certification); provide for daylighting; minimize transportation movements; and recycle and/or control waste streams.”

In other words, a zoning amendment’s approval in New Haven hinges – in part – on a project’s dedication to green building and sustainable development practices.

After noting that “compliance with environmental regulations should be included as a condition of a city land use approval,” the Tagliarini court went on to observe that:

as far as energy conservation is concerned the building’s lights are on an activation system which turns them off when rooms are not in use. At night the south portion of the building will not be occupied and not have need of internal lighting because that area is devoted to administrative offices. In one of its submissions the applicant represented the following:

SOM sustainability goals: The University is seeking to achieve a LEED Gold certification for the new SOM building. To that end, considerable efforts have been made to reduce energy use. Measures include reducing energy consumption through the use of insulated glass, a large horizontal window shade on the south exposure, demand control ventilation sensors, high efficiency fan and pump motors, displacement ventilation, and radiant heating in certain areas. In addition, renewable energy technologies may be utilized, such as photovoltaic panels which will be installed on the roof. Preliminary examination has shown that the building may also meet the Energy Star rating requirements.

The court concluded its analysis of the project’s green features by holding that “[t]here would appear to be sufficient compliance with the environmental concerns of the Comprehensive Plan” and went on to uphold the zoning amendment in Yale’s favor.

It’s also worth noting that the record before the court included “several pages” of testimony from the final hearing before the Board in which a gentleman “believed the building already on the site was quite a fine architectural work and claimed Yale could not claim to be ‘green’ if the buildings already there were torn down. He also said the massiveness of the building made clear that it did not fit in with the neighborhood and it would overwhelm abutting property.”

As we continue to monitor emerging “LEEDigation,” it’s becoming clear that land use and other zoning proceedings are a primary focal point where LEED- and green building-related issues are becoming increasingly commonplace. Tagliarini joins In the Matter of Penelope McIver, Ontario Municipal Board Case No. PL100661 (Jan. 17, 2011) as recent opinions where green design has played a significant role in a written judicial opinion. There, though, the Ontario Muncipal Board rejected the applicants’ claim that their LEED project deserved a variance on the basis that it promoted environmental sustainability in the spirit of Toronto’s official zoning plan.

The citation is Tagliarini v. New Haven Board of Aldermen et al., 2011 WL 1288638 (Conn. Super., March 11, 2011). The plaintiff will not appeal the decision, and construction is moving forward.

Late Tuesday, Henry Gifford and his attorneys filed their opposition papers to the USGBC’s motion to dismiss the amended complaint in Gifford et al. v. USGBC, the much-ballyhooed lawsuit that is currently pending in the Southern District of New York (Case No. 1:10-CV-07747).

The original return date for the motion was April 21, but the court granted Mr. Gifford an adjournment to May 2, with USGBC’s reply papers due by midnight tomorrow, May 6. The court noted in a separate filing that it will grant no further adjournments on this motion, and it is likely that a decision will not come down for, at the very least, several months after the motion is fully submitted later this week. (Note that, right now, it is unclear whether the court will require oral argument).

As you will recall, the USGBC’s motion to dismiss is based on Rule 12(b) of the Federal Rules of Civil Procedure and claimed that (1) Mr. Gifford and his fellow plaintiffs lack standing to maintain their suit; and (2) the amended complaint fails to state a cause of action upon which relief can be granted.

Among other things, with respect to this second claim, USGBC’s moving papers argued that Mr. Gifford’s amended complaint fails to “plausibly allege” a Lanham Act claim for false advertising. In addressing the 2008 New Buildings Institute study that is essentially the gravamen of the allegations in the amended complaint, USGBC’s papers argued that “the 2008 [press] release [describing the results of the NBI study, concluding that new LEED-certified buildings are on average performing 25 percent to 30 percent better than non-LEED buildings in terms of energy use] does nothing more than accurately report the conclusion of the NBI study and provide a link to the study itself, so that persons in the building industry could make their own judgments about that study.”

Whether or not those conclusions were misleading will be an interesting question for the Southern District to consider and may ultimately decide the motion. However, Mr. Gifford’s opposition squarely addresses this issue:

[t]he NBI study simply does not support the central premise of the LEED myth, that LEED saves energy. . . . USGBC hails the results of the NBI study far and wide . . . . In truth, the data collected for the 66 page study reveals that LEED buildings use 29 percent more energy. . . . [B]alancing the age of the compared buildings would show that the LEED sample has an average (mean) energy use index of 105,000 BTUs per square foot per year, and the CBECS buildings of the same age had an average (mean) energy use index of 81,600 BTUs per square foot per year. To be anything but intentionally misleading, the Defendant [USGBC] would have to qualify the study thus: “by comparing new LEED buildings to older non-LEED buildings, and by comparing the median average of one dataset to the mean average of another dataset, and by carving out a sample of only 22 percent of all the LEED-certified buildings, we arrived at the conclusion that LEED-certified buildings perform better than non-LEED buildings in terms of energy use.” The Plaintiffs can easily meet their burden of proving the study is not sufficiently reliable to conclude that the Defendant’s LEED-certified buildings save energy.

Opposing Memorandum of Law, at 13.

The NBI study has been a long-standing lightning rod for both proponents and critics of LEED, and my hope is that the Southern District provides some measure of guidance and/or closure on how the study was conducted and its conclusions distributed to the green building community.

Mr. Gifford’s papers also dispute that, in order to have standing under the federal false advertising statute (Section 43(a) of the Lanham Act), it is necessary for a plaintiff to be a competitor of the defendant. They cite to a series of cases that “note that the requirement is not set forth in the text of Section 43(a).” (citing Fashion Boutique of Short Hills, Inc. v. Fendi USA, Inc., 314 F.3d 48, 56-58 (2d Cir. 2002)). “Because Plaintiffs are competitors of USGBC with a very real stake in the market for energy efficient building expertise . . . the USGBC’s assertions are simply incorrect as a matter of law,” Gifford’s attorneys argue. Although USGBC acknowledged in its moving papers that the law in the Second Circuit on this point is not clear, it will be interesting to see how the Southern District handles these arguments – and the ambiguous case law – in its decision.

When reading Mr. Gifford’s papers, I was also reminded that Shari Shapiro questioned the wisdom of USGBC raising the argument in its moving papers that New York’s consumer fraud statutes should be inapplicable to its alleged conduct on the basis that “USGBC’s marketing . . . is directed at businesses and professionals. . . . The mere fact that the USGBC website is publicly accessible does not convert USGBC’s promotion and marketing into ‘consumer-oriented’ conduct.” Moving Memorandum of Law, at 20. At the time, she wrote “it’s pretty clear that the USGBC is marketing directly to consumers, contrary to the Memorandum of Law in support of the USGBC’s Motion to Dismiss.”

Kudos to Ms. Shapiro, because this is exactly what Mr. Gifford’s attorneys argue in their opposition. “If the USGBC website were password protected for professional members only, that assertion would be more convincing,” Mr. Gifford’s attorneys write. “But the USGBC website is aimed at giving the general public an overview of LEED, with ‘What LEED Is’ on the masthead. USGBC’s website explains to the layman consumer: ‘By using less energy, LEED-certified buildings save money for families, business, and taxpayers. . . It’s absurd to think USGBC is not directing its marketing at the tenant-consumer.” Opposing Memorandum of Law, at 14-15.

Finally, Mr. Gifford’s attorneys also acknowledge that the relief sought by the plaintiffs is “primarily injunctive,” and that the relief they “most wish for is full disclosure, compelling USGBC to release actual utility rates in its buildings, in order to foster a healthy marketplace of ideas, as some progressive municipalities have started to require.” Opposing Memorandum of Law, at 16.

We’ll keep an eye out for USGBC’s reply papers and update you accordingly once the motion has been fully submitted for the Southern District’s consideration.

A copy of the opposing memorandum of law is available for download here.

USGBC filed its reply memorandum of law on Friday afternoon, and a copy is available for download here.

As expected, earlier today USGBC filed a motion to dismiss Henry Gifford’s amended complaint pursuant to Rule 12(b) of the Federal Rules of Civil Procedure for (1) lack of subject matter jurisdiction; and (2) failing to state a claim upon which relief can be granted. (Under the FRCP, this postpones USGBC’s obligation to answer the complaint until ten days after the Southern District decides the motion, if it is denied). The motion is accompanied by a 29-page memorandum of law and 3-page attorney declaration, which includes a number of exhibits of interest. (The parties had stipulated back in January that USGBC’s response to the amended complaint would be filed no later than today.)

Two of those exhibits – the 2008 New Buildings Institute study and the April 3, 2008 USGBC press release announcing the results of that study as demonstrating that “LEED buildings use 25 to 30 percent less energy than non-LEED buildings” – are particularly noteworthy because of the intense scrutiny that the green building community has given to each. In its memorandum of law, USGBC states that

“the 2008 [press] release does nothing more than accurately report the conclusion of the NBI study and provide a link to the study itself, so that persons in the building industry could make their own judgments about that study. Real estate professionals are free to reject the study’s conclusions, like plaintiffs claim they have done, because of NBI’s express disclosures about how the study was conducted. But that fact does not plausibly or permissibly lead to any inference of false advertising on the part of USGBC.” (emphasis added).

As the memorandum of law notes, a court is permitted to consider documents referenced in a complaint in connection with a motion to dismiss. It will be interesting to see how Mr. Gifford responds to this line of argument in his opposition, and whether the court determines that the NBI study’s conclusions, as presented by USGBC, as well as Mr. Gifford’s other allegations satisfy the heightened pleading requirements of Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007), which require enough facts in a complaint to make it plausible — not merely possible or conceivable — that the plaintiff will be able to prove facts to support its claims.

As you will recall, the amended complaint was restructured to directly assert false advertising claims against USGBC under federal, state, and common law after originally being filed as a class action. The complaint is also seeking injunctive relief against USGBC, enjoining it from promoting the energy efficiency of LEED buildings and/or “benefits of the LEED system” and compelling it to “disclose the actual energy use of LEED properties,” as well as money damages.

Although the discussion of the NBI study is the more interesting aspect of the arguments in the papers, USGBC’s motion is primarily based on the claim that Mr. Gifford and his fellow plaintiffs lack standing on a number of grounds:

Gifford, who alleges he is an energy consultant, has been a longtime gadfly, preoccupied with critiquing USGBC and LEED through the media, internet forums, and the like. Gifford has every right to voice his criticisms of USGBC and LEED in the public forums of his choosing. But unlike the internet and the public square, access to the federal courts is limited to those with standing to sue.

USGBC goes on to allege that (1) the plaintiffs fail to properly allege that they are competitors of USGBC such that they can maintain their false advertising claims; and (2) the amended complaint’s allegations of injury are “conclusory,” “general,” and “too disconnected” from any “specific wrongdoing” by USGBC to demonstrate an “injury-in-fact” to confer standing on the plaintiffs.

USGBC’s motion is returnable on April 21, and we’ll keep an eye out for opposition and/or reply papers in the coming weeks, subject to any changes in the motion schedule. Again, the Southern District’s docket number is 1:10 CV-7747.

It’s not of the magnitude of the Destiny USA fiasco or as meat and potatoes as Bain v. Vertex Architects, but a recent case out of United States District Court for the Central District of California suggests that the growing market for green building products and LEED certification is also greasing the wheels for commercial disputes between industry stakeholders.

In Kinetics Noise Control, Inc. v. ECORE International, Inc., 2010 WL 4449118 (C.D. Cal.), an Ohio-based supplier of flooring products, including rubber acoustical underlayment products, brought a series of antitrust and false advertising claims against ECORE, a Pennsylvania-based manufacturer and supplier of underlayment products, and the holder of the patent giving rise to the dispute. According to Kinetics’ allegations in the complaint, ECORE fraudulently procured the patent, wrongfully enforced it, and “almost exclusively enjoyed [the] increased demand for rubber acoustical underlayment, at the expense of Kinetics, its competitors, and the consumers in the industry.”

In its complaint, Kinetics specifically identifies the growth of the green building industry as fueling that increased demand, and points to the proliferation of LEED in state- and local-level legislation as a major factor in creating this new market. Complaint ¶ 21. Kinetics was thus likely motivated to file the suit in order to defend – and hopefully capture more market share in an industry that its complaint describes as “recession-proof.”

The “Industry Background” section of Kinetics’ complaint is helpful in understanding exactly how acoustical underlayment functions, its role in earning project teams credits towards LEED certification, and how the plaintiff perceived the green building industry’s growth as contributing to the overall market effect of ECORE’s allegedly anti-competitive conduct:

Industry Background

16. Acoustical underlayment is a flat, resilient substrate used under floor finishes to dampen sound. Underlayment products are made using a variety of materials including cork, foam, rubber and a combination thereof.

17. Rubber acoustical underlayment is made from recycled automobile, bus and truck tires that are turned into crumb rubber and recombined into a log that is sliced into rolled underlayment.

18. Compared to underlayment made from other materials, rubber acoustical underlayment provides the greatest sound dampening characteristics and points for Leadership in Energy and Environmental Design (“LEED”) certification. Rubber acoustical underlayment also is known for durability and compatibility with all floor finishes including hard surface flooring often used in high rise buildings and condominiums.

19. In the past decade, there has been significant movement in the building industry to build or renovate commercial construction and high rise buildings with sustainable materials that comply with “green” building standards, which include acoustical underlayment described herein.

20. In the United States and in a number of other countries around the world, LEED certification has become the recognized standard for measuring environmentally sustainable construction.

21. In addition to environmental benefits, obtaining LEED certification allows participants to take advantage of unprecedented levels of government initiatives available for green projects and to market buildings as premier projects with increased potential for profitability. These factors, as well as heightened awareness and demand for green construction and improvements in sustainable materials have contributed to rapid growth of the green build market.

22. According to the United States Green Building Council, since its inception in 1998, LEED certified projects have grown to encompass more than 14,000 projects in the United States and 30 countries covering 1.062 billion square feet of development area.

23. Also, according to the United States Green Building Council, the overall green building market is likely to more than double from today’s $36-49 billion to $96-140 billion by 2013.

. . .

25. By its wrongful enforcement of the fraudulently procured [patent], ECORE has almost exclusively enjoyed this increased demand for rubber acoustical underlayment, at the expense of Kinetics, its competitors, and the consumers in the industry.

Although the Central District of California dismissed the case earlier this year on the basis that it lacked personal jurisdiction over ECORE, and it also denied Kinetics’ motion for reconsideration of that decision last month, I think that the lawsuit is still important to note from the perspective of the massive market that green building practices – including the demand for LEED certification – have created for green building materials and technologies.

Indeed, Kinetics’ complaint specifically states that “as a result of the significant demand for sustainable construction, the market for acoustical flooring underlayment made of recycled materials such as recycled tired has rapidly expanded despite the overall decline in the U.S. and world markets and has been called ‘recession proof.’” Complaint, ¶ 24.

While it is not traditional “LEEDigation” or the same factual posture as in Vertex Architects (as we prognosticated late last year), Kinetics suggests that the potential commercial causes of action arising out of a green building dispute could be limitless. If the green building market comes close to meeting USGBC’s ambitious projections for the next decade, the likelihood that other plaintiffs will emerge in an effort to defend – or obtain – market share in similar fashions will also increase.

An interesting green building litigation that was filed last fall last fall in Cook County (Illinois) Circuit Court has flown under the radar. Though details are slim and the only papers I have been able to pull thus far are the complaint, I thought it was worth mentioning here at GRELJ in the context of how ordinary green building projects – as opposed to the maligned Destiny USA mega-development – can still present additional risks for project teams.

The project – profiled here – contemplated the gut renovation of 5354 North Paulina Street in the Andersonville section of Chicago, a 3-story former farmhouse that dates from 1883 (pictured). The owner of the 2200-square-foot house, Laurie Bain, was aiming for a LEED Certified rating from USGBC under LEED for Homes. Vertex’s design earned accolades for its tight building envelope and was touted as “a fantastic example of how LEED can be done affordably.” Total projected construction costs were less than $100 per square foot; the design took advantage of cross-ventilation and other passive energy techniques to avoid the installation of any costly renewable energy systems.

According to the complaint, “the stated objective of the Architectural Contract was to ‘create a sustainable green modern single family home.’” The form agreement the parties used was the B105-2007 (or its predecessor B155-1993), which is the AIA’s standard form of agreement for a residential or small commercial project. (Vertex also served as the general contractor for the project, though there are no specific allegations relating to LEED for Homes certification arising out of the firm’s construction phase services).

The LEED-related allegations are contained in the first cause of action for breach of the architect’s agreement. Bain claims that, among other breaches, the architect “failed to pursue and obtain for the Project certification from the USGBC LEED for Homes Program.” Although the architect’s specific responsibilities under the agreement and its accompanying scope of work are unclear, this allegation is, as far as I can tell, the first to be included in a civil complaint against a design professional (or a contractor) where an owner has alleged breach of contract for failure to pursue and/or obtain LEED certification as required by the contract documents. Note that we will need to wait to review the actual contract language, including the scope of work, before making a more definitive assessment of the parties’ respective obligations and how and what might have gone wrong.

The second cause of action in Vertex is for breach of the construction contract (the AIA’s standard form of agreement between owner and contractor for a residential or small commercial project, the A105-2007, which was also attached as an exhibit). Both causes of action seek damages in excess of $50,000. According to the court’s docket, it appears that the architect has served an answer to the complaint that includes a counterclaim, and the sides are in the middle of exchanging written discovery.

The Cook County Circuit Court docket number for Bain v. Vertex Architects, LLC is 2010-L-012695. We’ll follow up if and when more details about the action become available. Until then, the suit should serve as an important reminder to architects, engineers, contractors, and owners that LEED-related risks are real and must be managed by, among other things, paying careful attention to the scope of work agreed to by contract.

The amended complaint – which also features two engineers (Andrew Ask and Elisa Larkin) and an architect (Matthew Arnold) as plaintiffs – is notable because it is no longer structured as a class action, and essentially asserts false advertising claims directly against USGBC under federal, state, and common law. However, the plaintiffs continue to seek injunctive relief against USGBC, enjoining it from promoting the energy efficiency of LEED buildings and/or “benefits of the LEED system” and compelling it to “disclose the actual energy use of LEED properties,” as well as money damages. Also of interest is that Rick Fedrizzi, Rob Watson, and the other individuals named as defendants in the class action are no longer parties.

The Southern District’s docket numer is 1:10 CV-7747, and the USGBC (which is being defended by Proskauer Rose) has until April 7 to respond to the complaint, presumably by way of a motion to dismiss.

A copy of the First Amended Complaint is available for download here.

We’re happy to be back here at GRELJ after an extended winter holiday- I hope 2011 is treating you well so far.

Last month, the Ontario Municipal Board considered a variance dispute in Toronto’s Kingsway neighborhood. Specifically, the Board considered arguments from the applicants that the “modernist” design for their proposed 3-story home at 7 Ashwood Crescent - for which they intended to seek LEED certification and would replace an existing bungalow – qualified for a variance to Toronto’s Official Plan and the Ontario Planning Act on the basis that its proposed green features and third-party certification constituted “extenuating circumstances.”

In its decision rejecting the applicants’ request, the Board noted that their case “opened with emphasis on LEED. The architect’s letter called LEED ‘the best guarantee with respect to the quality’” of the project and that “environmental sustainability will be promoted.” (As you review the decision, note that the Board did not provide any overt criticism or critique of LEED, nor did it point to any authority addressing LEED or other green building performance issues).

However, the Board did state that it “must be cautious . . . concerning ‘sustainability’ and various trademarks for ‘green building’ – not for fear of overextending the cause of environmental innovation but, on the contrary, of trivializing it. The Board takes notice that, with so many reported attempts by all and sundry to oversell environmental benefits (notably to expedite approvals), a new word was coined in North America – ‘greenwashing.’ It also applies to construction.” The Board also pointed out that razing the existing bungalow “in the name of environmental sustainability” would “surprise at least some observers.”

Nevertheless, while the Board did note that the term “sustainability” is used in Toronto’s Official Plan, it held emphatically that the project’s claims “promoting environmental sustainability” are “no shortcut” around the statute (which provides that a variance can be authorized if it is minor, desirable for the appropriate development or use of the property, and maintains the general intent and purpose of the municipality’s plan). The Board stated that “[t]here is simply no statutory authority for [third-party environmental certification labels] to sidestep land use planning requirements . . . ‘Certification by a private third party’ is no substitute for a transparent and legally mandated public process, and no guarantee of good planning.”

While interesting on their own, the applicants’ arguments before the Board also reminded me of those that were successfully advanced in the Destiny USA litigation here in New York, 889 N.Y.S.2d 793 (App. Div., 4th Dep’t 2009). There, as you may recall, and contrary to the Board’s decision in 7 Ashwood Crescent, the Appellate Division used the project’s “unique” green features  and “revolutionary” construction financing to carve out an exception to well-settled law, holding that injunctive relief requiring the lender to continue funding the project was proper (notwithstanding, as one justice pointed out in dissent, that it was unclear how Destiny would be irreparably harmed).

We’ll add 7 Ashwood Crescent to Destiny USA on our roster of decisions connecting well-settled real estate and construction legal principles with third-party green building certification, and continue monitoring whether other, similar applications and proceedings manifest themselves here in 2011.

Many thanks to Marshall Leslie for passing along a copy of the Board’s decision.

Since last month’s Legal Forum at Greenbuild, there have been a number of articles about the increase in “chatter” about the potential for “LEEDigation,” the phrase which my friend and colleague Chris Cheatham coined over at Green Building Law Update some time ago to describe the type of litigation arising out of a project which fails to obtain LEED certification as anticipated. However, as we draw closer to the end of the year, I thought it might be worthwhile to consider why concerns about “LEEDigation” might ultimately be more smoke than fire based on the green building legal experience here in 2010:

• First, the result of the Northland Pines decertification proceeding suggests to me that USGBC/GBCI will never decertify a building once it has achieved LEED certification. As you will recall, in Northland Pines, although it was clear that the high school had failed to satisfy certain LEED prerequisites – grounds for its LEED rating to be revoked by USGBC under LEED for New Construction Version 2.1 – USGBC nevertheless permitted the project team to retroactively amend its documentation and retain its LEED Gold rating. This is the primary reason – in my opinion – why we have yet to see any reported litigation arising out of a project’s failure to earn LEED certification; USGBC/GBCI will work with project teams through its appeals process to ensure that the desired level of LEED certification is achieved and “LEEDigation” never happens.

• Second, many of the private owners who are paying for LEED certification are heavily invested in USGBC as members and participate in LEED’s consensus-based development process; initiating “LEEDigation” would be a black eye for them individually, as well as for their reputation within USGBC itself. Far better to work through a project’s LEED issues collaboratively through the appeals process than to commence a costly and likely protracted litigation. I also thought the following comment from one of Mr. Cheatham’s recent posts at Green Building Law Update was fascinating and worth considering here in the context of “LEEDigation” in public contracting:

“LEED requirements are well established in the federal sector and military because they’ve been in writing for many years. The USACE’s standardized D/B RFP contains clear language going in about the LEED requirements. The scenario [described here] seems like a “LEEDigation” scare tactic. Government contracting officers do not randomly require LEED certification after construction has begun. In fact USACE publishes a list of each project they plan to actually certify in a fiscal year BEFORE that fiscal year has begun. Too bad such scare tactics get lots of attention. By the way, the Navy has had a policy of requiring actual LEED Silver certification of all of their MILCON project (not government validation like the Army and Air Force) for the last three fiscal years and no ‘LEEDigation’ has resulted from it. I find this scenario very unrealistic.”

• Third, and more broadly, I think that the International Green Construction Code, which includes USGBC’s Standard 189P as a compliance path, will become the de facto legislative tool at the state and local levels for green building policymaking. Gone are the halcyon days where municipalities could dole out tax credits and other financial incentives for green buildings; if they choose to address the local-level environmental impacts of buildings, they will do so through amendments to state- and local-level building codes using the IGCC, Standard 189P, or other location-specific initiatives. (We’re seeing this happen already; this fall, Rhode Island became the first state to adopt the IGCC, California has implemented CalGREEN as of January 1, 2010, and New York City’s Green Codes Task Force continues to make recommendations to amend the New York City Building Code.) This is important from a “LEEDigation” perspective because mandates requiring formal LEED certification will soon become an early 21st century legislative novelty.

• Finally, any private sector “LEEDigation” that does arise will be of a posture similar to Gidumal and the Toronto condominium suit (which we have referenced here at GRELJ but not written about): disgruntled purchasers and lessees of real estate in both residential and commercial contexts will use LEED as a sword if owners and landlords fail to properly represent their projects’ green aspirations in offering plans and leases.

Now, is it important to address and allocate the responsibilities for LEED certification in your design and construction agreements? Absolutely, for a host of reasons, but particularly if one party (i.e., the architect or the LEED consultant) has responsibility for coordinating any subsequent appeals to USGBC in order to capture the required level of certification.  However, it’s been over ten years since the LEED program’s inception and we have yet to see a reported litigation arising out of a project’s failure to earn LEED certification. (Again, note that this was not the allegation in the Shaw Development litigation which, incredibly, continues to be referenced incorrectly for this proposition in various quarters).

My question to you during the upcoming holiday break – which I hope you’ll respond to in the comments – is the following: will 2011 prove me wrong or is “LEEDigation” destined to go down as a green building red herring?

If you attended USGBC’s first-ever Legal Forum last Thursday during Greenbuild 2010 in Chicago, you heard me mention that the Washington State Building Code Council, along with defendant-intervenors NW Energy Coalition, the Sierra Club, Washington Environmental Council and NRDC, has moved for summary judgment in the federal action filed against it by the Building Industry Association of Washington. As you will recall, the suit was filed on May 25, 2010 in United States District Court for the Western District of Washington and alleges that certain amendments to the Washington State Energy Code that were slated to take effect on July 1 are preempted by various federal regulations on the basis that they require homes to have HVAC, plumbing, or water heating equipment whose efficiency exceeds controlling federal standards. A copy of the motion papers are available for download here.

The papers are an important read if you are interested in the mechanics of how the Energy Policy and Conservation Act’s “building code exception” applies to local-level residential building codes. As you will recall, the building code exception is set forth in 42 U.S.C § 6297(f) and allows state and local governments to set energy efficiency targets for new residential construction which can be reached with equipment or products whose efficiencies exceed federal standards, provided the enabling legislation also includes other means to achieve the targets with products that do not exceed the federal standards. What’s most interesting about the motion papers is that the BIAW defendants walk the disputed Washington energy code amendments through each of the prongs of the 7-part building code exception, concluding that the code satsfies its requirements.

The defendants also note on page 41 of their summary judgment motion that there is “only one other federal court opinion that directly addresses the question of federal preemption of a building energy code.” That opinion, of course, is Judge Vazquez’ in AHRI et al. v. City of Albuquerque, which we wrote about here at GRELJ earlier this fall.  However, the BIAW defendants do note in their motion that Judge Vazquez’ opinion – which granted summary judgment to the AHRI plaintiffs on the prescriptive compliance paths, and not the performance-based paths – will thus not be all that helpful to the Western District as it considers this motion. “[N]othing in AHRI undermines the conclusion that [the disputed amendments to the Washington code fall] within EPCA’s express exemption from preemption,” they write.

My thanks to Cullen Howe for passing along a copy of the motion papers in BIAW; we’ll be keeping a close eye on both this motion and what’s next in AHRI over the coming weeks here at GRELJ.

Late last week, I had the opportunity to speak with Norah Hart, counsel for Henry Gifford in his class action suit against the USGBC in the Southern District of New York, which has elicited some very strong reactions throughout the green building community. According to Ms. Hart, USGBC has retained outside counsel to defend it in the action, and is currently working with Mr. Gifford (through Ms. Hart’s office) to understand Mr. Gifford’s intentions in filing the suit. Here’s, specifically, what Ms. Hart told me she has communicated to USGBC through its attorneys:

USGBC has said that its goal is ‘market transformation’ and indeed they have achieved remarkable results and are in the fortunate position to be able to truly effect change.  We believe that the disclosure of utility bills – which some districts are already requiring – is the fastest way to bring an energy efficiency premium into the market. Markets are most efficient when accurate information is available. If buyers can see the past energy use bills of a property, they can weigh its energy efficiency into the price they will pay. If developers and planning officials see the actual energy bills of existing buildings in their region, they can choose design and construction techniques that are proven to work, and inevitably, will begin to adopt practices that save fuel and money. The disclosure of actual energy use bills will transform the market.

According to Ms. Hart, the plaintiffs are also currently “formulating a list of the injunctive measures [they] want to see, namely, that actual energy bills for all [LEED-certified buildings] are available, databased in an accessible, meaningful way, so information is available with which honest assessment can be done.”

It’s interesting that the parties seem to be – at least on the surface – engaged in these discussions at such an early stage in the litigation. However, the negotiations raise a number of questions, particularly with respect to the building performance data that Ms. Hart hopes to obtain. First, as Larry Spielvogel has pointed out, that raw data is not particularly useful without other pertinent information about each building (such as its occupancy levels, user types, etc.). Second, much building performance data is highly proprietary; as attorney Brian Anderson noted in an email to me, what would be the implications for that raw data becoming public knowledge? “Can USGBC really force building tenants and owners to give information if they have not signed off on such disclosures in their leases?” Anderson asks.

Independent from this latest development, I have also been getting quite a few inquiries over the past few weeks about next legal steps in the action and, assuming something isn’t worked out between the parties in the interim, here’s a rough outline of how the action could move forward:

• The Federal Rules of Civil Procedure require a party to respond to a complaint within twenty (20) days, unless the time to respond is extended by mutual consent of the parties’ attorneys (which it has been here for USGBC, according to Ms. Hart).
• Unless the parties are able to reach some sort of resolution, I expect that USGBC will move to dismiss the complaint under Rule 12 of the Federal Rules of Civil Procedure (which permit a party to make such a motion in lieu of answering on a number of bases); 
• Finally, my guess is that such a motion would not be successful (at least with respect to all of the causes of action in the complaint). At that point, the parties could go back to the negotiation table, or the plaintiffs could move to certify the class under Rule 23(a). In deciding that type of motion (which USGBC would oppose), a court is permitted to order limited discovery, which might (or might not) create a pressure point encouraging settlement. It’s also important to note that the timeframe during which these procedural mechanisms will play out are significant (months, if not years), so this is a story that we will likely be tracking for some time.

 As always, we’ll stay on top of any further developments in the suit and keep you posted here at GRELJ.

*Earlier today Last Friday, October 8, a group of plaintiffs led by Henry Gifford filed a class action lawsuit against USGBC in United States District Court for the Southern District of New York. The suit alleges violations of the Sherman and Lanham Acts for “deceiving users” of the LEED system about “whether LEED buildings use less energy than conventionally-built buildings.” We will have much more to say about the suit here at GRELJ as further details emerge, but in the interim here’s a copy of the complaint. The Southern District’s docket numer is 1:10 CV-7747.

Some reactions are already beginning to trickle in:

• Henry Gifford Sues USGBC (Real Life Leed)
• Is Henry Gifford Rosa Parks? (Green Building Law Blog)
• USGBC, LEED Targeted by Class Action Suit (Building Green.com, with quotes from Gifford and USGBC)
• $100 Million Class Action Filed Against LEED & USGBC (Treehugger; Lloyd Alter writes that Gifford “is hurting himself and green building in general. I think he’s nuts.”)

From Tristan Robert’s piece at Building Green.com:

Why Sue?

Asked by EBN why he was motivated to go to court, Gifford said, “I’m afraid that in a few years somebody really evil will publicize the fact that green buildings don’t save energy and argue that the only solution [to resource constraints] is more guns to shoot at the people who have oil underneath their sand.” In other words, he says he’s hoping to make the green building movement more honest so that it’s not embarrassed down the road.

USGBC told EBN that it was reviewing the litigation and would respond in due course. In addition to USGBC, other named defendants are David Gottfried, a USGBC founder; Rob Watson, who helped start LEED in the 1990s while working for the Natural Resources Defense Council; and Rick Fedrizzi, a co-founder and currently CEO. Responding to EBN’s request for comment, Watson said, “I can’t comment on ongoing litigation except to say that USGBC is examining the complaint. USGBC has confidence in LEED and in our role in stimulating positive market change.”

Michael Italiano, the only key USGBC founder not named as a defendant, told EBN that while he hadn’t reviewed the case, “To me it sounds frivolous and it doesn’t have much chance.” He noted, “LEED doesn’t guarantee anything, and I think LEED gives people the tools to understand that.” Owners who want to verify performance can enroll in LEED for Existing Buildings, monitor their energy bills, and take other actions, he noted. A lawyer and currently CEO of Market Transformation to Sustainability, a nonprofit behind green standards, Italiano said that lawsuits targeting standards that have allegedly constrained trade typically focus on lack of a bona fide consensus process of standard-setting. In the case of LEED, he said, a broad array of stakeholders has been involved in writing and reviewing LEED standards.

*Updated Thursday, October 14