Early last week, the Newark (Delaware) City Council postponed a vote on proposed amendments to Newark’s building codes that would require new construction to earn 25 points under either LEED 2009 for New Construction or LEED 2008 for Homes. In addition to the typical green building regulatory concerns relating to costs and red tape which were raised by local designers, builders, and developers, one architect who participated at the City Council session suggested that – as drafted – the ordinance might violate the copyrights which USGBC holds in its various LEED systems. According to the Newark Post, the city’s staff has contacted USGBC and is investigating the issue, and expects resolution at another council meeting shortly.

The first question I asked myself when I saw this story is whether a state or local government enjoys immunity from suits for copyright infringement, which must be brought in federal court pursuant to 28 U.S.C. § 1498. (Of course, whether USGBC would choose to assert a claim against a government which has allegedly infringed one of its copyrights is a totally different question). Although local governments (towns, cities, counties, etc.) are not immune from suits brought under federal law, the answer is not straightforward with respect to state immunity. (The federal government, on the other hand, has expressly waived its immunity from claims for copyright infringement, though the only available remedy is money damages and not injunctive relief.)

Section 511 of the Copyright Act was adopted by Congress in 1991 in the aftermath of BV Engineering v. University of California at Los Angeles, where UCLA successfully defended a copyright infringement claim on the basis that it enjoyed sovereign immunity under the Eleventh Amendment. 858 F.2d 1394 (9th Cir. 1988). Section 511 states clearly that “[a]ny State . . . shall not be immune, under the Eleventh Amendment of the Constitution of the United States, from suit in Federal court . . . for a violation of any of the exclusive rights of a copyright owner.” 17 U.S.C. § 511. (Just a reminder that the Eleventh Amendment immunizes states from suits for money damages or equitable relief without their consent).

Despite this seemingly clear statutory provision, two Supreme Court cases from the late 1990s suggest that Section 511 might not allow a copyright infringement claim to proceed against a state government. In Florida Prepaid Postsecondary Education Expense Board v. College Savings Bank, 119 S.Ct. 2219 (1999) (patent) and College Savings Bank v. Florida Prepaid Postsecondary Education Expense Board v. College Savings Bank, 119 S.Ct. 2199 (1999) (trademark), the Court rejected patent and trademark infringement claims against the state of Florida that were purportedly authorized by similar provisions in the patent and trademark statutes (35 U.S.C. § 271(h) and 15 U.S.C. § 1125(a)(2), respectively). Justice Stevens suggested in a footnote in the patent decision that Section 511 might nevertheless receive different treatment, but some brief follow up research did not identify any subsequent cases in this line which confronted the Copyright Act. It is also worth noting that the Court’s holding in both cases was grounded in Congress’s inability to enact statutes that effectively circumvent constitutional protections.

Regardless of where the law currently stands on the interplay between sovereign immunity and Section 511 of the Copyright Act, it’s unclear here exactly how Newark’s proposed amendments could violate USGBC’s copyrights because the text of the proposed amendments does not incorporate any language from the rating systems directly. Nevertheless, it’s an interesting and important consideration for state and local governments that do, in fact, pull relevant sections from third-party rating systems directly into proposed legislation, and a good reminder that a broad range of legal issues exist for policymakers to analyze as they consider and ultimately craft legislation.

The action is noteworthy because of its similarities to AHRI – where a decision on the plaintiffs’ application for a preliminary injunction remains pending in the District of New Mexico – and the potential it suggests for other similar litigation over state- and local-level green building legislative implementation on the horizon. However, what’s most interesting about the complaint is its level of detail, particularity, and emphasis on the legislative history behind the applicable federal statutes regulating energy efficiency and energy use standards for the residential HVAC and plumbing products which the plaintiffs manufacture.

Filed in United States District Court for the Western District of Washington, Building Industry Association of Washington et al. v. Washington State Building Code Council alleges that certain amendments to the Washington State Energy Code that were passed back in November and slated to take effect on July 1 are preempted by various federal regulations, including the National Appliance Energy Conservation Act of 1987 and the Energy Policy Act of 1992, on the basis that they require homes to have HVAC, plumbing, or water heating equipment whose efficiency exceeds the standards set by the federal government in applicable legislation.

The specific amendments to the Washington code at issue in BIAW propose that single-family residences earn at least 1.0 credits from a list of 9 options that range from 0.5 to 2.0 credits. The complaint alleges that – as drafted – it is not possible to earn 1.0 credits from the 9 options without selecting those options which require higher efficiency equipment. According to allegations in Paragraph 46 of the complaint, the table “outlines a set of false choices. In effect, the ‘options’ in this table mandate the installation of products with efficiency standards in excess of federal standards.”

The economic essence of the preemption argument as alleged in both AHRI and BIAW is also articulated well in Paragraphs 22 through 24 of the BIAW complaint. These allegations are important to consider from an overall policy perspective with respect to why other industry groups may be inclined to spend the time and resources necessary to attack similar legislation in other jurisdictions:

“Plaintiffs, in reliance on the federal energy efficiency and energy use standards, have valuable investments in inventories of equipment and home designs which comply with federal standards but which do not comply with the [disputed amendments to the state energy code]. The state code will disrupt sales of HVAC products, water heaters and plumbing products intended for use in the state due to confusion of manufacturers, distributors and contractors about which standards they must adhere to. Distributors and contractors in neighboring states which have not adopted the same regulatory provisions challenged in this action will not suffer the same or similar adverse effects on their businesses. Those effects place Washington distributors and contractors with a uniquely affected class harmed by the regulations challenged here.”

In Paragraph 53, the complaint also describes in detail the two ways in which a state or local government can avoid federal preemption if legislation does include equipment or products with higher energy efficiencies.

First, as was discussed in AHRI, the state or local government can obtain an express waiver of preemption from the federal government. (An interesting note here is that no state has ever received such a waiver). Alternatively, under the 42 U.S.C § 6297(f) “building code exception,” state and local governments are permitted to set energy efficiency targets for new 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. As the complaint also notes in Paragraph 55, the legislative history to the building code exception states that the “flexibility provided to states in this provision is limited, to ensure that performance-based codes cannot expressly or effectively require the installation of covered products whose efficiencies exceed the applicable federal standard.”

The building code exception’s preemption analysis is performed under what some have described as a “convoluted” 7-part test that is outlined in 42 U.S.C. § 6297(f)(3). That test will be the focus of the Western District’s analysis when it evaluates the merits of the plaintiffs’ application for (i) a declaratory judgment finding that the amendments are preempted and (ii) an injunction preventing the state from enforcing the amendments as drafted.

These preemption issues are fascinating, particularly given the specific allegations in BIAW relating to the building code exception and the amendments’ failure to satisfy the 7-part test. Undoubtedly, similar issues will be raised again in other jurisdictions as additional green building legislation takes effect in 2010 and beyond. As always, we’ll follow up on BIAW here at GRELJ as the litigation moves forward.

In a two-part series that was published last weekend, Diana Zlomislic of the Toronto Star reviews the green building landscape in Ontario and concludes that although “[s]hoddy building is not unique to the green sector . . . with governments aggressively promoting green construction and green building still an emerging practice, consumers who opt for more eco-friendly homes and renovations are more vulnerable.” Zlomislic specifically identifies the over $1 billion in financial incentives that have been distributed to date by Canada’s provincial and local governments as having “few quality-control standards to protect consumers from incompetent ‘eco experts’ looking to cash in on the booming [green building] industry.”

For example, Zlomislic tracked down 26 homeowners who paid over $600,000 in deposits to a now bankrupt geothermal contractor. Several of these homeowners saw their energy bills double after the geothermal system was installed, while many others never even received a completely operational system. Among other things, Zlomislic points to the contractor’s rush to sign up customers and capitalize on a $10,000 provincial and federal rebate for qualifying HVAC replacement systems as a basis for the contractor’s misrepresentations.

Of particular interest to us here at GRELJ, Part 1 also identifies a pending lawsuit in the Ontario courts against a developer who converted a century-old building in downtown Toronto into a 4-unit, mixed-use building that was touted as one of the city’s top green building projects in 2006 by Now magazine. In a litigation that alleges fraud, the purchasers of the units seek over $900,000 in damages from the developer for the project’s failure to satisfy certain Ontario building codes, including those for its geothermal system – a highly publicized green selling point for the project.

Part 2 of the series starts out by concluding that Canadian governments “have created what some describe as a ‘Wild West’-like situation by urging homeowners to go green when they renovate or build from scratch. Green government grants and other incentives have boosted the building sector but few guidelines or quality-control standards exist, and those that do are not policed.” In support of her conclusions, Zlomislic profiles a Toronto-area couple who retained an architect that drastically overstated her green building design expertise, recommended a “green builder” for their 2200-square-foot renovation project, and left the couple with a house that’s only 60 percent complete and still contains over 60 individual building code violations.

What I found so interesting about these two articles is that they suggest a different type of risk growing out of government activity, while simultaneously shedding light on how that that activity has created an opaque regulatory structure on both sides of the border. The articles also build on many of the green building-related insurance claims which Frank Musica reported almost 3 years ago at the 2007 AIA National Convention in San Antonio. I also think that the Toronto fraud litigation is a major shot across the bow for owners and other marketing professionals who fail to accurately represent a project’s green features; this is one specific area of green real estate risk which continues to be insufficiently addressed by many industry professionals.

In any event, Zlomislic’s two pieces are must-reads and demonstrate practical applications of the many theoretical green building risk issues which have been discussed here at GRELJ and elsewhere over the past few years. Part one is here; part two is here.

We’ll start with the Lighting Upgrade Law, which amends Chapter 3 of title 28 of the New York City administrative code (i.e. the Building Code) and adds articles 310 – Required Upgrade of Lighting Systems – and 311 – Installation of Electrical Submeters in Tenant Spaces.

Article 310 of the Lighting Upgrade Law requires owners of all buildings larger than 50,000 square feet to upgrade the building’s lighting systems to energy efficient systems that comply with the standards for new lighting systems set forth in Section 805 of the New York City Energy Conservation Code (“NYCECC“) by January 1, 2025. Section 805 is actually part of the part of the Energy Conservation Construction Code of New York, which sets standards for the energy performance of buildings throughout the State of New York. (NYCECC, which we will discuss in much more detail in a subsequent article here at GRELJ, incorporates the state energy code by reference). Section 805 covers lighting system controls, the connection of ballasts, the maximum lighting power for interior applications, and minimum acceptable lighting equipment for exterior applications, but specifically excludes lighting within residential buildings from its purview.

Required upgrades are accomplished pursuant to Article 310 by installing or modifying the lighting system to comply with NYCECC’s standards for new systems for the following lighting elements: (i) lighting controls (including interior lighting controls, light reduction controls, and automatic lighting shutoff); (ii) tandem wiring; (iii) exit signs; (iv) interior lighting power requirements; and (v) exterior lighting. Owners must file a report with the Department of Buildings prepared by either a registered design professional or licensed master or special electrician certifying that the upgrade has been completed and that the work is in compliance with the technical standards of the New York City electrical code.

Upgrades are not required for (i) an element of a lighting system that is already in compliance with NYCECC; (ii) lighting power densities in any space bounded by permanent floor-to-ceiling partitions and/or closable doors that are in compliance with NYCECC; (iii) lighting systems within low-rise residential units (R2 or R3) or spaces that serve such units, including, but not limited to, hallways, laundry rooms, or boiler rooms; and (iv) lighting systems within houses of worship.

In addition, Section 311 of the Lighting Upgrade Law requires that, by January 1, 2025, owners or lessors of commercial buildings that are larger than 50,000 square feet measure the electrical consumption of certain covered tenant spaces by installing submeters. “Covered tenant spaces” are (i) individual tenant spaces larger than 10,000 square feet on one or more floors; or (ii) a floor that is larger than 10,000 square feet which consists of individual tenant spaces that are let or sublet to 2 or more tenants. For the latter, each individual tenant space can have its own submeter, share a submeter with the other tenant spaces on the floor, or share one submeter that covers the entire floor.

From a green leasing perspective, although submeters must be installed as set forth in Section 311, the Lighting Upgrade Law does not require the landlord to apportion the cost of electricity among the building’s tenants or subtenants in any particular fashion. However, the landlord is required to provide each tenant or subtenant within a covered tenant space with a monthly statement showing the amount of electricity measured by the submeter for each tenant or subtenant during the month, and any amount charged to the tenant or subtenant for electricity. If the covered tenant space is a floor with multiple tenancies (as described above), and the tenant’s submeter covers other tenant spaces, the statement for that tenant must show the electrical consumption for the area covered by the submeter and the percentage of that area which is leased by the tenant. As Model Green Lease Task Force head Alan Whitson frequently observes, “what gets measured gets improved,” a mantra which is clearly the basis for this provision within Section 311.

Next we’ll take a look at NYECC and some interesting legal aspects of the legislation that are making some of Gotham’s building owners and facility managers nervous about what could be coming next from the City Council.

Mr. Coleman writes that he is “deeply concerned with what would happen if this legislation became New Jersey law. Construction costs for schools would unnecessarily increase, with absolutely no benefit to the students and teachers who use these buildings or the taxpayers footing the bill. Such legislation would also set a dangerous precedent that could lead to all new public buildings in New Jersey having to use lumber certified through the U.S. Green Building Council. Such legislation would quickly waste millions of dollars in taxpayer money.” Mr. Coleman’s specific concerns with respect to increased costs derive from the types of wood products his organization’s constituents would need to stock in the event S239 passes:

Under LEED, the lumber can only be handled through the strict chain of custody by those who are certified in the program. If this lumber is put in the hands of a yard that is unaffiliated, it is actually deemed corrupted and cannot be sold as certified. If my company were to become LEED certified – in which we would be permitted to sell this ‘certified’ lumber – it would cost us thousands of dollars to follow the regulations of the program. We’d also have to stock certified and uncertified lumber in all the dimensions, doubling our inventory, and making sure the products were clearly separated. This would double my costs for such expenses as financing, space allocation, administration, insurance and other related expenses.

First, just as a quick housekeeping matter, USGBC does not certify lumber or any other individual type of product that may qualify for LEED points. As we noted here at GRELJ earlier this year in the context of LEED Version 3.0’s MR Credit 7: Certified Wood, this is because of the high level of scrutiny which private environmental standard-setting organizations such as USGBC receive under controlling antitrust law. It is also important to note that USGBC does not certify individual companies, either. While Mr. Coleman’s constituents may choose to stock more FSC-certified or reclaimed wood products, there is no requirement that those constituents become “LEED-certified” in order to do so.

However, I was particularly interested in Mr. Coleman’s concerns about chain of custody and the requirements for individual New Jersey lumber yards to apply FSC trademarks. According to its website, FSC requires that

[a]ny operation making, changing, trading, re-labeling or repackaging FSC certified products needs to be chain of custody certified in order to use the FSC trademarks and to enable its customers to make an FSC claim about these products. Retailers were traditionally seen as the end of the supply chain; today brokers or agents, who neither take physical nor legal possession of the products, and retailers, who sell FSC products to end consumers that do not want to make an FSC claim, usually do not need to become certified.

According to FSC, there are 133 companies in New Jersey that already hold FSC chain-of-custody certificates, which at quick glance seem to be a relatively even split between lumber and graphics concerns. The actual cost to obtain certification is unclear; on its website FSC states that the “costs and timescale for [chain-of-custody] certification vary depending on the size and complexity of the operation. It also depends on the range of products and processes.”

Nevertheless, although Mr. Coleman’s general points here about increased costs that would ultimately be passed along to taxpayers are duly noted, the more critical issue to consider generally is the scrutiny under which I believe LEED-driven legislation will continue to come in 2010. As Mr. Coleman notes, “[w]ith New Jersey teetering on bankruptcy and local school districts facing major cuts in state aid, this legislation is impractical, unnecessary and does nothing to solve the paramount issues plaguing the state.” Whether or not you are convinced of the technical merits and purported benefits of the LEED program, it is indisputable that state and local governments across the country – including those right here in our own backyard – are facing severe budget problems. Legislators will need to demonstrate bottom-line benefits to taxpayers for policy decisions similar to New Jersey’s S239, particularly if voices like Mr. Coleman’s grow louder and more uniform.

In addition to the points that Mr. Coleman raises, it’s also worth noting that S239 does not explicitly require formal LEED certification, nor does it provide any guidance with respect to what “incorporate the guidelines” might mean. I think that this is another good example of the type of ambiguous language that continues to appear in third-party-driven green building legislation. I would suggest that such language is indicative of a more general lack of understanding about USGBC, LEED, and the various iterations of the LEED system; consider Mr. Coleman’s own remarks, for example, where he refers to companies as actually being LEED-certified! These distinctions do mean something, in the context of both legislation (where taxpayer dollars are at stake) and, of course, construction contract documents.

But, Connecticut law does allow electrical cooperatives, which “may be organized . . . for the purpose of generating electric energy by means of . . . renewable energy resources.” With the input of the state’s Clean Energy Fund, Becker formed a co-op called the Elm Electrical Cooperative, Inc., and approached United Illuminating (the local utility) about organizing a net metering arrangement. Absent DPUC’s consent, the utility refused. Becker proceeded to file another petition that requested, among other relief, that UI be ordered to power the co-op, that the co-op be eligible for energy conservation and incentive programs, and that the co-op be able to implement Becker’s proposed net metering program. Earlier this month, DPUC rejected Becker’s petition (the written report on which the decision was based does not appear available on DPUC’s website).

In its article, the Courant makes several points which I think are worth repeating here at GRELJ for your consideration. First, according to the Courant, DPUC suggested both in its report and oral hearing that although Becker’s proposed solutions are novel, the agency itself needs input from the legislature on how it should respond. Connecticut is behind other jurisdictions (including New York) in terms of net metering legislation; I think this is a good example of technology bumping up against an antiquated regulatory regime. Legislation needs to enable – and not restrict – technologies that can improve building performance. A thought that follows is how quickly many state and municipal governments have acted to incorporate third-party building rating systems into legislation without fully considering (1) the corresponding legal implications; or (2) whether those rating systems actually result in higher performing buildings. We’ll be keeping an eye on 360 State Street’s plight and follow up if anything else of import transpires.

On a New York side note, last August Governor Paterson signed a series of bills to allow commercial net metering installations across New York State. Previously, only residential users were allowed to generate their own electricity from renewable sources and sell it back into the grid. Senate Bill 7171 now allows net metering for commercial systems up to 2 megawatts in capacity. It also increased the maximum system size for residential installations from 10 to 25 kilowatts. In addition, for building owners that install solar power systems, Senate Bill 8145 (which applies only to New York City) allows for a four-year real property tax abatement of up to $62,500.00 per year. As we noted recently over at gbNYC, the first such commercial installation in New York City was recently commissioned at 925 Bergen Street in Brooklyn by solar power installer Solar Energy Systems (SES) for Big Sue LLC, a general contracting and consulting firm that specializes in green design-build projects, which owns and operates the property. The installation is a 40 kilowatt solar array and, according to SES, is the largest commercial net-metered photovoltaic system in the entire country.

Although the costs of auditing were raised by opponents to the bills earlier this year, mandatory energy audits are now required every ten years, though buildings certified under LEED 2009 for Existing Buildings: Operations & Maintenance or which receive EPA’s Energy Star label are exempt. It’s this exemption that’s of particular interest to us here at GRELJ; here’s the pertinent text from the body of the bill:

No energy audit is required if the building complies with one of the following as certified by a registered design professional:

• The covered building has received an EPA Energy Star label for at least two of the three years preceding the filing of the building’s energy efficiency report.

• There is no EPA Energy Star rating for the building type and a registered design professional submits documentation, as specified in the rules of the department, that the building’s energy performance is 25 or more points better than the performance of an average building of its type over a two-year period within the three-year period prior to the filing of an energy efficiency report consistent with the methodology of the LEED 2009 rating system for Existing Buildings published by USGBC, or other rating system or methodology for existing buildings, as determined by the department.

• The covered building has received certification under the LEED 2009 rating system for Existing Buildings published by the USGBC or other rating system for existing buildings, as determined by the department, within four years prior to the filing of the building’s energy efficiency report.

Legislation which incorporates LEED into local-level legislation is something we’ve noted frequently here at GRELJ, and a couple of recurring issues immediately come to mind with Int. 967.

First, although the bill does allow buildings to earn certification under “other rating systems as determined by [DOB],” the bill does not provide any input on what those other systems might be, or how DOB will “determine” those that would qualify a building for the exemption. Does this language sufficiently address non-delegation doctrine concerns? (i.e., a private third-party organization is effectively determining whether an energy audit is unnecessary under Int. 967 by proxy).

Second, there is no language that allows the legislation to track changes in LEED; for example, if USGBC releases a next-generation LEED system subsequent to LEED 2009, what happens? We have noted this specific issue recurring in various types of legislation. For example, when we wrote about San Francisco’s decision to reconsider its LEED-driven green building ordinance, we pointed out that “LEED itself continues to be a moving target and policymakers must guide themselves accordingly when considering the merits of [LEED-driven] legislative activity.”

Finally, could design professionals balk at signing off on the energy audits given that LEED-EBOM is subject to the same Minimum Program Requirements which, if violated by the building owner, could result in a decertification proceeding, the consequences of which remain unclear?

These questions are obviously theoretical at this point and are designed to elicit your thoughts in the comments. However, I want to stress that the New York City legislation emphasizes the import of assessing and understanding LEED-related risks as the rating system continues to permeate into the private sector in a variety of legislative contexts.

Just as a side note for your reference, the other three bills that constitute the “Greener, Greater Buildings Plan” are:

• Int. 564: New York City Energy Conservation Code. Closes the “50 percent loophole” in the current New York City Energy Code, which does not require owners who renovate less than 50 percent of their building’s total space to comply with the most current – and energy-efficient- version of the Code.

• Int. 476: Benchmarking. Requires buildings to perform an annual assessment of their water and energy use using EPA’s Portfolio Manager tool for the purpose of comparing themselves with their peers, but exempts certain buildings for which public disclosure would be problematic (i.e. high energy users such as data centers).

• Int. 973, Lighting Retrofits and Submetering. Requires large tenants to be submetered and lighting systems to be upgraded during renovations (whether or not those renovations contemplate electrical work) or, at the latest, by 2025. Residential tenants are exempt. Renovations where construction costs are less than $50,000 are also exempt.

Other than the revisions to the Energy Conservation Code under Int. 564, the legislation applies to all New York City buildings larger than 50,000 square feet (or buildings that stand on the same tax lot and, together, are larger than 100,000 square feet).

• GGBP Passes City Council (Urban Green Council)

As you may know, in order to earn LEED’s MR-7 credit, projects must “[u]se a minimum of 50 percent (based on cost) of wood-based materials and products that are certified in accordance with the Forest Stewardship Council’s principles and criteria for wood building components.” In other words, wood-based products that are not certified by FSC are effectively excluded from earning this credit under LEED 2009 for New Construction, Core and Shell, Commercial Interiors, and Schools. USGBC, however, expressly disclaims on its website that the organization “does not certify, endorse or promote products, services or companies, nor do we track, list or report data related to products and their environmental qualities. LEED is a certification system that deals with the environmental performance of buildings based on overall characteristics of the project. We do not award credits based on the use of particular products but rather upon meeting the performance standards set forth in our rating systems. It us up to project teams to determine which products are most appropriate for credit achievement and program requirements.”

Nevertheless, USGBC is currently reviewing proposed amendments to MR-7 which would create a USGBC Forest Certification System Benchmark. The Benchmark would recognize certain forest certification systems, and the credit would be awarded for only wood products that “use a minimum of 50 percent (based on cost) of wood-based materials and products that are certified in accordance with a forest certification scheme that is recognized after evaluation against the USGBC Forest Certification System Benchmark for wood building components.” More than 50 forest certification regimes currently exist globally; the four major players in the North American market are FSC, the Sustainable Forestry Initiative, the Certified Family Forest, and the American Tree Farm system. It’s unclear how many in addition to FSC the Benchmark would recognize.

The leading Supreme Court case in this space which I analogize in the Article to the ongoing issues with the MR-7 credit is Allied Tube & Conduit Corp. v. Indian Head, Inc., 486 U.S. 492 (1988). In Allied Tube, a manufacturer of plastic electrical conduit claimed that a rival member of the National Fire Protection Association which manufactured steel conduit had packed the organization’s annual meeting with sympathetic interests in order to vote against the plastic manufacturer’s proposal to include plastic conduit in the Association’s National Electric Code. The Supreme Court noted that “private standard-setting associations have traditionally been objects of antitrust scrutiny,” that the Code was “the most influential electrical code in the nation,” and that many governments had adopted it into state- and local-level legislation by reference. It also suggested that “members of such associations often have economic incentives to restrain competition and that the product standards set by such associations have a serious potential for anti-competitive harm.” The significant factor for the Court in finding antitrust liability against the manufacturer of electrical conduit was the adoption of the Code into legislation. Although my Article does not suggest (nor am I suggesting here) that this sort of activity is taking place within USGBC, I do think the Supreme Court’s identification of legislation driving market effect in this context is an important consideration for policymakers.

What’s also interesting when reviewing the line of case law presented in my Article is that USGBC’s Antitrust Compliance Policy states that “from an antitrust standpoint, [USGBC] will be commonly referred to as a trade association. Trade organizations are subject to antitrust scrutiny because they involve meetings of competitors, but they frequently engage in a number of legitimate, pro-competitive and lawful activities. In order to avoid allegations of illegal price signaling, there should be no communications or discussions between any USGBC members either at USGBC meetings or at any other time about (a) current or future prices, pricing plans or production plans, or (b) announcements of price changes or output changes. . . . As a general matter, each member should be extremely careful and seek legal advice before engaging in any conduct that could possibly provide evidence to support allegations of collusion.”

As it turns out, though, the antitrust issues raised in my Article are more than just legal theory. As you may know, back in October,  the Coalition for Fair Forest Certification filed a complaint with the Federal Trade Commission (FTC) alleging anti-competitive behavior on the part of FSC and USGBC. Among other things, the complaint alleges that “the preference shown for FSC-certified products by the USGBC raises concerns about the viability of fair competition with other domestic certification programs. The Coalition submits that USGBC and FSC operate in tandem to disadvantage wood products certified by SFI and other certification systems. Thus, to the extent an investigation is warranted, the [FTC's] Bureau of Competition should look closely at the conduct of USGBC and its favoring of FSC certification.” It’s unclear what the current status of the complaint is and whether FTC has initiated any sort of investigation.

My Article concludes with some recommendations for policymakers, including a suggestion that the “LEED Certifiable” concept and general trend towards flexibility in how green building legislation is implemented may be an implicit acknowledgment of these emerging antitrust issues. I also present a number of other federal cases that are similarly interesting to review in light of current green building regulatory activity.  I would also note that the bases raised in my Article are by no means the only antitrust grounds on which LEED or other third-party systems might be challenged at some point.

Finally, I do expect many of these antitrust considerations to crystalize further during the course of 2010 as USGBC begins to evaluate various forest certification systems against its Benchmark and the Coalition for Fair Forest Certification’s complaint moves forward within the FTC.

• The stimulus package contained numerous green building-related provisions, including significant funds for state and local governments to implement energy efficiency codes. However, most of these funds have yet to be distributed, so it will be interesting to track legislative implementation during the course of 2010. Some municipalities are beginning to look more closely at the logistics of  implementing third-party-driven legislation, including in our own backyard here in New York. This will be a critical and ongoing issue to monitor.

• USGBC acknowledged the legal risks implicit with building green, but its white paper on the subject dubbed them “old wine in new bottles.” We reviewed the white paper here at GRELJ and concluded that it seemed “to be an effort to sweep many of the thornier legal issues that may indeed ferment into ‘new wine’ under the rug.” My reasons for disagreeing with the paper’s conclusions stemmed (and continue to stem) from the pace of regulatory activity, the lack of input from the insurance industry on green building risks, the uncertainty over the prevailing standard of care for design professionals practicing in the green building space, and the questionable body of green building performance data.

• Critiques of LEED building performance moved into the mainstream; USGBC mobilized in response. The ongoing debate about the energy performance was picked up on in media outlets that included the New York Times after Henry Gifford and USGBC’s Brendan Owens debated the merits of LEED at the NESEA forum last March. LEED Version 3.0 was released with the obligation for owners and landlords to report data on building performance to USGBC, though many of you wondered what USGBC would actually do with that data upon its compilation. USGBC’s Building Performance Initiative, which was launched in advance of Greenbuild in Phoenix, is ongoing; we’re likely to start seeing results and further studies and critiques of LEED building performance throughout 2010.

• The National Institute of Building Sciences convened a Task Group to review various third-party building performance rating systems, which identified associated risk and policy problems for the A/E/C community to contemplate. The Task Group’s recommendations to NIBS’ Board of Directors included the development of various white papers analyzing risk and policy issues in greater detail; we emphasized the import of this effort in the context of NIBS’ political backing and the scope of the report’s conclusions.

• The potential for decertification of LEED Version 3.0 projects that (1) fail to report building performance data or (2) provide a legal mechanism for the reporting requirement to carry forward after a sale or sublease caused a firestorm of blogosphere commentary. Interestingly, though, the first publicly reported decertification proceeding- the Northland Pines High School complaint, which USGBC is currently reviewing – received comparably little attention.

In my opinion, these last two items were clearly the most important green building legal stories of 2009. Although the Northland Pines proceeding is not the full-blown green building litigation that many have predicted, it implicates all of the legal issues associated with decertification that were discussed last year. It is also the type of scenario out of which green building litigation could arise in the event USGBC/GBCI revokes the school’s LEED Gold status. For all of these reasons, and regardless of the outcome, the Northland Pines proceeding will be the first major green building legal story of 2010, particularly because we are (publicly) witnessing USGBC/GBCI follow the procedures of its Certification Challenge Policy for the first time.

If there are any other noteworthy issues we missed, please feel free to note them in the comments below. Happy New Year, everyone!

For those of you reading this article in a reader or by email, we recently gave GRELJ a makeover and encourage you to visit the site in your browser. Hopefully the new design is easier to read and better organized. One new feature is threaded comments, which allow you to reply specifically to a given comment in each thread. I look forward to any feedback on our new look.

Back in August, you may recall that Community Solutions executive director Pat Murphy authored the first piece of a three-part survey titled “LEEDing from Behind: The Rise and Fall of Green Building,” which we noted here at GRELJ. Our article pointing you to the piece generated quite a bit of commentary and, now that Mr. Murphy has completed Parts 2 and 3, we thought we’d point you to his new book compiling the survey which is titled “The Green Tragedy: LEED’s Lost Decade.” The book was released while I was away last month and builds on Part 1 by tracing the historical argument promoting minimal green building cost premiums, reviewing the ongoing marketing efforts behind LEED, and concluding that policy makers should demand energy efficiency standards more akin to the German Passive House rather than “cheap quick ‘green’ solutions.”

Interestingly, in the preface, Murphy observes that “[w]e are now faced with a movement to adopt LEED as part of our building codes. An over-marketed standard that is under serious attack for its poor energy performance is now being proposed and accepted by cities as a requirement for our buildings. The idea of accepting as law an inadequate standard that has been developed by the building industry – thereby allowing that industry to usurp the long-established methodology of setting building standards by government policy- is absurd and dangerous.”

In addition to their significant legal implications, these remarks resonate with the conclusions of the recent NIBS report and, in my opinion, portend the types of critiques I believe we will see more forcefully in 2010 if LEED buildings do not perform at a statistically higher level under Version 3.0. Mr. Murphy’s book is available here, and I look forward to continuing the robust discussion that emerged after we noted Part I here at GRELJ in the comments below.

• The Green Tragedy: LEED’s Lost Decade

This comment reminded me of language in the NIBS report which noted that “[a]t an increasing rate, state and local governments and their code/regulatory agencies are adopting building rating/certification systems, intended as voluntary systems, to be their code or regulatory requirements, often without fully understanding their benefits, tradeoffs, and costs.” While the Atlanta restaurant industry seems more concerned with what it perceives to be a green building cost premium, the fact that its opposition is also grounded in the lack of sufficient input from stakeholders also echoes many of the policy issues we’ve raised here at GRELJ over the past year, particularly with respect to the rush to mandate green building requirements.

In that vein, it’s also interesting that although Atlanta’s Bureau of Buildings will enforce the ordinance, the city council has yet to determine what types of fines or other enforcement mechanisms would be imposed on buildings that fail to comply. “This is still a work in progress,” a spokesman observed, and the restaurant industry is pointing to this specific comment as one of the bases for arguing that the ordinance needs more work before the city council even considers passing it. Again, this echoes the types of observations noted in the NIBS report. While these types of details are being worked out, the restaurant industry is instead advocating for additional financial incentives (such as tax credits and building permit fee reductions); this also reflects the conclusions of the NAIOP report issued earlier this year, which called for financial incentives rather than mandates to bridge landlords’ payback period gap for most types of energy efficiency improvements.

On another note, the ordinance may present some novel green leasing implications which the restaurant industry has picked up on. Although building owners will bear the responsibility under the text of the ordinance for ensuring that the required standards are satisfied, the restaurant industry is warning restauranteurs who do not own the premises out of which they are operating to review their lease documents and confirm that they will not be responsible for executing the legislation’s required retrofits. It is not difficult to imagine the scenario where a lease includes a clause obligating the tenant to comply with all applicable codes and regulations, and the landlord pinning responsibility for any such retrofits on that tenant in the absence of affirmative language to the contrary.

Just a quick editorial note- this article will be the only new post here at GRELJ for the rest of the month as I am getting married this Saturday and then off on the honeymoon. Thanks to everyone for your support and comments since we launched this site almost a year ago (and patience over the past couple of weeks while the pace of our posts has slowed in advance of the wedding). See you on the other side!

• Operators in Atlanta Fight Forced Green Conversions (NRN)
• Costly Eco-Friendly Laws Overlook Industry’s Proactive Green Efforts (NRN)

First, with respect to building performance, the report notes that “[t]here is very limited data that correlates verifiable improvements in building performance with building rating/certification system requirements. Many people view the few data sets that do exist as controversial in terms of methodologies and conclusions drawn from them.” It also observes that “[t]here are growing concerns that the implied guarantee of building energy performance emanating from building rating/certification/labeling systems may confuse or mislead policy makers and the public.” The controversial USGBC-backed New Buildings Institute study- whose conclusions continue to be cited in support of LEED building performance claims- could certainly be the partial genesis of these remarks.

In terms of green building legislation, the report also emphasizes a number of important points, noting that “[e]lected officials and policy makers at the federal, state, and local levels only rarely understand the objectives, development, intended uses, opportunities, and limitations of rating/certification programs for buildings and accreditation programs for individuals.” Moreover, the report argues that “[a]t an increasing rate, state and local governments and their code/regulatory agencies are adopting building rating / certification systems, intended as voluntary systems, to be their code or regulatory requirements, often without fully understanding their benefits, tradeoffs, and costs.” These remarks comport with the notion that many state and local governments have rushed to legislate in knee-jerk fashion, failing to analyze or review  corresponding legal implications; the AHRI v. City of Albuquerque litigation, for example, is illustrative here.

Perhaps most significantly, the report levels a heavy-handed critique at the organizations which promulgate green building rating systems, stating that “[m]any of the building rating/certification systems and individual accreditation systems appear to place the goal of generating revenue for their development organization as a goal equal to the organization’s commitment to knowledge development and advocacy around its issue,” and that such systems “appear to certify expertise in applying the program more than improving the actual building’s performance.” With respect to that expertise, the report acknowledges “a growing concern that individual accreditation programs are not based on rigorous criteria and testing that validate competence.” Note here that no single system was identified in the body of the report, though I’m curious whether these remarks will elicit any response from USGBC or other organizations.

In terms of legal risks arising out of green building projects, the “Owner Expectations and Professional Liability” section of the report acknowledges many of the types of risks which have been discussed here and elsewhere over the past year. For example, the Task Group notes that “design and contractor liability risk may rise if performance expectations are not realized in completed projects” and that rating systems and accreditation programs “are beginning to impact the professional standard of care recognized by law and the building community. Such systems and programs may cause design professionals, owners, managers, and facilities personnel to be held to higher degrees of expertise and performance.”

A shifting standard of care being fueled by green building practices is a critical issue that we have discussed frequently at GRELJ, and it’s important for design professionals to note that NIBS specifically identified it in the report. The Task Group also discusses green building insurance claims, noting that “[t]he vast majority of insurance claims involve misrepresentation, miscommunication, and misunderstood expectations between owners and design and construction professionals.” This remark reminded me of a BIM/green building panel held here in New York City nearly two years ago where a number of insurance industry professionals warned that claims- in the green building space or otherwise- always start with violated expectations.

The Task Group concludes the report with a set of recommendations to NIBS moving forward, which include encouraging the A/E/C community to “support one comprehensive, consensus-based building rating or certification or labeling program to reduce the complexities and contradictions that currently exist” and the development of various white papers that analyze the foregoing points in greater detail. As you may know, NIBS is a non-profit organization that was founded in 1974 by act of Congress; 6 of the 21 members of its Board of Directors are appointed by the President and approved by the Senate. Given NIBS’ backing and the scope of the Task Group’s conclusions and recommendations to the Board, its release of this report could mark the beginning of a serious uptick in the level of analysis being performed in this area.

You can download the report through the link below. I look forward to your thoughts and reactions in the comments.

• Report on Building Rating & Certification in the U.S. Building Community (NIBS)

As you may know, among other provisions, the San Francisco green building ordinance requires commercial and residential projects greater than 25,000 square feet, or taller than 75 feet, to earn a LEED Certified rating from USGBC. The requirement for commercial projects increased this year to Silver and, in 2012, to Gold. Residential projects must earn a Silver rating beginning in 2010. Notwithstanding these phased requirements, in the Chronicle piece, the San Francisco Department of the Environment’s private sector green building coordinator Richard Chien states that “[w]e need to reconvene the task force that recommended the legislation and makes some revisions way before 2012. With the changes coming along [to LEED] we could be out of date and we need to address that.”

Interestingly, the San Francisco ordinance (No. 180-08 of September 4, 2008, codified at Chapter 13C of the local building code) states that “[w]herever specific LEED prerequisites or credits are cited, such references are to LEED-NC Version 2.2. More recent LEED . . . versions may be used, provided the credits and points achieved are as or more stringent than LEED-NC Version 2.2.” In other words, because the LEED 2009 MPRs are not referenced specifically, it’s not entirely clear whether they are included within the purview of the ordinance, particularly with respect to mid-sized commercial buildings which are only required to comply with certain LEED credits.

The introduction to the article is therefore inaccurate; San Francisco is not reconsidering whether to restructure its green building ordinance around something besides LEED based on perceived LEED building performance failures. Rather, it is evaluating if, as presently drafted, and based on the recent amendments to LEED in the form of LEED 2009, its ordinance will still (1) obligate covered projects to comply with the new MPRs and share performance data; and (2) whether the ordinance should be revised to expedite that requirement. This is precisely the type of scenario that has been suggested both here at GRELJ and elsewhere with respect to the potential consequences for state and local governments that incorporate LEED into legislation by reference. Notwithstanding its performance-related issues, LEED itself continues to be a moving target and policymakers must guide themselves accordingly when considering the merits of this type of legislative activity.

I also think the Chronicle article is noteworthy because it suggests- once again- an overarching perception that simply collecting an increased volume of building performance metrics will solve the LEED performance gap. For example, consider the following quote from architect Jennifer Devlin of San Francisco-based firm EHDD: “LEED has done an exceptional job of raising awareness. And the U.S Green Building Council recognizes that tracking energy use is vital to the sustainable building movement.” LEED has unquestionably raised public awareness about the environmental impact of the built environment and put building performance on the front page of major media outlets such as the New York Times and the Chronicle. But, as USGBC’s Building Performance Initiative and other efforts ramp up this fall, I think it is critical to keep in mind Larry Spielvogel’s thoughts from our last article here at GRELJ that the question of improving building performance is highly complex and clearly one that cannot be solved by simply compiling a longer spreadsheet.

• Green Building Standard Seen as Flawed (SFC)

The reductions are staggered between 2010 and 2013 and beyond (10 percent through 25 percent, though the benchmark against which those reductions are measured is not set forth in the pending bill); Energy Star ratings would increase from 55 in 2010 to 75 in 2013 and beyond. An independent consultant would determine whether the required energy reduction is met; if not, the contractor (or, interestingly, another entity warranting the energy use) will be responsible for reimbursing the city for the cost of the excess energy use. The amendment is BL2009-503; a vote is slated for later this month. “This would allow an alternative that focuses on the performance of the building, not on the process of how you got to that performance,” Dominy told the Tennessean.

The genesis for the amendment is a 16-classroom addition to Antioch’s middle school, which uses an HVAC and building envelope system that does not qualify for credits under LEED (though it’s unclear exactly why this is the case). The contractor which designed and installed the system- Energy Systems, Inc. of Cookeville, Tennessee- is owned by Bob Southerlan, a former aerospace engineer who is “worried about being knocked out of the Metro construction market.”

I think that this is a critical battle to watch as it may suggest that local governments are coming to view LEED as something less than the mark of building performance; Mr. Dominy’s thoughts about process versus performance are particularly noteworthy in this context. It also echoes some of the remarks in the comments to Pat Murphy’s recent article as presented here at GRELJ (i.e., Mr. Murphy himself noted that “[t]here is a crying need for accurate, verificable and reliable energy rating systems. If LEED doesn’t fill the bill, other options will come forward.”) In addition, if it is true that Southerlan’s system is somehow excluded from the purview of LEED, there may be other, more serious problems with Nashville’s legislation from an antitrust perspective, which we’ll get into in a subsequent article.

• Nashville’s Green Building Code Under Review (Tennessean)