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.

Toronto’s mandate is interesting to consider in light of the risks that we have pointed out previously both here at GRELJ and over at gbNYC with respect to green roofs generally. For example, last fall, we noted an article in Property Week magazine that discussed insurer attitudes towards the increased installation of green roofs in the United Kingdom. Many insurers believe that green roofs are likely to become flammable and have identified schools- and their relatively easy low-rise roof access- as particularly troublesome from the perspective of potential arson. Property Week also cited a 2006 report authored by Zurich’s Stuart Blackie which stated that ““[t]his concept of construction is often sold on its environmental benefits. The issue of fire spread, combustibility and indeed fire safety are often overlooked.” Toronto also appears to have ignored some evidence that suggests those environmental benefits may have been oversold. For example, the Canadian National Research Council had previously reported to the city that the energy savings from green roofs would only occur for 3 months during the year and that any claimed water retention benefits simply did not exist. It will be instructive in the coming months to see the reactions- if any- from the property insurance market to the new legislation, or if Toronto’s development community will muster any sort of additional challenge to its implementation.

I think the Toronto mandate is important to consider in the context of other green building policies that have been enacted here in the United States quickly without sufficient analysis. The fact that the Toronto legislation was passed without any real debate- despite significant evidence that its perceived benefits might be less than suggested- suggests the same type of policymaking that here in the United States has already become problematic in litigations such as AHRI v. City of Albuquerque. If policies are implemented poorly, green building goals are not advanced when litigation ensues, either to challenge such policies or as their direct byproduct. I also think it’s clear that this type of green building legislation will continue to be enacted in municipalities of all shapes and sizes regardless of the practical implications for private real estate. Accordingly, it will remain increasingly critical that industry stakeholders monitor such activity in their localities such that they can work with counsel to formulate sufficient risk management strategies that address those emerging implications.

• Toronto Adopts Mandatory Green Roof Requirements (PR)
• Toronto Mulls Mandatory Green Roofs (Green, Inc.)
• Green Roofs a Hidden Risk? (gbNYC)

Officials in El Dorado County (which is about halfway between Sacramento and Lake Tahoe) believe that the fee is illegal, calling it “a tax without calling it a tax.” The distinction is critical because, in California, a special purpose tax (as the county is characterizing the fee) requires approval from two thirds of voters before being enacted. Interestingly, although the Bee reports that real estate developers across the state supported the bill during the course of various legislative hearings prior to September 30, when Governor Schwarzenegger signed SB 1473 into law, El Dorado officials are suggesting that the fee is “another burden” on the struggling construction industry. In late January, the county requested that the state attorney general’s office review the fee and opine on whether it is legal- so far there does not appear to be a decision. In the interim, the county is not collecting the fee as required under SB 1473, despite warnings from counsel that it could be subject to penalties, backcharges, or even a lawsuit if its challenge is unsuccessful.

I think the county’s effort here is important to follow for a couple of reasons, both of which I’ve discussed at GRELJ previously. First, as suggested by AHRI, plaintiffs will not be deterred from attacking green building legislation or policies that increase transaction costs, particularly given the state of the economy and deteriorating construction climate. Second, if the attorney general agrees that the fee is indeed a special purpose tax, legislators will need to regroup and draft a bill that reflects the requirements of California law- likely more than six months after the governor signed the bill back in September. I think this demonstrates how- and why- poorly written policies have the potential to harm green building practices generally if not properly considered and vetted prior to enactment.  Policymakers definitely need to keep these two considerations in mind because poorly drafted legislation will, without question, be challenged here in 2009 even if it purports to address the greater good.

• El Dorado County Refuses to Collect Surcharge on Building Permits (Sacramento Bee)

The importance of Shaw cannot be overstated; the use of form contracts on green projects is a recipe for disaster, particularly in jurisdictions where green building legislation- in the form of either a mandate or incentive – may apply. AHRI may ultimately have even broader repercussions for the industry, as Judge Vazquez’ decision, grounded in federal preemption doctrine- and the plaintiffs’ willingness to bring the lawsuit in the first place – may end up spurring other legal challenges to state- and local-level green building legislation in 2009, particularly if the federal government takes a more proactive regulatory role once Barack Obama takes office. Here’s hoping that 2009 commands a much more robust discussion of the liability aspects of building green amongst industry stakeholders.

• Top 10 Green Building News Stories of 2008 (CoStar)
• Anatomy of America’s First Green Building Litigation (gbNYC)
• District Judge Grants Injunction in AHRI (gbNYC)