ERCOT PRR 833: The Hour Is Getting Late… Is There No Relief for WGRs?

I.    Background

In September 2011, the Empire State Building became one of the most iconic structures in America to be recognized for its environmentally conscious retrofits. Nationwide, more and more architects and builders seek to minimize carbon footprints in construction. To help measure the success of their efforts, some institutions have issued reviewing criteria to ascertain how “green” a building really is. One critical question increasingly is being debated: just how trustworthy are these reviews?

Green building encompasses more than just retrofits. It is “the practice of (1) increasing the efficiency with which buildings and their sites use energy, water and materials, and (2) reducing building impacts on human health and the environment, through better siting, design, construction, operation, maintenance and removal—the complete building life cycle.”[1] Over the last two decades, federal, state and local governments have adopted a broad array of (and sometimes conflicting) green building regulations. Various governments have generated their own certification systems[2], while others have, either in whole or in part, adopted third-party metrics.

The most prevalent of third-party green building certification standards is the Leadership in Energy and Environmental Design (LEED^®), which is administered by the U.S. Green Building Council (USGBC).[3] LEED^® ratings are awarded for four levels, based on a point system, and are designed to “guide and distinguish high-performance commercial and institutional projects” for their green attributes.[4]

Over the last few years, several high profile lawsuits have involved and implicated the efficacy of the LEED^® system. In Eagle River, Wisconsin, the Northland Pines High School Building Committee challenged the propriety of awarding LEED^® Gold certification to its high school despite the alleged failure to meet those standards for which LEED^® building credits had been given.[5] In Somerset County, Maryland, a condominium developer sued a construction contractor regarding—at least in part—who has the responsibility to obtain LEED^® certification where the contract otherwise is silent as to this burden.[6] In New York, condominium owners sued the architects, sponsors and managers of units advertised as LEED^® Gold, complaining that an energy audit revealed deviation of “49 percent over the USGBC LEED^® and BPCA[7] standards in the cumulative size of the holes and cracks allowing infiltration of cold air.”[8]

Although each of these lawsuits received attention in the construction law community, they primarily focused on individual projects that—whether due to improper third party inspection, unclear contract obligations or deviations in contract performance—did not involve the actual organizational structure and goals of the LEED^® ratings system. No suit had yet attacked LEED^® directly—only its implementation between third parties. That soon was to change.

II.   The Gifford Complaint

On October 8, 2010, Henry Gifford and Gifford Fuel Saving, Inc. filed a class action lawsuit against U.S. Green Building Council directly.[9] For the first time, litigants challenged the propriety of the LEED^® system itself—not merely its application to an individual project. Mr. Gifford originally sought to certify a very broad class of damaged plaintiffs, including “all persons who paid for LEED^® certification for property they own . . . all persons who design energy-efficient buildings and whose livelihoods are injured by USGBC’s monopolization of the market . . . [and] all taxpayers whose city and state tax dollars are spent on the cost of LEED^® certification.”[10] Gifford set forth several causes of action against USGBC: (1) monopolization through fraud (in violation of the Sherman Anti-Trust Act); (2) unfair competition (in violation of the Lanham Act); (3) deceptive trade practices (in violation of New York law); (4) false advertising (in violation of New York law); (5) wire fraud (in violation of Racketeer Influenced Corrupt Organizations Act, a.k.a. RICO); and (6) unjust enrichment.[11]

In support of these claims Gifford made a series of highly contentious allegations concerning U.S. Green Building Council and its LEED^® system. Gifford claimed that the LEED^® system is not based on actual measurements but instead on modeling of anticipated energy usage.[12] He further charged that USGBC fraudulently misleads consumers by intentionally omitting information and skewing data concerning energy use of LEED^® versus non-LEED^® buildings.[13] Gifford’s allegations stem from a 2008 study by the New Buildings Institute that was commissioned by USGBC to compare 121 newly-constructed LEED^® certified buildings against non-LEED^® certified buildings.[14] USGBC allegedly announced in an April 3, 2007 press release that, pursuant to said study, LEED^® buildings are 25-30% more energy efficient than non-LEED® structures.[15]

Mr. Gifford complained that USGBC only included data from half of the LEED^® buildings that participated in the study (i.e. that USGBC intentionally disregarded data from the other half of the LEED^® certified pool).[16] Gifford further complained that the study compares the median energy use of the LEED^® buildings against the mean energy use of the non-LEED^® buildings, thereby causing LEED^® buildings to appear more energy efficient than they actually are.[17] Gifford maintained that, based on his independent metrics, including “before and after comparisons, life-cycle analysis, or energy use data (rather than projects and models), LEED® buildings actually perform worse than conventionally built buildings.”[18]

Essentially, Mr. Gifford argued that—due to the widespread adoption of LEED^® (in whole or in part) by various federal, state, and local governments—USGBC was deceiving large numbers of taxpayers and consumers into working within the LEED^® system rather than within independent systems. Since LEED^® certification costs money, this alleged deception came at the direct expense of the consuming and taxpaying public and generated a financial benefit for USGBC.[19] In his amended complaint, Gifford abandoned several of his claims, proceeded forward with the Lanham Act and New York state law violations, and joined two additional plaintiffs (one an engineer, the other an architect).[20]

 III. U.S. Green Building Council’s Motion to Dismiss

 On April 6, 2011, U.S. Green Building Council responded to Gifford’s complaint with a motion to dismiss[21] on the bases that (1) the court lacked subject-matter jurisdiction over the complaint[22] and (2) Gifford had failed to state a claim upon which relief could be granted.[23] USGBC argued that Gifford lacked standing[24] to bring a claim under the Lanham Act for false advertising since the act limits standing to competitors.[25] USGBC stressed that the reason for the act was to prevent unfair competition—not to protect consumer or other business interests.[26]

 USGBC also contended that Gifford failed to show a tangible injury (such as monetary loss or harm to goodwill) because of USGBC’s conduct.[27] Namely, Gifford failed to show which customers might have been lost, that those potential customers instead opted to use LEED^® professionals, and why any such selections were made.[28] USGBC further stated that Gifford failed to provide sufficient context in scrutinizing use of the study results in advertising materials.[29] Regarding sample size and comparative methods, USGBC noted that its press release linked directly to the full text of the study report within which those issues were addressed.[30]

In response to USGBC’s motion, Gifford disputed USGBC’s interpretation of standing under the Lanham Act, asserted that Gifford and the fellow plaintiffs operated in the same market as USGBC, and claimed to have been harmed as a result of USGBC’s activities.[31] As to the sufficiency of facts within the pleadings, Gifford reminded the Court that federal law only requires that the complaint contain enough facts to put USGBC on notice of the claims against it.[32]

IV. District Court Grants Motion to Dismiss

On August 15, 2011, the United States District Court granted USGBC’s motion to dismiss. The Court clarified the standing requirement under the Lanham Act as a two-prong test: either Gifford needed to show competition with USGBC or he needed to show possession of a reasonable commercial interest that likely would be damaged by USGBC’s allegedly false statement.[33] The Court cast a fairly narrow interpretation of the respective businesses of the litigants: “Plaintiffs plainly do not compete with USGBC in the certification of ‘green’ buildings or the accreditation of professionals. Rather, they purport to compete with USGBC in what they call the ‘market for energy efficient building expertise.’ . . . This broad label does little to obviate the clear differences between the two ‘products.’”[34]

The Court categorized the plaintiffs as parties who advise clients about how to design and construct energy efficient buildings.[35] In contrast the Court distinguished USGBC as a not-for-profit organization that reviews and rates the energy efficient designs of others.[36] The Court compared the case to a prior case in the same court, which distinguished a party that provided alcoholism treatment to patients from another party that was a foundation to increase public awareness of alcoholism.[37] The Court held that Gifford and the other plaintiffs lacked a reasonable commercial interest since their allegations only contained a speculative claim of injury and they failed to allege any causal connection between USGBC’s action and such an injury.[38]

Since the plaintiffs lacked standing, the Court ordered dismissal of the case. In order to appeal the dismissal, Gifford would have needed to file a notice of appeal within thirty days of the entry of the judgment (i.e. by September 14, 2011).[39] The plaintiffs failed to file a notice of appeal and the matter since has been closed.

V.  Discussion

Even though the plaintiffs were unsuccessful in their attacks, the Gifford case stands as the first concerted legal challenge to LEED^®. The plaintiffs’ legal deficiencies cited by the Court in ordering dismissal might be overcome in future lawsuits by similar plaintiffs. Competitor certification and review systems probably have standing to sue and may proceed with comparable claims. Notably, other courts might not so narrowly define the scope of the respective business practices of similar plaintiffs in contrast to USGBC. The Gifford court emphasized that its plaintiffs offered advice to third-party clients in the design and construction of energy efficient structures whereas USGBC offered an independent review of such design and construction. Other courts may cast a wider scope and consider both parties as energy efficiency consultants in a more general sense.

Although USGBC attempted to cast Gifford as “a longtime gadfly, preoccupied with critiquing USGBC and LEED”,[40] the dispute was resolved purely on procedural ground. Gifford’s underlying claims may in fact be true. The Gifford court did not decide on the merits of the underlying claims—only on the issue of standing. As the market for energy efficient building practices expands, USGBC’s current domination of the review process may make it a likely target for such challenges in the future. For the time being, however, Gifford stands as an early victory for USGBC and its standardized LEED^® system.

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