Henry Gifford, et al. v. U.S. Green Building Council: Has Mr. Gifford Been Left with a Leg on Which to Stand to Pursue Discovery? Should He Have Been? May Others Follow?

Vol. 14 No. 1

By

Edward B. Gentilcore is Chair of the Sherrard, German & Kelly, P.C. Construction Services Group and is currently the Environmental Chair of the Division 10 Steering Committee and Co-Chair of the ABA Section of Litigation Construction Litigation Committee. Mr. Gentilcore practices in the area of complex commercial litigation with an emphasis on construction litigation, construction contracts and mechanics lien matters. He is also a LEED AP and has experience in the preparation of design and construction contracts, including those involving green building design and construction, with a focus on dispute prevention considerations.

While anticipation has been widespread on the prospects of litigation over the design and construction of buildings labeled with such environmentally friendly terms as green, sustainable and energy-efficient, the floodgates some predicted have not been unleashed. While some of the earliest cases in this area received widespread attention, including, most notably, the Southern Builders, Inc. v. Shaw Development, LLC litigation, which was filed in the Circuit Court for Somerset County, Maryland, Case No. 19-C-07-011405,1 the remainder of these presently filed actions did not receive equal thrust and scrutiny of attention. There are matters that continue to be pursued regarding the delivery of what were represented to be green or sustainably designed and constructed buildings. However, even these more recently filed cases are very much in early stages and not yet far enough in gestation to yield meaningful insight into the actual risks and responsibilities to be borne by the participants in the cases and ultimately those interested in the respective projects implicated in these matters.

All those cases, however, had at their core a specific project in mind. Whether a claim was one of failure of performance, misrepresentation, or another contract- or tort-based claim, the focal point was that the building did not achieve the planned result and, therefore, did not enjoy the benefits associated with that achievement. Also, more recently, in the Chesapeake Bay Foundation, Inc., et al. v. Weyerhaeuser Company matter, filed at Civil Action No. 3411442 in the Circuit Court for Montgomery County, Maryland, the building actually was not meeting the expectations of performance, and the building materials used were themselves resulting in a compromise of the project as measured by more traditional standards of success or failure (namely, the ability to withstand water infiltration).2

Then, on October 8, 2010, a suit was filed in the U.S. District Court for the Southern District of New York, at Case No. 10 CIV 7747. The matter was initiated by Henry Gifford as a class action suit against not only the U.S. Green Building Council (USGBC), but also a number of other high-ranking officials with the USGBC, including its president, Rick Federizzi. At the centerpiece of the case, Mr. Gifford alleged that he as well as similarly situated members of the putative class had been damaged by the defendants’ collective conduct of promulgating the LEED rating system and its various iterations, and supporting it in such a way that suggested, if not represented outright, that these buildings—designed and constructed to comply with the LEED requirements—were indeed models of health, environment and energy efficiency, with a considerable emphasis on the latter. Mr. Gifford asserted that these actions on the part of the USGBC and the other defendants constituted violations under the Sherman Anti-Trust Act, 15 U.S.C. § 2; unfair competition under the Lanham Act, 15 U.S.C. §1125(a)(1)(B); deceptive trade practices under the N.Y. General Business Law (NYGBL) §§ 349 (a) and (h); false advertising under the NYGBL §§ 350-a(1) and 350-a(3); Racketeer Influenced Corrupt Organization Act wire fraud pursuant to 18 U.S.C. § 1962(C); and unjust enrichment. In plain terms, the thrust of the complaint charged that the defendants’ actions and conduct amounted to misrepresentation, false and misleading advertising, monopolization and, through concert and cooperation, conspiracy.

The industry itself reacted with some criticism and surprise. Some focused upon Mr. Gifford himself, casting him as a polarizing figure with an axe to grind. Others were simply dismissive, suggesting in a sense that Mr. Gifford’s suit would have no chance of maintaining itself, being certified as a class action or even surviving as a direct action against any of the defendants. Perhaps as a result of some of the initial case scrutiny, and before any response had been presented by the defendants, the case was amended to a much different procedural configuration. Gone from the First Amended Complaint (FAC) were any allegations amounting to or supporting a class action. Also absent were a number of the individual defendants originally joined in the case, leaving the USGBC as the sole defendant. However, parties joining Mr. Gifford in the ranks of plaintiffs included Gifford Fuel Saving, Inc., Elisa Larkin, Andrew äsk and Matthew Arnold, all of whom claimed they were directly aggrieved by the conduct of the USGBC. The counts asserted were similar in tone to the original complaint, but different in terms of the causes of action. The antitrust, wire fraud and conspiracy claims disappeared. Remaining (and in some instances replacing the eliminated counts) were claims for false advertising under the Lanham Act at § 43(a); false advertising under NYGBL §§ 350, 350-a and 350-e; deceptive trade practices under the NYGBL §§ 349(a) and (h); and violation of the common law based on false advertising, unfair competition and unfair business practices. Aside from the specific legal grounds for these assertions in the FAC, the following key allegations emerged:

  1. The Plaintiffs assert that LEED buildings are not more energy efficient despite representations to the contrary.
  2. The FAC includes the contention that LEED does not verify buildings designed or built to the LEED rating system actually lead to energy savings.

With these core allegations being established in a much more traditional pleading approach, an intriguing proposition emerged. For the first time, the USGBC might, through the process of discovery, be requested and therefore obligated to disclose the details of its review and administration of the certification process. The USGBC might also become subject to discovery focused on how the LEED rating system was developed and the purposes underlying its creation. In this sense, the suit presented a possible means for lawful inquiry of this organization to provide the details of its processes when other disclosures to date have been fully voluntary and formed part of more marketing-based message-delivering strategies.

Shortly after the filing of the FAC, the USGBC filed a motion to dismiss the FAC on April 6, 2011. Its target clearly was Gifford in the first instance, characterizing him as a “gadfly”, a “critic” and certainly not a competitor. Therefore, the USGBC asserted that Gifford and the remaining plaintiffs simply lacked standing to sue the USGBC. While that may have been more than sufficient to achieve dismissal of the action filed against them, the USGBC continued their arguments emphasizing that LEED was never intended to be what Mr. Gifford asserted, but rather was “purely voluntary” in nature. The USGBC added that LEED is “aimed at improving environmental performance and does not assess actual . . . performance” in buildings reviewed for certification. The USGBC added that LEED Accredited Professionals—namely those who have been through the rigors of the testing process which was at one time the criteria for receiving the Accredited Professional (LEED AP) designation—“offer[ed] expertise that the FAC does not allege the Plaintiffs possess or market,” again, an allegation targeting what appears to be the overall theme of lack of standing.

Next, the USGBC presented its argument that LEED does not verify building performance, just that they are “designed and built using strategies aimed at improving” performance. Viewed in this light, the defense raised by the USGBC certainly can be read to support the critique that following the LEED rating system does not, in and of itself, assure bottom-line results, but rather that the techniques themselves have been designed in such a fashion that one pursuing the LEED rating would seek to increase beneficial performance of the building as a whole.

A final point raised focused on the USGBC’s challenge to the New York Consumer Protection Act claim. In this regard, the USGBC asserted “statements from the USGBC website are not directed at consumers,” but rather “businesses and professionals.” By this contention, the USGBC clearly sought to place the LEED rating system outside of the purview and coverage of the consumer-protection-based statute.

On May 2, 2011, the plaintiffs collectively filed their opposition to the USGBC’s motion to dismiss. The key points raised by the plaintiffs were focused mainly on establishing their standing to proceed. With regard to the Lanham Act claim, the plaintiffs asserted that they did not have to directly compete with the USGBC in order to maintain standing under the Lanham Act for a false advertising claim. In fact, the plaintiffs went further, asserting that they were “competitors of USGBC with a very real stake in the market for energy efficient building expertise. . . .”

The plaintiffs next focused their arguments on emphasizing that their services provide guidance to consumers about how to design and construct buildings in such a way so as to conserve energy and, in that sense, they directly compete with the USGBC. They identified Gifford as a “highly respected consultant who provides design and construction guidance on how to reduce energy costs.” They described Gifford Fuel Savings, Inc. (GFSI) as a “corporation that provides heating and cooling system designs that are proven to reduce energy costs.” Matthew Arnold was presented as being in the business of “providing advice about how to design energy-efficient and sustainable buildings.” Andrew äsk was identified as a licensed engineer for 41 years who performed diagnosing, designing and retrofitting of heating and cooling systems “in order to improve performance and energy utilization.” Perhaps as an oversight, Ms. Larkin was specifically addressed nowhere in the plaintiffs’ response.3

What was also interesting about the approach taken by the plaintiffs in their opposition was the analogy they drew regarding these claims. The plaintiffs argued “in the same way that Nair [a chemical-based depilatory cream] led the consumer to believe that using Nair with baby oil made baby oil unnecessary, USGBC leads the consumer to believe that LEED certification makes separate energy saving guidance unnecessary.” Stated another way, Gifford contended “LEED certification and LEED ‘verification’ is not a substitute for energy-saving design and build services, but USGBC wants the consumer to think it is.” (Emphasis in original). Coupling these contentions with the assertion that this is a niche market in which the predominance of directly competitive attributes are apparent, the plaintiffs contended they had “lost sales in the energy optimization market and damage to the reputation of ‘green’ building sciences on the whole.” Likewise, plaintiffs contended that the USGBC’s “false advertising undermines their ability to market their own genuine services.”

The next phase of the opposition was also quite interesting because it focused on the factual disputes over whether LEED actually leads to building performance efficiency. This section of the opposition is the most intriguing insofar as it provides a roadmap to potential discovery inquiries that the Gifford team would have sought, provided this matter survived the motion to dismiss. Indeed, Gifford proffered that the “Plaintiffs can easily meet their burden of proving the [USGBC-commissioned] study is not sufficiently reliable to conclude that the Defendant’s LEED certified buildings save energy.”

As to state-specific counts, Gifford argued that the plaintiffs had standing under NYGBL §§ 349 and 350 because the plaintiffs’ contentions implicate and impact the public welfare, citing the potential of reputational damage to the environmental building movement generally as well as the influence of the USGBC’s “false advertising on ‘the policy decisions of voters, taxpayers, developers, municipalities, and legislators at the local, state and federal levels.’”

The penultimate contention raised by Gifford was that the advertising by the USGBC was, in fact, consumer-oriented and, therefore, actionable under the New York Consumer Protection Law. In this regard, the plaintiffs focused on the USGBC website. However, the plaintiffs made no mention of the Bain v. Vertex Architects, LLC case, recently filed in the Circuit Court of Cook County, Illinois, at Case No. 2010-L-012695. In the Bain case, the plaintiff asserts that the defendant “failed to diligently pursue and obtain for the Project certification from the USGBC LEED for Homes Program” when “[t]he stated objective … was to ‘create a sustainable green modern single family home.’” Perhaps the Gifford plaintiffs could have raised this as an example where the USGBC is specifically promulgating a LEED program focused directly on the consuming public and their residences.

In concluding its opposition, the plaintiffs generally argued that the burden of proof on causation should be flexible, prospective and reasonable. They essentially put forth their concern that the skyrocketing success of the LEED brand should not be left unchecked and without at least some discovery-based scrutiny.

About four days thereafter, the USGBC filed its own response brief in further support of the motion to dismiss the FAC. This response was directly critical of the opposition, contending that it was a misstatement of governing law and “irrelevant discussion of standing decisions that turn on facts utterly dissimilar to those alleged in the [FAC].” Furthermore, the USGBC argued that nothing it did “precluded [the plaintiffs] from obtaining LEED accreditation, or that such accreditation is required of those who assist developers in obtaining LEED project certification.”

Focusing squarely on the issue of standing, the USGBC argued plaintiffs “have failed to allege any plausible basis for asserting that they have personally suffered or are likely to suffer any injury as a direct result of any of the three isolated, supposedly ‘false’ statements referenced in the FAC.” It argued that the FAC did not even allege reputational harm to these specific plaintiffs individually. Rather, the USGBC observed that the injury asserted in the FAC is “to the reputation of the green building industry as a whole,” and, therefore, not an injury for which plaintiffs could claim standing to press for judicial relief.

The USGBC then stated directly in response to the belief that what plaintiffs “‘most wish’ for is a mandatory injunction ‘compelling USGBC to release actual utility rates in its buildings,’” that this “is not something the USGBC could possibly provide. USGBC is a developer of rating systems, not a public utility, and the certification process for nearly all LEED projects relates to the design and construction of buildings only at the point of completion, prior to occupancy or operation, at a time when the buildings do not have operational utilities.”

The USGBC was next dismissive of the plaintiffs’ ability to claim Lanham Act standing based upon what the defendant characterized as a “rambling and difficult to follow discussion of Lanham Act standing cases.” After raising some of what the USGBC identified as controlling cases in the area, it further noted:

. . . plaintiffs here face an insurmountable problem. The USGBC’s ‘product’ merely provides criteria for meeting a voluntary building standard. There is no reasonable basis to believe (and certainly no such basis was asserted in the FAC), that any of the USGBC’s allegedly false statements did or could harm plaintiffs in the distinctly different market for heating, cooling, and mechanical systems design and installation.

(Emphasis in original).

The USGBC then turned to an analysis of the allegedly false statements attributed to it. This discussion focused on the plaintiffs’ allegations that the attributes of third-party verification and boosting of employment productivity—both used to distinguish the LEED rating system—were false statements. In response, the USGBC characterized these arguments as “wholly conclusory.” Further, the USGBC noted the statements attributed to LEED are based upon a study which, despite certain methodological flaws, is still a study that supports the referenced attributes.

Finally, the USGBC tackled the state law claims, arguing that courts in New York had “repeatedly declined to find advertising aimed at other businesses sufficient to meet the §§ 349 and 350 ‘consumer-oriented conduct’ requirement simply because there is an attenuated link to an alleged public harm.” As such, the USGBC argued that the FAC should be dismissed with prejudice, and that no further proceedings (including, significantly, no discovery) should be allowed.

Following the close of briefing in the case, it was learned that lengthy oral argument was held on the matters raised in the motion to dismiss. The court spent considerable time hearing argument on the various issues raised and evaluating whether to permit Mr. Gifford and the remaining plaintiffs a critical “green” light to proceed with the next phase of the case and to embark on discovery in territory not yet pursued with any probing inquiry.

However, on August 15, 2011, Judge Sand issued the court’s Memorandum and Order on the motion to dismiss, in the process striking a damaging blow to the plaintiffs’ efforts to seek legal relief against their perceived injuries at the hands of the USGBC. Ultimately, the court concluded the plaintiffs’ did not have standing to pursue any of the federally-based claims against the USGBC and dismissed those claims with prejudice. As for the New York state law- based deceptive trade practices claim, without the federal claims remaining in the case, the court concluded that it would not continue to entertain those claims further. Importantly, these claims were dismissed without prejudice, thereby giving Mr. Gifford and these (and possibly other) plaintiffs the opportunity to join in continued pursuit of the USGBC at the state level. This leaves open the distinct possibility that the USGBC and the LEED rating system itself may be actually the subject of further legal scrutiny (whether by Mr. Gifford and the remaining plaintiffs or by others), including discovery into the genesis, formulation, maintenance and marketing of the LEED program.

If the end result were not damaging enough, the path the court took to its case-ending conclusion was possibly even more traumatic to those supporting the efforts of Mr. Gifford to challenge the USGBC and the LEED rating system as the true measuring sticks of superior energy and environmental performance. While Judge Sand began the Memorandum on the optimistic note that “Plaintiffs are professionals in the environmental engineering and design industry,” little more could be found of favor to the plaintiffs in the remainder of the court’s analysis.

Actually, the court endorsed the USGBC’s argument that “’the LEED certification process does not assess the actual environmental performance of any of the structures for which certification is sought or granted,’ but certifies that they were designed in a way that should result in better performance.” Op. at p.2 (emphasis in original). The court also appeared to elevate the status of LEED Accredited Professionals (LEED APs) stating that the USGBC “represents approximately 140,000 design professionals whom it has accredited as qualified to advise real estate developers and other consumers on how to design a LEED-certified building” apparently not making any distinction to the many LEED APs who do not have any other “design” qualifications beyond taking and passing the LEED AP examination. Op. at p.2.

It is these two observations that set the tone for the remainder of the court’s opinion. It stated the “USGBC receives fees from parties seeking LEED certification for their buildings and from the individual professionals it accredits.” The court added the “USGBC advertises and promotes LEED for the purpose of encouraging the expanded use of the certification system.” Id. Having made those staging conclusions, it should come as no surprise that Judge Sand held the plaintiffs could not even come close to satisfying the required test for standing to proceed under the Lanham Act claims. It is also interesting that in the process, Judge Sand observed in a footnote that plaintiffs “apparently” had yielded [perhaps in oral argument] on some of its false claim challenges stated in the FAC, leaving only a false energy use claim as the focal point of the case (despite the deference typically given to the complaint’s averments on a motion to dismiss). Op. at p.2, ft.1.

The court observed that plaintiffs could not show they were competitors of the USGBC, so they would have to make a “’more substantial showing’ of injury and causation to satisfy the reasonable basis prong of the standing requirement” for a Lanham Act claim. Id. at p.5. By stating “Plaintiffs plainly do not compete with USGBC in the certification of ‘green’ buildings or the accreditation of professionals,” and in the process very narrowly defining what the USGBC does and does not do, the court drew an almost impenetrable line that placed Mr. Gifford and remaining plaintiffs outside of that boundary and, therefore, out of court. Indeed, it could be argued the court’s approach could mean that only a competing rating agency or organization with a similar green focus could hope to challenge the USGBC or the LEED program, vastly narrowing those who could hope to follow in the Gifford plaintiffs’ initial and critical footsteps. This could be a much longer lasting legacy of Judge Sand’s opinion.

It would have been interesting and perhaps of further assistance to Mr. Gifford and other possible plaintiffs in this green/sustainable realm if the court would have addressed the Nair with baby oil analogy drawn in the plaintiffs’ opposition to the motion to dismiss. This analysis could have focused on the juxtaposition of the USGBC’s claim that its methods and the LEED accreditation approach and philosophy are the preferred paths to more energy efficient and environmentally friendlier buildings against the views of Mr. Gifford and the other named plaintiffs that the USGBC’s ways are “mis-LEED-ing” and that the services the plaintiffs provide are the superior and more certain pathways to energy efficient structures with truer manifestations of sustainability. Unfortunately, no such discussion was presented and instead the court dismissed “Plaintiffs’ allegation that ‘LEED has begun to subsume the Plaintiffs’ roles’ [as] entirely speculative.” Op. at p. 6.

At the time of this writing, the Gifford dismissal has not been appealed. Also, at present, it does not appear there will be a re-filing of a state-law based components of the case in state court. Still, members of the design and building community as well as the legal minds that counsel and assist them should continue to monitor (and evaluate) this case with considerable interest and attention. Should the matter be re-filed in state court, it would seem that further briefing, argument and judicial determination would necessarily provide further detailed legal scrutiny and analysis. However, the far more intriguing result would be any of the case surviving the inevitable dismissive challenge by the USGBC. If the matter should be permitted to proceed with any form of the present FAC allegations remaining intact (even if entirely state-law based), key and pertinent discovery will likely ensue. This in turn would result, for the first time, in judicially-supervised inquiry that could go to the heart of the development and maintenance of the LEED rating system as well as a detailed exposition of the certification process itself. If not, future plaintiffs could learn from these developments and refine their legal strategy accordingly. Also, perhaps, a plaintiff meeting the court’s criteria for standing could be located to pick up the charge started in the Gifford action. Should any of these actions survive an initial challenge to the pleadings, potentially enlightening discovery would likely follow.

Endnotes

1. Briefly stated, the “green” aspect of this case was triggered by the developer’s counterclaim alleging the contractor failed to “construct an environmentally sound ‘Green Building,’ in conformance with a Silver Certification Level according to the [USGBC’s Leadership in Energy and Environmental Design (“LEED”) rating system,” which resulted in the loss of tax credits under Maryland’s green-building incentive program. This matter was settled on undisclosed terms, but received wide-spread scrutiny as to its meaning in dozens of articles and presentations.

2. These contentions were focused on certain “Parallam” wood structural beams made from strand lumber formed and treated with coating material. In this instance, the coating material was Poly Clear 2000, manufactured by PermaPost Products Co. (as alleged in Weyerhaeuser’s Third-Party Complaint). According to the allegations, these Parallam components exposed to the elements began to deteriorate and also permitted water infiltration. Making matters even more complex, the building in question has been reported as one of the earliest projects to achieve the LEED Platinum rating under the LEED rating system. As of the time of this writing, the case is scheduled for a May 2012 trial.

3. In the FAC, Ms. Larkin is introduced as the “President of B’Green Environmental, Inc., . . . specializ[ing] in moisture barrier design and mold remediation.” FAC at ¶ 11.


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