It Ain’t Easy Being Green

For the most part we all have a familiarity with “Green Buildings” and the rating systems developed by various organizations such as the Leadership in Energy and Environmental Design (“LEED”).  As the greening of the building industry developed, for the most part the initiatives have been voluntary decisions by building owners to construct energy efficient facilities, sometime spurred on by governmentally sponsored cost incentives and credits.  Generally however, the decision was one of marketing, user comfort and energy efficiency on the part of the owner.  While governmental entities were interested in greening the landscape their involvement was collateral to the effort.

As the green movement matures and develops government is taking a more direct role.  Various LEED initiatives including legislation, executive orders, resolutions, ordinances, policies, and incentives are now found in 45 states, including 442 localities (384 cities/towns and 58 counties), 35 state governments (including the Commonwealth of Puerto Rico), 14 federal agencies or departments, and numerous public school jurisdictions and institutions of higher education across the United States.   For example, locally, in 2007, Pittsburgh City Council approved an amendment to The Pittsburgh Code entitled “Sustainable Development Bonuses,” granting a density bonus of an additional 20% Floor Area Ratio and an additional variance of 20% of the permitted height for all projects that earn certain LEED certifications.

While no doubt that the adoption of green building standards serves to increase the scope of integration of energy efficiency into construction, it also comes with it the question of who will ultimately be held responsible for achieving the governmentally mandated rating which is in most cases determined by a third party non-profit organization.  Additional questions are raised regarding which governmental entity is empowered to assert such regulation (typically a struggle between state and federal government).  As we are well aware, the achievement of a specific rating is not merely a decision made by the Owner, but impacts all entities in the construction process and in some instances carries a continuing obligation of the Owner.  In addition, how will the codes be enforced by governmental entities?

For example, the City of Pittsburgh grants an increase of the floor area ratio and increased height if the project achieves LEED certification.  These bonuses are obviously granted in the early stages of the project during the initial approvals prior to any determination that the project is in fact LEED certified.  While the ordinance does have a penalty provision of one percent of the construction cost should the certification not be obtained, is this cost worth the additional FAR and height?

Recent court cases have also arisen challenging the ability of cities to impose their own energy codes.  For example, various trade associations have challenged the City of Albuquerque’s 2007 enactment of an energy Conservation Code alleging that the Code’s regulations are preempted by Federal law, namely the National Appliance Energy Conservation Act.  On a motion for summary judgment ruled on in September of last year, the Court agreed only in part.  The Albuquerque code has various components with allowances for compliance in either performance based path outlining a LEED certification process or for some structures a prescriptive path requiring that HVAC systems and equipment comply with minimum efficiency standards.  The Court held that the prescriptive path setting forth efficiency standards was in fact pre-empted by federal law, because the local standards were more stringent than the federal standards.  The court found that the federal act was adopted to reduce a patch-work of state requirements and establish a single standard for equipment which was violated by the Albuquerque code.  The Court denied the trade associations attempts to dismiss the prescriptive path based on a LEED certification.  Because the case continues, it remains to be seen whether such system will be preempted by federal law.  Similar litigation has been instituted in the State of Washington by the Building Industry Association of Washington.

The exercise of governmental power in the energy conservation arena is growing and will undoubtedly raise concerns from various entities involved in the construction industry as to whether such power has been properly exercised, the scope of regulations as well as enforcement and penalties.  These challenges are of course coupled with the always present issues among those directly involved in the process as to responsibility of certification and the attending liability in the event of the failure to achieve certification.

Also noteworthy is a recent New York case that does not challenge the exercise of governmental power but the underlying legitimacy of the LEED certification process.  In October of 2010 a class action suit was filed against the U.S. Green Building Council (“USGBC”). The class members include consumers who paid for LEED certification, taxpayers whose city and state tax dollars have been spent on the costs of LEED certification in publicly-commissioned buildings, and building design and construction professionals who design energy-efficient buildings.

The Complaint alleges that the LEED rating system is not based on objective scientific criteria or actual measurements.  The Complaint also alleges that USGBC commissioned a study to support its goals which used skewed samples and data that are fraudulently misrepresentative.  The six count complaint also asserts violations of Sherman Anti-Trust Act by fraudulently monopolizing the market; violations of the Lanham Act through deceptive marketing tactics; violations of New York’s Deceptive Trade Practices Act; false advertising; wire fraud under the Racketeer Influenced Corrupt Organization Act (“RICO”); and, unjust enrichment through fraudulently induced sales tactics.

While the outcome is certainly uncertain, if the plaintiff’s prevail, the underlying basis of the certification process could be un-ended leaving a morass of confusion not only to going green but also compliance with governmentally imposed regulations which at their heart have the LEED rating system.

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