A New York federal judge has held that Henry Gifford and three other design professionals cannot sue the U.S. Green Building Council (USGBC) for false advertising under the federal Lanham Act in connection with the USGBC’s Leadership in Energy and Environmental Design (LEED) ratings system for buildings. Judge Leonard Sand held that plaintiffs did not have standing under either one of the two tests for standing under the Lanham Act used in the Second Circuit because plaintiffs are not direct competitors of USGBC and could not allege any commercial interest damaged by USGBC’s purportedly false statement.¹ But the argument over energy efficiency in buildings and what is a “green building” is far from over.

The litigation began in October 2010, when Mr. Gifford, a vocal critic of LEED, filed a class action against USGBC and others in the U.S. District Court for the Southern District of New York. The complaint alleged that USGBC was misleading the public into believing that LEED-certified buildings use less energy than other buildings and was monopolizing the market for energy-efficient market design.² Mr. Gifford alleged anti-trust violations and violations of the Racketeer Influenced and Corrupt Organizations Act (RICO) RICO, and sought injunctive relief and damages, as well as punitive damages and attorneys’ fees.

In February 2011, Mr. Gifford amended his complaint.³ He no longer sought to represent a class; instead, he added three individual building design professionals as plaintiffs. Mr. Gifford also dropped the more sensationalist anti-trust and RICO claims. The remaining claims alleged false advertising claims under state and federal law and a consumer protection claim under state law. In April, USGBC moved to dismiss the amended complaint.

Courts in the Second Circuit have taken two approaches to standing to assert false advertising claims under the Lanham Act. Some courts have ruled that only direct competitors can sue. Because plaintiffs were alleged to be advisors to real estate developers and others in the design and construction of energy efficient buildings, Judge Sand held that plaintiffs “plainly do not compete with USGBC in the certification of ‘green’ buildings or the accreditation of professionals.”

Other courts have used the “reasonable commercial interest” approach. This approach requires a likely injury and causal connection to the false advertising. Here, the only basis for plaintiffs’ false advertising claim was USGBC’s press release stating that a 2008 study indicated that new buildings certified under the LEED system perform on average 25-30% better than non-LEED certified buildings in terms of energy use. Plaintiffs alleged that because this statement is misleading it diverted customers from plaintiffs to USGBC.

Judge Sand held that it was “entirely speculative” that every customer gained by USGBC was a customer lost to plaintiffs. Even if plaintiffs could allege a particular example of a lost customer, they could not tie that loss to USGBC’s allegedly false statement in its press release. So plaintiffs could not allege either injury or a causal connection with the allegedly false statement.

The court dismissed both the federal false advertising claims and plaintiffs’ state law claims with prejudice. Plaintiffs have not appealed.

The end of the litigation, however, is by no means the end of the conversation about energy efficiency and green buildings. Indeed, the litigation has highlighted the difficulties in ensuring that buildings perform as they are meant to perform and in developing criteria for measurements. To these ends, LEED certification processes are evolving. Under LEED’s Minimum Performance Requirements (MPRs), which apply to projects registered under LEED 2009 (except for LEED ND), buildings are now required to commit to periodically submitting energy- and water-use data for at least five years.⁴ The relative emphasis in the rating system on reduction of energy use and greenhouse gas emissions associated with buildings systems has also been increased.⁵ And the USGBC has instituted the Building Performance Partnership, in which participating buildings receive annual performance information, comparing predicted or actual performance at the time of certification with the building’s current performance, in order to address the disparity between how buildings are designed to perform and how they actually do perform.⁶

The litigation also highlighted one of the tensions in the LEED certification process, which is voluntary and essentially “self-certifying.” But state and local governments are increasingly requiring new projects to meet LEED standards. Numerous regulatory authorities, including 34 state governments, 58 counties, 384 cities and towns, and 14 federal agencies or departments have various LEED initiatives, including legislation, executive orders, resolutions, ordinances, policies, and incentives.⁷ For example, all new construction and major renovation projects by the Commonwealth of Massachusetts must meet LEED standards. Thus, LEED standards will in many cases have the force of legal requirements.

Notably, the court’s decision was based on the procedural requirements of standing under the federal Lanham Act and not on the merits of Mr. Gifford’s claims. In light of the ongoing evolution of the LEED certification process, this argument is far from over.

Footnote

^{1 A copy of the order is at http://www.mintz.com/newsletter/2012/Newsletters/1590-0112-NAT-RE/https___ecf.nysd.uscourts.gov_cgi-bin_show_temp.pl_file=8923099-0--216521.pdf.}

^{2 The complaint is at http://www.mintz.com/newsletter/2012/Newsletters/1590-0112-NAT-RE/Complaint -- Gifford v. USGBC.PDF.}

^{3 The amended complaint is at http://www.mintz.com/newsletter/2012/Newsletters/1590-0112-NAT-RE/First Amended Complaint.pdf.}

^{4 See Minimum Program Requirements, http://www.usgbc.org/DisplayPage.aspx?CMSPageID=2102.}

^{5 See LEED 2009 for New Construction and Major Renovations, http://www.usgbc.org/ShowFile.aspx?DocumentID=7244.}

^{6 See Building Performance Partnership (BPP): Frequently Asked Questions, http://www.usgbc.org/ShowFile.aspx?DocumentID=7743.}

^{7 See Government Resources, http://www.usgbc.org/DisplayPage.aspx?CMSPageID=1779.}