Last week, the top news item discussed in green building circles was that the U.S. District Court for the Southern District of New York dismissed a false advertising suit filed by a group of plaintiffs, led by New York City-based engineer Henry Gifford, against the U.S. Green Building Council. This case was closely watched by many professionals in the building industry because of its potential to be a game changing event for green buildings and the US GBC. It also highlighted a growing movement for better transparency and disclosure of building performance data. Our friend and collegue, Stephen Del Percio, an associate at the law firm Arent Fox in New York City has co-authored a review of the case and the judge’s decision. I thought I’d share Stephen’s comments with you.
Plaintiffs alleged that the USGBC violated the Sherman and Lanham Acts by “deceiving users” of the LEED® system as to whether LEED buildings use less energy than conventionally-built buildings. Plaintiffs subsequently amended the complaint to drop the class action allegations and directly assert false advertising claims against the USGBC under federal, state, and common law.
Plaintiffs’ central argument was that a 2008 study commissioned by a USGBC-backed organization called the New Buildings Institute – which claimed a 25 to 30 percent average energy savings in LEED-certified buildings – constituted false advertising under the federal Lanham Act and various New York state statutes. Plaintiff sought to enjoin the USGBC from promoting the energy efficiency of LEED buildings and/or “benefits of the LEED system”; to compel the USGBC to “disclose the actual energy use of LEED properties”; and to pay damages.
The USGBC moved dismiss the complaint under Rule 12(b) of the Federal Rules of Civil Procedure on the grounds that: 1) Plaintiffs lacked standing to maintain their suit because, among other things, their claims were “too disconnected” from any “specific wrongdoing” by the USGBC; and (2) the amended complaint failed to state a cause of action. The motion was fully submitted on May 6 and Judge Leonard Sand heard oral argument on the motion on July 26.
In a Memorandum and Order issued on August 15, 2011, Judge Sand granted the motion to dismiss. Judge Sand held that Plaintiffs lacked standing to assert their claims under Section 43(a) of the Lanham Act. Judge Sand applied two tests to assess standing under the Lanham Act. First, the “strong categorical” test. This requires a plaintiff to “be a competitor of the defendant and allege a competitive injury.” Second, the “reasonable commercial interest” test. This requires a plaintiff to demonstrate “a reasonable interest to be protected against the false advertising; and . . . a reasonable basis for believing that the interest is likely to be damaged by the alleged false advertising.”
Judge Sand found that Plaintiffs failed both tests. Notably, with regard to the second test, Judge Sand held that Plaintiffs did not adequately allege a reasonable commercial interest that was likely to be damaged by the USGBC’s alleged false statement. i.e., the press release indicating that new LEED-certified buildings perform on average “25-30 percent better than non-LEED-certified buildings in terms of energy use.” As Judge Sand opined, the “reasonable basis” prong requires plaintiffs to show “both likely injury and a causal nexus to the false advertising.” As to likely injury, Plaintiffs’ allegation that “LEED has begun to subsume the Plaintiffs’ roles’ is entirely speculative.” . . . Because there is no requirement that a builder hire LEED-accredited professionals at any level, let alone every level, to attain LEED certification, it is not plausible that each customer who opts for LEED certification is a customer lost to Plaintiffs. . . . Whatever the merits of Plaintiffs’ claim that the conclusion of the [NBI study] was false, their allegation that their “sales are specifically affected by behavior” is too speculative to permit recovery under the Lanham Act.” Judge Sand also dismissed the state law claims (alleging false advertising and deceptive trade practices) on jurisdictional grounds.
It is unclear whether Plaintiffs will appeal the decision, or will seek other avenues to further challenge LEED or how USGBC markets the rating system. Although Judge Sand focused on the procedural deficiencies in Plaintiffs’ complaint, the decision is still notable because it underscores the increased attention that the construction and real estate industries are paying to energy efficiency in buildings. But because the court did not reach the merits of Plaintiffs’ claims against USGBC, the court’s opinion will likely do little to resolve the debate over the utility of rating systems like LEED in achieving building performance goals.
For more information regarding Arent Fox’s green building experience, you can contact Stephen at firstname.lastname@example.org