Kristen Thall Peters was selected as the guest editor of the Green edition of the “Contra Costa Lawyer” magazine which was published this September. Kristen is also the President of the Real Estate Section of the Contra Costa County Bar Association, as well as Co-Chair of Cooper, White & Cooper’s Green Practice Group. A handful of experts in the area of “green” law in Contra Costa County were selected as contributors to the magazine, including, Cooper, White & Cooper’s own Dee Ware, Co-Chair of the firm’s Green Practice Group, who wrote an article entitled “The Rush to Jump on The ‘Green’ Bandwagon”. This article originally appeared in the September 2009 issue of Contra Costa Lawyer, the official magazine of the Contra Costa County Bar Association. Reprinted with permission.
Two years ago, many were predicting a tsunami of “green” construction litigation. But the reality, thus far, has proved to be more like a gentle wave. In fact, despite California’s ability to lay claim to over 390 projects already certified under the United States Green Building Council’s (“USGBC”) Leadership in Energy and Environmental Design (“LEED”) Green Building Rating System™ and another 2,850-plus projects currently registered for certification, there have been no reported “green” building cases in the state.
Claims Against General Contractors and Design Professionals
At the 2007 American Institute of Architects (“AIA”) Convention, Maryland-based attorney, Frank Musica, presented a laundry list of “green” claims reported by the insurance industry against design professionals. These include:
- Building designed to achieve a specified level of LEEDÒ certification as guarantee
- Water infiltration problems with green roof
- Operable sash resulting in respiratory problems in building occupants
- Patent infringement suit over use of process for moving building’s solar shading
- Breach of standard of care in designing extensive daylighting system for government contractor with security concerns
- Project completion delays due to unavailability of specified green product
- Demand for rent abatement by tenant when worker sick leave increases and productivity decreases after first year of occupying LEEDÒ certified space
- Failure to anticipate change in local building ordinance during course of construction necessitating project redesign
- Claim against architect for improper specification and negligent construction oversight after subcontractor uses wrong sealant
- Confidentiality violation for submitting details of floor plans, mechanical systems and building structure in award competition without owner approval
- Architect hires LEEDÒ AP consultant recommended by owner, whose material and system recommendations result in increased up-front cost, quality issues, delay and higher than anticipated energy costs.
However, there has been only one LEED-related case – Southern Builders, Inc. v. Shaw Development, LLC, Case No. 19-C-07-01145 (Circuit Court of Somerset County, Md.) – that has received widespread press coverage. The Southern Builders case involved the construction of a $7.5 million, 23-unit condominium project called Captain’s Galley, which was completed in 2006. The project incorporated a number of green features intended to support an application for a LEEDÒ Silver rating.
Following completion, Southern Builders (the general contractor) filed a $54,000 mechanic’s lien action. This was ultimately reduced and consolidated with a related $1.3 million countersuit by the owner, Shaw Development, which included a claim for $635,000 in lost tax credits under a state green building program.
The contract documents for the Captain’s Galley project reportedly set forth the project’s LEEDÒ requirements in an incorporated project manual, which stated that the project was designed to comply with silver-level certification but did not obligate Southern Builders to secure formal certification through the USGBC, thereby leaving open the question of who was responsible for this key task.
The basis for the tax credit claim, however, was that Southern Builders delivered the project too late to get the certificate of occupancy required for the state tax credit.
Although Southern Builders settled, valuable lessons can be learned from the case. First, the procedure and time limitations for securing the LEED-driven tax credit should have been spelled out in the contract documents. Further, the standard AIA form A101 contract used also likely did not adequately address the potential for consequential damages arising out of the financial incentives offered under the state’s green building program. Contracts for green projects must be tailored to address unique project requirements.
A Slew of Lawsuits Against “Green” Product Manufacturers on the Horizon?
The Federal Trade Commission (“FTC”) first introduced its Guides for the Use of Environmental Marketing Claims (also known as the “Green Guides”), 16 C.F.R. Part 260, in 1992. The Green Guides provide administrative interpretation of Section 5(a) of the Federal Trade Commission Act as it applies to so-called “green” marketing. Recent requests for public comment and workshops conducted by the FTC have focused on green building, particularly whether the Green Guides should be expanded to address green marketing claims such as “eco-friendly,” “carbon neutral” and “sustainable.”
At a hearing before Congress on June 9, 2009, the FTC presented a statement titled It’s Too Easy Being Green: Defining Fair Green Marketing Principles, and announced that it had filed suit against Kmart, Tender Corporation and Dyna-E International for making “false and unsubstantiated claims that their products were biodegradable.” Similar suits can likely be expected in California as the state cracks down on the labeling of certain plastic products and food and beverage containers as “biodegradable,” degradable” or “decomposable.” See, e.g., AB 1972 and AB 2071. Likewise, some are predicting a growing number of what has been dubbed as “eco-fraud” actions for green building products similar to the lawsuit filed last year by Dr. Bronner’s Magic Soaps against competing manufacturers for making allegedly misleading claims that their products are organic. See All One God Faith v. Ecocert, San Francisco Superior Court, Case No. CGC-08-474413.
Are Government Entities Moving Too Fast?
Nationally, according to the AIA, about 14 percent of cities with populations of 50,000 or more have implemented green building programs. In California, at least 49 cities and counties have adopted some form of green building policy, and in some instances, are now enacting a second generation of more ambitious green building mandates.
Last year, the rapid emergence of municipal green building regulations produced its first lawsuit – AHRI, et al. v. City of Albuquerque. In that case, the United States District Court for the District of New Mexico granted a preliminary injunction in favor of a trade organization for the HVAC industry plaintiffs who challenged the legality of an Energy Conservation Code and High Performance Building Ordinance adopted by the City of Albuquerque. The Court found that while the City’s goals were laudable, “the drafters of the Code were unaware of the long-standing federal statutes governing the energy efficiency of certain HVAC and water heating products and expressly preempting state regulation of these products when the code was drafted and, as a result, the Code, as enacted, infringes on an area preempted by federal law” (i.e., the Energy Policy and Conservation Act, as amended by the National Appliance Energy Conservation Act, and the Energy Policy Act of 1992).
Closer to home, Senate Bill (“SB”) 1473, adding Sections 18930.5, 18931.6, 18931.7 and 18938.3 to the California Health and Safety Code, took effect on January 1, 2009. The bill requires that each city, county or city and county collect a fee from building permit applicants of $4 per $100,000 in valuation, with appropriate fractions thereof, but not less than $1. Up to 10 percent of the fees collected can be retained by the city, county or city and county, with the remainder to be transmitted to the Building Standards Administration Special Revolving Fund for the expenditure of carrying out the provisions of law relating to building standards, “with emphasis placed on the development, adoption, publication, updating, and educational efforts associated with green building standards.” It was reported in the Sacramento Bee on January 29, 2009, that at least one municipality – El Dorado County – has refused to collect the building permit surcharge and requested that the State Attorney General’s office weigh in on whether the fee imposed under SB 1473 constituted a special purpose tax requiring approval by two-thirds of the voters. As of the date of drafting this article, an opinion has not yet been issued.
These matters highlight the reality: as green building mandates continue to become more common, we will see an increasing number of legal challenges.
Dee A. Ware is a litigation partner in the Walnut Creek office of Cooper, White & Cooper LLP where she co-chairs the firm’s Green Practice Group. She was the sixth attorney in the country to earn a LEEDÒ AP designation from the United States Green Building Council.