Green Building Law Blog : Green Building Lawyer & Attorney : Shari Shapiro: Calliope Communications, LLC

You are a good green company.  You have dutifully installed a solar array on your facility, and use the energy it produces to power your manufacturing process. 

You proudly proclaim on your website, in your SEC filing or on your product packaging that you "use renewable energy."  You calculate your Carbon Footprint and deduct the emissions that would have been generated using conventional fuel.  

If, like most companies, you have sold the renewable energy credits (RECs) attributable to the renewable energy, you will potentially be in violation of Section 5 of the FTC Act (15 U.S.C. Sec. 45) (“Section 5”), which prohibits “deceptive acts or practices in or affecting commerce.” 

The Federal Trade Commission released the long-awaited fourth edition of the "Green Guides" on October 11, 2012. The purpose of the Guides is to provide a framework for companies to truthfully and non-deceptively market environmental and “green” products, packages, and services. A copy of the Guides is available here.

The Guides address green marketing in general and specific applications, including renewable energy (Section 260.15).  In one of the more controversial aspects of the Guides, the FTC advises that:

If a marketer generates renewable electricity but sells the renewable energy certificates for all of that electricity, it would be deceptive for the marketer to represent, directly or by implication, that it uses renewable energy.

Guides at § 260.15(d).

The FTC has concluded that renewable energy stripped of its carbon reduction and other environmental benefits is just energy. Thus, even if a company has a renewable energy installation on its facility, and uses the energy from that facility to power its manufacturing process, if it sells the renewable energy credits, it still would not be able to represent that it used renewable energy. In addition, any carbon offsets or emissions reductions could not be included in the company's calculation of its environmental impact.

This counter-intuitive result was roundly criticized in comments on the Guides:

Most commenters agreed that it would be deceptive for a marketer to represent that it uses renewable energy if it sold all the renewable attributes of the energy it uses. Most who addressed this issue, however, disagreed with the Commission’s proposed guidance. They argued that, even when a firm sells RECs, it should be able to market its role in generating renewable energy.

The FTC, in its response, defended its position regarding RECs, but said that a company hosting a renewable energy facility and selling the RECs would not be violating the FTC Act if it describes fully and accurately its role in the transaction.  Most companies, however, are not doing this. 

There is some evidence that the FTC is increasing its enforcement of false environmental claims. The FTC brought claims against four national retailers, including Amazon, Macy’s and Sears, that were allegedly selling textiles as made of bamboo when they were actually made of rayon. The companies settled with the FTC on or about January 3, 2013, paying a total of $1.26 million in penalties for the false advertising.

The FTC brought claims against Sherwin Williams and PPG for deceptively marketed their paints as free from volatile organic compounds (VOCs). According to the FTC, the base paints were VOC free, but tinted paint (which most customers buy) contained VOCs. The FTC settled the claims in October, 2012, and the companies were forced to change their marketing practices.

Given the frequency with which the Renewable Energy/REC rule is broken, it would be impossible for the FTC to police all of the violators.  However, In the context of other green marketing claims, the FTC may scrutinize a companies' representations about renewable energy and greenhouse gas reductions.  For companies that make public disclosures in Securities and Exchange Commission filings, this could be of even greater concern.

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Yesterday I posted about why Gidumal v. Site 16/17 Development LLC was not green litigation. In short, the case incorporates allegations regarding the green components of the project as support for its regular construction claims, not for failure to acheive green requirements. It got me to thinking--what would legitimate claims regarding green construction defects look like? To some extent, it depends on who the parties are and what damages they are looking to require.  But assuming the facts of Gidumal v. Site 16/17 Development LLC (a condo owner suing the developer, architect and engineeer for post-occupancy deficiencies), I think the following claims would be relevant:

1. Breach of contract--If there was a contractual promise regarding the green nature of the building or the resource (energy, water, etc.) performance of the building, this could be grounds for a breach of contract claim. This is particularly relevant where condo documents or other contractual agreements list "LEED" or "Green" as a component of the offering.
2. Lanham Act/Consumer Protection violation-- The Lanham Act is a federal claim which prohibits false advertising, but it can only be brought by a competitor.  It requires the plaintiff to prove that there was a false or misleading statement made, the statement was used in commercial advertising or promotion, and the statement creates a likelihood of harm to the plaintiff. Most states, including New York (General Business Law Section 349 and 350), have consumer protection laws which function similarly, and can be brought by consumers for false advertising and deceptive trade practices.  Often such statutes provide for treble damage recovery. 
3. Fraud/Misrepresentation--To the extent that a plaintiff can plead with specificity that the owner, developer, architect or contractor knew that the building would not be green or was not being constructed to green standards, and intended that the condo owner rely on their representations regarding the green nature of the building, there would be claims for fraud and its cousin, misrepresentation.
4. Malpractice against architect, contractor or engineer--If it can be proven that these professionals acted outside the standard of care of a reasonable architect in constructing the building, this might be a valid claim.  Evidence of gross disparity between the energy modeling and the energy performance might be used as proof that a reasonable architect or engineer would not have designed or constructed a building in that way.
5. Construction defect claims against contractor--Certain states have specific laws for hidden construction defects, which may be available in addition to negligence or malpractice claims.
6. Breach of Warranty or Consumer Protection claim against manufacturer of green components--To the extent that the failure of the green features is due to failure of the components--the heat pump, or the insulation--there may be a claim for breach of warranty, consumer fraud or even breach of contract.  
7. Breach of Contract against the operator of the building--To the extent that the green failure is due to failure to maintain and upkeep the building, there may be a claim against the company operating or managing the facilities, particularly if their contract specifies that they have to operate the green components.   This claim may not be available to individual condo owners, but rather to the condo association or whomever is in contractual privity with the operating company.

The above is meant for information purposes only, and not to be relied upon as legal advice, as all situations are different.  But perhaps we will see an amended complaint in Gidumal v. Site 16/17 Development LLC that brings in some or all of these concepts.

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