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

On Friday, the USGBC responded to Henry Gifford's amended complaint with a Motion To Dismiss for failure to state a legal claim (Federal Rule of Civil Procedure 12(b)(6)) and for lack of subject matter jurisdiction (Federal Rule of Civil Procedure 12(b)(1)).

In essence, the USGBC's response has two prongs: 1) the Plaintiffs lack standing, as I predicted here; and 2) that the Plaintiffs could not demonstrate that they had been harmed by the USGBC's allegedly illegal conduct. Stephen Del Percio does a nice job of outlining the standing arguments here. 

In the back of the Memorandum of Law is an interesting discussion of the USGBC's marketing.  In the context of arguing that the New York Consumer Fraud Statute does not apply, the USGBC argues:

USGBC's marketing--which is before this Court on this motion--is directed at businesses and professionals.  The website, which is how USGBC advertises, defines the audience for USGBC's marketing.  LEED users are 'architects, real estate professionals, facility managers engineers, interior designers, landscape architects, construction managers, lenders and government officials...

I think this is a difficult argument, and not one with a lot of factual merit. 

The USGBC website has a link to a website entitled:

U.S. Green Building Council's Green Home Guide Connecting you to ideas, advice and green home professionals.

The purpose of the site is clearly to communicate information about LEED and green building directly to consumer homeowners. The Green Home Guide website offers a tool for homeowners to become acquainted with the LEED for Homes system:

LEED FOR HOMES SCORING TOOL
It's FREE.NEW – The LEED for Homes Scoring Tool

Q: How close is your project to earning
LEED for Homes certification?

A: Probably much closer than you think.

As the building industry evolves, more residential projects already include sustainable features that contribute to certification. The LEED for Homes Scoring Tool will help you assess your project. By answering a few simple questions, you’ll not only learn just how close you are to earning certification, but also various steps you might take to get there. Plus you’ll gain important insight on the LEED for Homes rating system.
 

The USGBC even publishes a brochure for LEED® for Homes™ FAQ for Homeowners available here.

So, it's pretty clear that the USGBC is marketing directly to consumers, contrary to the Memorandum of Law in support of the USGBC's Motion to Dismiss.

The worst part is that there was no need for the USGBC to make this factually unsupported argument. Even if the USGBC advertises to consumers, the consumers that might have been harmed by the advertisement are not included amongst the plaintiffs, and are not represented by the factual misstatements alleged in the Amended Complaint. Making factually unsupported arguments may weaken the punch of the USGBC's clearer grounds for dismissal, and provide a toe hold for the Plaintiffs to plant seeds of doubt about the rest of the USGBC's arguments.

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The foundation for a rash of legal actions arising out of a failed green project have been laid. 

According to the Syracuse Post-Standard, the Carousel Center shopping mall was supposed to be a showcase of green features. To fund the project, the Carousel Center developers secured:

$228 million in federally authorized, tax-exempt “green bonds” to help finance the first phase of Congel’s expansion of the mall into an entertainment and tourism center to be called Destiny USA.

Unfortunately, six years later, those green features are no where to be found:

There is no 45-megawatt electricity generating plant running on “biofuel” made from soybean oil and recycled cooking grease. If there were, it would be the largest such plant in the nation and consume more than one-third of the total U.S. biodiesel supply.

Nor are there 290,000 square feet of solar panels on the mall’s roofs and other surfaces, enough to blanket six football fields.

The fuel cells that were to make 7 megawatts of electricity, five times more than the nation’s largest existing commercial fuel-cell installation? Nowhere to be seen.
 

The construction landscape is littered with the bodies of failed projects, grandly envisioned in 2005 and all but abandoned in 2011.  The question--What becomes of the tax exempt status of the bonds? 

Loss of the tax exemption would require Congel to pay higher interest rates on the bonds to compensate investors, who would suddenly be required to pay income taxes on the interest they earned. The increased cost would depend on the interest rate spread between taxable and tax-exempt bonds at the time of the IRS ruling. In 2005, a Destiny USA executive estimated the tax exemption would save the developer about $120 million over the 30-year term of the bonds.

If the IRS chooses to rescind the tax exempt status of the bonds, there could be a flood of legal fallout.  A few possibilities: 

1. Investors, particularly institutional investors, now forced to pay taxes on their previously exempt bonds could sue Congel. 
2. Government entities, like the Syracuse Industrial Development Authority, could pursue Congel. Although the SIDA did not put up any money outright, it gave the project a 30 year tax abatement, presumably on the premise that completion of the project would bring economic development.  If the project would not have gone forward without the $228 million in green bonds, SIDA might have grounds for seeking its property taxes.
3. Citibank and Congel entered into a settlement under which Citibank agreed to disburse the remainder of the $$155 million construction loan on the project.  If the project is devalued by the impact of the tax issue, Congel may be in breach of whatever settlement he came to with Citibank.
4. According to the Post-Standard, the developer’s attorneys now say the promised conservation and technology goals will not be achieved with the current expansion and may never be achieved, even if future phases of Destiny are built. if the Federal government can prove that Congel fraudulently represented that the project would have the green features, this may be additional grounds for a suit.
   

However, Congel almost certainly protected himself and his development company behind a single purpose entity to develop the Carousel Center.  If, at the end of the day, the only asset the single purpose entity has is the partially completed Carousel/Destiny USA Center, investors, the government and the people of Syracuse may have been taken for a ride.

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