It was widely reported that the first green building litigation in the country was the 2007 trial court case of Southern Builders, Inc. v. Shaw Development, LLC, in the Circuit Court of Maryland for Somerset County, case no. 19-C-07-011405.

In the spirit of Paul Harvey’s “The Rest of the Story” radio program, last week I telephoned Jim Shaw, of Shaw Development, to follow up, ..  

In the Southern Builders case, disputes and difference arose out of the construction of a $7.5 Million, 23 unit luxury condominium and restaurant project in Crisfield, Maryland, called Captain’s Galley and substantially completed in 2006. In January 2007, Southern Builders, the general contractor, commenced a mechanics lien action in the Circuit Court. A counterclaim was filed by Shaw Development alleging breach of contract and negligence. Significantly, a motion to stay proceedings and compel arbitration was granted by the court in response to the contract provision (the parties having utilized AIA B101 – 1997™) that mandated binding arbitration. In advance of arbitration, the disputes and differences were resolved between the parties and a stipulation of dismissal was filed in June 2007.

Despite that relatively simple procedural history, much has been written about the case, largely overstating an allegation in the counterclaim that claimed,

“10. Specifically, the Project Manual and Scope of Work required Southern Builders to construct an environmentally sound “Green Building,” in conformance with a “Silver Certification Level according to U.S. Green Building Council’s Leadership in Energy & Design (LEED) Rating System,” as more specifically set forth in the Project Manual and Project Specifications, Division I Section “LEED Requirement.” .. .. In failing to comply with this contractual requirement, Shaw Development will suffer damages in the amount of a Six Hundred Thirty-Five Thousand Dollar ($635,000.00) tax credit.”

But the only relevant contract provision provided,

“D. The Work consists of the following: .. .. 2. Project is designed to comply with a Silver Certification Level according to the U. S. Green Building Council’s Leadership in Energy & Design (LEED) Rating System, as specified in Division I Section LEED Requirements.”

Arguably, this was a fairly ordinary construction dispute that began as a mechanics lien action for failure to pay, but the settlement that resulted in the contractor completing the work and the developer executing a $54,000.00 promissory note in favor of the contractor, does not tell the rest of the story, nor does the fact Shaw Development later filed for Chapter 11 bankruptcy protection in response to a foreclosure action by the project’s lender.

Most people are not aware the project was ultimately LEED certified (based on a submittal by the architect), and the Maryland Energy Administration issued a $625,872.00 tax credit certificate. That green building tax credit was monetized and sold to 5 Maryland taxpayers. Unfortunately, most of the 23 residential units sold for less than half of the original asking price, so the project has not been a great financial success.

Southern Builders is instructive because, commenced as a mechanics lien action for failure to pay, this is how many construction disputes, including those that involve matters of green building, reach the courts. Those cases are then defended with counterclaims under any number of other causes of action from breach of contract and breach of warranty to negligence and misrepresentation including allegations that green building requirements have not been complied with.

Despite the hue and cry over the possibility of increased liability and the legal risk from green building, there is still not a single reported appellate court decision anywhere in the United States resolving green building disputes and differences.

And now you know the rest of the story.