Your Energy Star Partnership

Paul R. Gary
September 1, 2010
COLUMN : Legal

Window and door manufacturers carrying the Energy Star label on their products are “partners” with the Department of Energy. From a legal perspective, “partner” is a loaded moniker, but in the case of Energy Star, it may be more honorary than real.

In a recently settled case, LG Electronics USA Inc. had sought an injunction against DOE for action related to some Energy Star-labeled LG refrigerators. Basically, DOE had said LG’s French door refrigerators were not in compliance with Energy Star requirements, and LG had to remove the Energy Star labels. It turns out there were approximately 40,000 affected products. LG sought to prevent that from happening by filing for an injunction. The court denied LG’s request.

In its order, the court set out the history of the dispute. Apparently, DOE had actually agreed with LG in November 2008 that its French door refrigerators could bear the label. An agreement was required because LG turned off certain ice-making components of the refrigerators during testing which affected results and compliance with applicable Energy Star parameters. DOE and LG had wrangled a bit over the meaning of a test protocol which provided that during testing “[a]utomatic ice makers are to be inoperative,” but an agreement was reached that qualifed the French Door fridges for Energy Star status.

A year later, however, two labs had each concluded that certain LG refrigerators, including apparently the LG French door refrigerators bearing the Energy Star label, did not meet Energy Star criteria and reported their conclusions to DOE. LG indicated to DOE that this testing could not have been undertaken according to the earlier agreement. According to the court papers, DOE responded by saying that “LG’s reliance on the test procedure exception set out in the agreement has given LG an unintended advantage in the marketplace and resulted in significant underreporting of the energy consumption of LG models to both DOE and consumers.” DOE then revoked the exception provided in the earlier agreement between DOE and LG.

DOE went on to order LG to remove the Energy Star labels from the affected French door refrigerators still in its possession and to notify its retailers to do the same. In its suit, LG said DOE’s demand to remove existing Energy Star labels from 40,000 products already manufactured and tested violated the U.S. Constitution by depriving the company of a constitutionally protected property interest.

The court decided however that even if LG had such a right, because it was derived from the Energy Star Partner licensing agreement—“the [due] process to which [LG] is due under these circumstances is a post-deprivation suit for breach of the contract.” In other words, LG had no way to stop the DOE action. If it suffered damages as a result of the DOE action, LG could sue, but it couldn’t argue that it suffered a deprivation of its rights to such an extent as to interrupt the DOE’s actions while the matter was reviewed.

With the uniformity of window and door testing protocols, their judicious administration by the National Fenestration Rating Council, and the cooperation between the industry and DOE, the likelihood that DOE will one day decide out of the blue that windows with U Values of .30 are no longer Energy Star compliant, and that all labels must be removed, may seem remote. The LG suit says, however, that if DOE changes its mind about testing protocols, and/or takes action against a manufacturer requiring actual removal of the Energy Star label from its products, the affected party may not be able to argue that it has been deprived of a (constitutionally protected) property interest in labeling its products. The ability to even make the argument is important in the context of what is referred to as “equitable relief” (i.e. temporary restraining orders, preliminary and permanent injunctions). It is through requests for restraining orders and injunctions that government action is sometimes stopped to “preserve the status quo.”

When constitutionally protected rights are at stake, courts lean towards preserving the status quo, halting governmental action, and getting to the bottom of the dispute. However, the recent LG case illustrates that a party in a disagreement with DOE is relegated to the dispute resolution process set forth in the Energy Star Partnership Agreement. And, since the agreement may be terminated in whole or in part at any time for any reason, there appears to be little a “partner” can do to protect its investment already made.

The January 4, 2010 version of the Energy Star Program Requirements for Residential Windows, Doors, and Skylights, sets forth the general partner commitments for inclusion in the program. Individual Partnership Agreements set forth additional partner commitments, and stealthily describe the tenuous underlying legal relationship between a window and door partner and DOE. The “agreement is wholly voluntary and may be terminated by either party at any time, and for any reason, with no penalty.” The agreement may be voluntary, but only after a window and door manufacturer has spent significant time and money to certify its products and to comply with data requests and other requirements of the program. It’s absolutely true that the benefit to the manufacturer in having products labeled, and maintaining those labels, is significant, but remember this is a “partnership” of a different sort.
 

Paul R. Gary is the prinicipal of The Gary Law Group, a law firm based in Portland, Ore., emphasizing legal issues facing manufacturers of windows and doors. He welcomes feedback about articles published in Window & Door and can be reached at 503/227-8424 or paul@prgarylaw.com.