50 Shades of Green: Indiana’s Greenwash Lawsuit

By: William E. Kelley, Jr., LEED AP BD+C

Defining what products or services are “green”, and how “green” those products or services really are, can be daunting tasks.  The rise in popularity in products and services that purport to positively impact the environment has given rise to a new term:  “greenwash”.  The concept of greenwash generally relates to use of deceptive, unsupported, or misleading statements or claims made for the purpose of portraying one’s business, product or service as having a positive effect on, or benefit to, the environment.

The term “greenwash” is not a legal term of art.  There is no official cause of action or lawsuit that can be brought for “greenwashing”.  However, acts giving rise to what is known as “greenwash” can have legal consequences.  For example, the Federal Trade Commission (FTC) recently released an updated version of its green marketing guidelines, known as the “Green Guides”, in order to “help marketers ensure that the claims they make about the environmental attributes of their products are truthful and non-deceptive.”  As businesses clamor to be a part of the emerging “green” industry, there is more potential for false or misleading claims to unsuspecting consumers.

The mere presence of exaggerated claims or “puffery” in advertising materials does not automatically result in liability to the seller.  The basis of the bargain between seller and consumer is predominantly found in the terms of the contractual agreement—not the pre-sale advertising materials.  In those instances, disappointed expectations by the consumer may not be actionable.  However, in some instances, the pre-contract sales materials and representations can give rise to liability to the seller, despite contrary language in the contract.  The Indiana Court of Appeals recently addressed these concepts in the context of the sale and installation of a residential wind turbine system.

In Wind Wire, LLC v. Finney, 2012 WL 4903026 (Ind. Ct. App. 2012), the seller/installer of a residential wind turbine system was sued by homeowners for fraud in the inducement relating to advertising materials containing misleading information about the potential benefits of a residential wind turbine.  The evidence at trial indicated that in 2008, the seller/installer distributed brochures claiming that (1) residential owners could see a cost savings of “75% to 100% of current electric service”; (2) residential owners could see a complete return on investment within three to four years; and (3) residential owners could receive a “substantial refund” on their taxes for the installation of the wind turbine system.  The brochure also stated, “With a savings of approximately $160 plus per month and a payoff span of 3–4 years you would control 75% to 100% of your electric supply utilizing nature and doing your small part for the ecology? (sic)”

In addition to the statements in the sales brochures, a sales representative from seller/installer told the homeowners that the local utility provider would purchase excess energy produced by their wind turbine, and that the homeowners would be entitled to a tax credit equal to a percentage of the purchase price.  In reliance upon the sales materials and the statements from the sales representative from seller/installer, the homeowners purchased the wind turbine for their residence.

According to the lawsuit, the wind turbine failed to live up to expectations.  It did not produce any excess power, and it had no effect on the homeowners’ electric bills.  In fact, the evidence at trial indicated that the wind turbine actually consumed energy while it sat idle.  Further, the local utility provider testified that it would not be possible for the wind turbine to pay for itself in three to four years, but rather it would typically take twenty-five years for such a wind turbine to pay for itself.

The homeowners sued seller/installer for fraud in the inducement.  The homeowners argued that the sales brochures and statements from the sales representative were knowingly and falsely misleading, and were allegedly made for the sole purpose of inducing the homeowners to enter into a contract for the purchase and installation of a wind turbine.  The seller/installer argued that the sales materials were not part of the contract, and therefore could not be considered as part of the contractual agreement with the homeowners.  In support of its argument, the seller/installer pointed out that the contract had an integration clause that provided that the entire agreement between the parties was contained in the contract, and that the terms of the contract superseded any prior discussions or communications about the products or services to be provided.  In other words, if the sales materials were not part of the agreed upon services or products, the homeowners could not sue over mere disappointed expectations in performance of the wind turbine.

The trial court ultimately entered judgment in favor of the homeowners, and the Indiana Court of Appeals affirmed the judgment.  Specifically, the Indiana Court of Appeals found that the integration clause in the contract did not preclude evidence of the sales material since the core issue was whether the allegedly fraudulent statements induced the homeowners into signing the contract originally.  The Court of Appeals held that the trial court properly considered evidence of the sales materials and the representations made in those materials, and the Court of Appeals upheld the finding of fraud in the inducement against the seller/installer.

The Wind Wire case is a strong reminder to all businesses to closely monitor the representations and statements made in advertising materials.  However, for those businesses involved with products or services in the “green” industry, the Wind Wire case is also a reminder of the potential consequences for statements that are later deemed to be unsupported or unverified.  Businesses in the green industry should take due care to review not only the statements in their marketing materials, but also their contract forms, to ensure that the agreements capture a full understanding of the expectations of the parties and the entire agreement between the parties for the products or services at issue.