Tacoma Energy, LLC v. Residential Energy Services Network, Inc.

[7] 8 UNITED STATES DISTRICT COURT 9 SOUTHERN DISTRICT OF CALIFORNIA [10] 11 TACOMA ENERGY, LLC, Case No.: 22cv438-LL-WVG 12 Plaintiff, (1) ORDER GRANTING 13 v. PLAINTIFF’S EX PARTE APPLICATION FOR TEMPORARY 14 RESIDENTIAL ENERGY SERVICES RESTRAINING ORDER; NETWORK, INC.; [15] DOES 1 through 25, inclusive, (2) ORDER TO SHOW CAUSE WHY [16] Defendant. PRELIMINARY INJUNCTION 17 SHOULD NOT ISSUE; [18] (3) SCHEDULING PRELIMINARY 19 INJUNCTION HEARING [20] [ECF No. 3] [22] Before the Court is Plaintiff Tacoma Energy, LLC’s (“Plaintiff” or “Tacoma [23] Energy”) Ex Parte Application for Temporary Restraining Order and Order to Show Cause [24] Regarding Preliminary Injunction filed on April 4, 2022. ECF No. 3. The Court issued an [25] expedited briefing schedule and Defendant Residential Energy Services Network, Inc. [26] (“Defendant” or “RESNET”) timely filed an opposition on April 13, 2022. ECF Nos. 6, [27] 15. The Court took the matter under submission pursuant to Civil Local Rule 7.1(d). [28] 1 Having reviewed the materials submitted and the First Amended Complaint (FAC), the 2 Court GRANTS Plaintiff’s Ex Parte Application.1 3 I. BACKGROUND 4 According to the FAC, Plaintiff is a company that is known as a Rating Provider in 5 the energy efficiency industry. ECF No. 13, ¶¶ 50–52. As a Rating Provider, it certifies and 6 conducts quality assurance on individuals known as Raters who measure a home’s energy 7 efficiency. Id. ¶ 51. Plaintiff offers training, certification, quality control, and continuing 8 education for home builders, homeowners, and energy raters. Id. ¶ 50. 9 Defendant organization sets standards and procedures for conducting the energy 10 ratings of homes. ECF No. 15 at 8. As part of its role, Defendant accredits Rating Providers. 11 Id. Defendant is recognized by the EPA as a Home Certification Organization (HCO), an 12 independent organization that implements the EPA’s Energy Star certification program for 13 residential new construction that meets strict program requirements for energy efficiency. 14 ECF No. 13, ¶ 36; ECF No. 3-5 at 11 (Ex. A), 14 (Ex. B). The IRS also recognizes 15 Defendant in its rules for builders of new energy-efficient homes to qualify for a tax credit 16 pursuant to 26 U.S.C. § 45L (“45L tax credit”). ECF No. 13, ¶¶ 62–67; ECF No. 3-5 at 54. 17 To claim the tax credit, an eligible certifier must certify that the new home meets the 18 specified energy efficiency requirements. ECF No. 13, ¶ 64, ECF No. 3-5 at 51. The IRS 19 defines an eligible certifier as a person who “has been accredited or otherwise authorized [22] 23 1 Plaintiff requests that the Court take judicial notice of certain printouts from the websites of the U.S. Environmental Protection Agency (EPA), the Internal Revenue Service (IRS), [24] the Department of Energy, and RESNET. ECF No. 3-5. The Court GRANTS Plaintiff’s 25 request for judicial notice as to these documents (ECF No. 3-5, Exhibits A–J) because they are public records and government documents found on reliable sources on the internet, [26] and neither party disputes the authenticity of the websites or the accuracy of the 27 information. See Daniels-Hall v. Nat'l Educ. Ass'n, 629 F.3d 992 , 998–99 (9th Cir. 2010). The Court declines to take judicial notice of the remaining exhibits requested by Plaintiff [28] 1 by RESNET (or an equivalent rating network) to use energy performance measurement 2 methods approved by RESNET (or the equivalent rating network).” ECF No. 3-5 at 54. 3 On July 29, 2021, Defendant revoked Plaintiff’s Rating Provider accreditation. ECF 4 No. 3-3 at 21 (Ex. 5). The letter stated that during a normal quality assurance review, 5 Defendant discovered Plaintiff reported over 10,000 ratings submitted by a single Rater. [6] Id. When Defendant asked Plaintiff for the list of Raters who performed its 2020 ratings, 7 the list included Raters who were not listed in the RESNET National Building Registry as 8 being certified under Plaintiff’s providership. Id. Defendant also found a large volume of 9 duplicate ratings by Plaintiff that it deemed fraudulent because they were altered from the 10 original rating without a new field inspection and without the knowledge or consent of the 11 original Rater. Id. at 22. Plaintiff claims that on August 3, 2021, Defendant notified the 12 EPA, as well as Plaintiff’s clients and Raters, about the revocation and barred Plaintiff from 13 accessing RESNET’s building registry. ECF No. 13, ¶¶ 98–99. On August 4, 2021, Tacoma 14 notified Defendant of its intent to appeal the revocation. Id. ¶ 102. On August 13, 2021, 15 Plaintiff was granted an immediate stay of the revocation pending the appeal and permitted 16 to resume its activities as a Rating Provider. Id. ¶ 100; ECF No. 15 at 12. 17 In September 2021, Defendant’s Ethics and Appeals Committee (“Appeals 18 Committee”) met and denied Plaintiff’s appeal. ECF No. 13, ¶¶ 102, 110. Plaintiff 19 subsequently gave notice of its intent to appeal the Appeals Committee decision to 20 Defendant’s Ethics Appeal Panel (“Appeals Panel”). Id. ¶ 115. Plaintiff submitted its 21 second appeal in October 2021. Id. ¶ 122. In December 2021, two individuals chosen by 22 Defendant and two chosen by Plaintiff were appointed as the voting members of the 23 Appeals Panel. Id. ¶ 138; ECF No. 3-3 at 70 (Ex. 12). The appellant must receive a majority 24 vote by the Appeals Panel to prevail and the decision shall be final. ECF No. 3-3 at 71 25 (Ex. 12). 26 On March 4, 2022, the Appeals Panel hearing was held. ECF No. 13, ¶ 149. The 27 Appeals Panel has not yet issued a decision, but it has until April 29, 2022, to do so. ECF 28 No. 15 at 13. 1 In the FAC, Plaintiff list three causes of action: (1) declaratory judgment, 2 (2) violation of common law fair procedure, and (3) violation of constitutional due process. 3 ECF No. 13. 4 Plaintiff asks the Court to issue a temporary restraining order against Defendant 5 pursuant to Rule 65 of the Federal Rules of Civil Procedure. ECF No. 3 at 2. Specifically, 6 Plaintiff asks the Court to restrain Defendant from taking any further action to revoke 7 Plaintiff’s Ratings Provider accreditation. Id. 8 II. LEGAL STANDARD 9 The purpose of a temporary restraining order (TRO) is to preserve the status quo and 10 prevent irreparable harm until a preliminary injunction may be held. Granny Goose Foods, 11 Inc. v. Bhd. of Teamsters & Auto Truck Drivers Loc. No. 70 of Alameda Cty., 415 U.S. 423 , 12 439 (1974). The legal standard for a TRO and a preliminary injunction is “substantially 13 identical.” Stuhlbarg Int'l Sales Co. v. John D. Brush & Co., 240 F.3d 832 , 839 n.7 14 (9th Cir. 2001). The party seeking a preliminary injunction must establish that (1) he is 15 likely to succeed on the merits, (2) he will likely suffer irreparable harm in the absence of 16 preliminary relief, (3) the balance of equities tips in his favor, and (4) an injunction is in 17 the public interest. City & Cty. of San Francisco v. United States Citizenship & Immigr. 18 Servs., 944 F.3d 773 , 789 (9th Cir. 2019) (citing Winter v. Nat. Res. Def. Council, Inc., 555 19 U.S. 7, 20 (2008)). In the Ninth Circuit, the court may apply a sliding scale test in which 20 “serious questions going to the merits” and a balance of hardships that tips sharply toward 21 the moving party can support the issuance of a preliminary injunction, as long as there is 22 also a showing of a likelihood of irreparable injury and that the injunction is in the public 23 interest. All. for the Wild Rockies v. Cottrell, 632 F.3d 1127, 1135 (9th Cir. 2011). 24 “[A] preliminary injunction is customarily granted on the basis of procedures that 25 are less formal and evidence that is less complete than in a trial on the merits.” Univ. of 26 Texas v. Camenisch, 451 U.S. 390, 395 (1981). “The Court is permitted to consider 27 inadmissible evidence in deciding a motion for a preliminary injunction.” Disney 28 Enterprises, Inc. v. VidAngel, Inc., 224 F. Supp. 3d 957, 966 (C.D. Cal. 2016), aff'd, 869 1 F.3d 848 (9th Cir. 2017) (citation omitted). “While district courts may consider 2 inadmissible evidence in the context of a preliminary injunction, this does not mean that 3 evidentiary issues have no relevance to this proceeding. Such issues, however, properly go 4 to weight rather than admissibility.” Id. (citation omitted).2 5 III. DISCUSSION 6 A. Likelihood of Success of the Merits 7 Plaintiff argues that it is likely to succeed on its fair procedure claim because 8 (1) Defendant wields substantial power as a gatekeeper for individuals and businesses who 9 want to provide ratings for the Energy Star certification program and the 45L tax credit, 10 and (2) Defendant violated its own standards during this revocation and appeal process. 11 ECF No. 3 at 22–25. Defendant opposes, arguing that (1) the right to fair procedure does 12 not apply to it and (2) it complied with its standards. ECF No. 15 at 21–23. 13 The legal analysis for a fair procedure claim brought pursuant to federal or California 14 law is nearly identical. Whittier Coll. v. Am. Bar Ass'n, No. CV 071817 PA, 2007 WL 15 1624100, at *7 (C.D. Cal. May 7, 2007). “The California common law doctrine of fair 16 procedure protects against arbitrary decisions by private organizations under certain 17 circumstances.” Sound Appraisal v. Wells Fargo Bank, N.A., 717 F. Supp. 2d 940 , 945 18 (N.D. Cal. 2010), aff'd, 451 F. App'x 648 (9th Cir. 2011). A private organization is required 19 to provide fair procedure if the entity wields “substantial power that significantly impairs 20 the affected individuals’ ability to work in a particular field.” Id. at 946. “The entity need 21 not have monopolistic control over the plaintiff's right to practice his profession and the 22 plaintiff need not establish a complete termination of his right to practice his profession.” [24] 25 2 Defendant makes numerous evidentiary objections. It is not necessary for the Court to rule on admissibility due to the relaxed evidentiary standard for TRO proceedings. The [26] Court has considered the likely admissibility of the evidence in determining whether 27 Plaintiff demonstrated a likelihood of success on the merits for purposes of the TRO. Where the Court has expressly relied on evidence that is subject to an evidentiary objection, [28] 1 Id. When the right to fair procedure applies, the entity’s decision making must be both 2 substantially rational and procedurally fair. Whittier Coll., 2007 WL 1624100 , at *7 (citing 3 Pinsker v. Pac. Coast Soc'y of Orthodontists, 12 Cal. 3d 541, 550 (1974)). The Court’s 4 review is deferential but includes an inquiry into whether the entity followed its own rules. 5 W. State Univ. of S. California v. Am. Bar Ass'n, 301 F. Supp. 2d 1129, 1135 (C.D. Cal. 6 2004). 7 The Court finds that Plaintiff raises “serious questions going to the merits” on its 8 claim for fair procedure.3 First, the Court finds Defendant operates as a gatekeeper in its 9 role as the accrediting body for Rating Providers who want to provide ratings for the 10 Energy Star certification program for residential new construction or the 45L tax credit. 11 Defendant is the only HCO recognized by the EPA to implement an Energy Star 12 certification program for new residential construction. Similarly, neither party could name 13 an “equivalent rating network” to RESNET for purposes of certifying a Rating Provider in 14 the states where Plaintiff conducts business to participate in the 45L tax credit certification 15 program. Thus, a Rating Provider such as Plaintiff requires certification by RESNET to 16 participate in both the Energy Star and 45L tax credit certification programs. Because 17 Defendant operates as a gatekeeper to Rating Providers, it is required to provide fair 18 procedure. Sound Appraisal, 717 F. Supp. 2d at 946 . 19 Having found that the right to fair procedure applies, the Court next finds that 20 Plaintiff presents serious questions as to whether Defendant failed to follow its own rules. 21 Defendant’s Mortgage Industry National Home Energy Rating Standards (“Standards”) 22 includes Section 912.6.2 that states the Ethics Appeal Panel “shall comprise [of] four 23 (4) members who have not been directly involved in the dispute and who will not be 24 materially or directly affected by the result of the decisions made in the appeal.” 25 ECF No. 3-3 at 70 (Ex. 12). Plaintiff claims that Defendant’s two chosen panelists, Roy [27] 3 The Court does not find that Plaintiff is likely to succeed on its claims for declaratory [28] 1 Honican and Nancy St. Hilaire, held executive and committee positions at RESNET during 2 2020 when most of the alleged misconduct occurred. ECF No. 3 at 16; ECF No. 3-2, 3 Declaration of John Johnson (“Johnson Decl.”), ¶¶ 39–40. Plaintiff contends that they are 4 materially and directly affected by their positions on committees that oversaw accreditation 5 revocation procedures and standards, which are both at issue in Plaintiff’s appeal. Johnson 6 Decl. ¶¶ 39–40. Plaintiff also claims that Mr. Honican and Ms. St. Hilaire are closely 7 connected with the energy ratings industry and Plaintiff’s competitors. ECF No. 3 at 16; 8 Johnson Decl. ¶ 41. Plaintiff claims Mr. Honican is a Rater in a state where Plaintiff does 9 business, and if Plaintiff loses its accreditation Mr. Honican and his employer could see a 10 material and direct benefit. Johnson Decl. ¶ 41. Plaintiff claims Ms. St. Hilaire previously 11 worked for a direct competitor of Plaintiff’s and is married to its president, and if Plaintiff 12 loses its accreditation Ms. St. Hilaire’s husband’s employer could see a material and direct 13 benefit. Id. 14 For the reasons above, the Court finds that Plaintiff has raised serious questions that 15 Defendant may not have followed its own rules and thus denied Plaintiff its right to a fair 16 appeal. 17 B. Irreparable Harm 18 Plaintiff contends that if a TRO is not issued, it will lose its ability to conduct energy 19 ratings for the Energy Star program, the 45L tax credit, and other programs. Johnson Decl. 20 ¶ 53. It also claims it will no longer be able to certify, quality assure, or provide trainings 21 and education for Raters and will have to go out of business and cease employment for 22 over one hundred employees and subcontractors. Id. Defendant argues that Plaintiff will 23 not suffer irreparable harm because it does not need to be a Rating Provider to be able to 24 conduct energy ratings for 45L tax credits. ECF No. 15 at 26. Defendant also points to 25 Plaintiff’s current use of another accredited Rating Provider to certify its Raters, which will 26 allow them to enter homes into Defendant’s registry even if its revocation is upheld on 27 appeal. Id. [28] 1 The Court finds irreparable harm is likely in the absence of an injunction to preserve 2 the status quo. As a preliminary matter, the Court finds that the harm is not too speculative. 3 Although the appeal decision is unknown, it will be released within days. The harm is real 4 and final if Plaintiff’s accreditation is revoked. See W. State Univ. of S. California, 5 301 F. Supp. 2d at 1137–38 (“Western need not wait for the axe to fall before seeking an 6 injunction.”). Despite Defendant’s assertions, neither party can point to another HCO 7 recognized by the EPA or an “equivalent rating network” to RESNET for purposes of 8 certifying a Rating Provider for Energy Star and 45L tax credit programs in the states where 9 Plaintiff conducts business. Plaintiff created a temporary fix for its Raters when its 10 revocation was first announced by moving its Raters and Rating Field Inspectors to another 11 Rating Provider. ECF No. 11-1, ¶ 5. This allows the other Rating Provider to quality assure 12 the Raters and comply with Energy Star program requirements. Id. These new agreements 13 required a one-year commitment and a monthly fee. Id. This does not appear to be a 14 sustainable business model for a Rating Provider who is not accredited. Defendant argues 15 that this arrangement was in place before the revocation, but the Court is not convinced at 16 this early stage. The spreadsheets Defendant provided as evidence do not indicate that 17 Plaintiff’s Raters are under another Rater Provider, the meaning of the dates is unclear, and 18 whether the dates were retroactively changed is unknown. ECF No. 15-1, Declaration of 19 Steve Baden (“Baden Decl.”), ¶ 52; ECF No. 15-1 at 175–77 (Ex. G). 20 C. Public Interest 21 The Court finds the public’s interest in fair and accurate accrediting is served by 22 adherence to due process protections. The public also has an interest in the availability of 23 accredited Rating Providers to support the energy ratings industry and promote energy 24 efficient homes. 25 D. Balance of Hardships 26 The Court finds the balance of hardships tips sharply toward Plaintiff. The loss of 27 its accreditation would be final and cause immediate damage to Plaintiff’s business and [28] 1 reputation. A TRO to preserve the status quo will merely delay enforcement of a decision 2 by Defendant. 3 IV. CONCLUSION 4 For the reasons stated above, the Court GRANTS Plaintiff’s ex parte application for 5 a temporary restraining order as follows: 6 1. Defendant may continue its appeal process to the decision-making conclusion 7 if it wishes, but the status quo is otherwise preserved. Defendant and its agents, assigns, 8 employees, officers, directors, attorneys, and representatives are temporarily restrained 9 from implementing, publicizing, or otherwise acting on any final decision to revoke 10 Plaintiff’s accreditation. 11 2. Defendant is ORDERED TO SHOW CAUSE why a preliminary injunction 12 should not issue pursuant to Federal Rule of Civil Procedure 65 that enjoins Defendant 13 from implementing, publicizing, or otherwise acting on any final decision to revoke 14 Plaintiff’s accreditation. Defendant must file a written response, if any, on or before 15 April 22, 2022. Plaintiff may file a reply to Defendant’s response on or before 16 April 28, 2022. 17 3. The Court sets a preliminary injunction hearing for May 6, 2022, 18 at 10:00 a.m. PST by Zoom video conference. Instructions will be emailed to the attorneys 19 of record. 20 4. Due to the nature of the issues in this action, the Court dispenses with the bond 21 requirement contained in Federal Rule of Civil Procedure 65(c). 22 / / / 23 / / / 24 / / / 25 / / / 26 / / / 27 / / / 28 / / / 1 5. This temporary restraining order is effective on the date and time of filing and 2 ||remains in effect until the date and time of the preliminary injunction hearing specified 3 above, absent further order from the Court. 4 IT IS SO ORDERED. 5 Dated: April 18, 2022 NO 6 DE | 7 Honorable Linda Lopez United States District Judge