Proposition 65—A New Preying Ground for the Plaintiffs Bar?The Recorder Article
Proposition 65's Warning Requirements
California Health & Safety Code Section 25249.5, et seq., more commonly known as Proposition 65, requires companies to provide special warnings to California consumers if the companies' products contain chemicals known to the state of California to cause cancer and birth defects or other reproductive harm, if those products expose consumers to such chemicals above certain threshold levels. Among other things, companies who make or sell such products in California must give "clear and reasonable warning" to consumers. As of January, the list contains more than 900 chemicals. A company that fails to comply with the Proposition 65 warning requirements may be enjoined from future violations, as well as subject to a penalty of $2,500 per day per violation.
The reach of the regulation is significant. Proposition 65 requires companies to warn consumers about the mere exposure to a chemical, not just the presence of a chemical in amounts that pose a significant risk to health. If, however, a company can show that its product exposes average users to the chemical at a level below that stipulated by the California Office of Environmental Health Hazard Assessment (OEHHA), then the exposure is within the Safe Harbor Level and the company is exempt from the Proposition 65 warning requirements. The burden is on the company to prove that exposure falls within these levels, and, if OEHHA has not already adopted a Safe Harbor Level for a chemical known to cause cancer or reproductive harm, the company must establish, through scientific evidence, an exposure level within the Safe Harbor Levels.
Exemptions from the warning requirements also exist for chemicals found in foods that are proven to be "naturally occurring," in accordance with a stringent three-part requirement: (1) prove the "natural background" of the chemical in the area where the food is grown or raised; (2) prove that the chemical did not result "from any known human activity"; and (3) prove that by good manufacturing practices, the chemical exists in its lowest feasible level. As with the no significant risk level and maximum allowable does level, the burden is on the company invoking the defense to prove that the chemical is "naturally occurring" within the meaning of the regulation.
Private Party Enforcers
The uneven burden the regulation places on companies to defend claims brought under the act is not the only attraction to the plaintiffs bar. Unlike other federal and state environmental regulations, under which the government is solely tasked with ensuring compliance, Proposition 65 contains a "private party enforcer" provision, meaning that, following a 60-day notice period, private citizens can file lawsuits in the public interest against companies they claim are not fully complying with the law. Some aspects of this provision may incentivize private parties to file as many Proposition 65 lawsuits as possible, including that private parties are awarded 25 percent of the civil penalty paid by a business found in violation, there is no requirement that private parties have been injured by a violation, and attorney fees can be recovered. Moreover, because of the cost and time associated with establishing compliance with the Safe Harbor Levels and engaging in protracted litigation, companies often opt to settle lawsuits out of court. In 2015 alone, it is estimated that companies paid out more than $25 million to settle private party Proposition 65 lawsuits.
A plaintiff also may predicate a claim against a company under California's Unfair Competition Law, California Business & Professions Code Section 17200, et seq. (UCL), on a violation of Proposition 65, assuming the plaintiff has provided the required notice. See, e.g., In re Fontem US, Nos. SACV 15-01026 JVS (RAOx), SACV 15-02018 JVS (RAOx), (C.D. Cal. Nov. 1, 2016) (denying motion to dismiss UCL claim premised on Proposition 65); Harris v. R.J. Reynolds Vapor, No. 15-cv-04075-JD, (N.D. Cal. Sept. 30, 2016) (dismissing claims under the "deceptive" and "unfair" prongs of the UCL where plaintiff failed to provide 60-day notice of alleged underlying Proposition 65 violation). Companies should be aware, however, that a duty to disclose a Proposition 65 listed chemical may arise independent of Proposition 65 if a plaintiff identifies a legal duty beyond the omission of the required warning label, such as a misrepresentation of present chemical levels. See, e.g., Cortina v. Goya Foods, 94 F. Supp. 3d 1174, 1183-85 & n.3 (S.D. Cal. 2015).
2016 Article 6 Amendments
In August 2016, OEHHA and the California attorney general each adopted regulatory amendments to the Proposition 65 regulations.
- OEHHA Amendments
Among OEHHA's key amendments are changes to the method and content of consumer product warnings, and clarity on which entities are responsible for providing the warning. As to the latter, the new regulations impose primary responsibility for product warnings on manufacturers, producers, packagers, importers, suppliers, or distributors. As to the former, the new regulations require companies to specifically identify at least one listed chemical in the warning, with specific language identifying the chemical as a carcinogen, a reproductive toxicant, or both. For on-product warnings, a truncated warning is permissible. The warnings may be affixed on the product or on product labels, or notice and warning materials must be provided to the authorized agent for a retailer. Detailed terms regulate how manufacturers may ask retailers to warn. The new regulations set forth more specific requirements for warnings on food products, alcoholic beverages, food and alcoholic beverages sold in restaurants, prescription drugs and others.
The new warning requirements will be operative on Aug. 30, 2018, to allow for a reasonable transition period for companies to begin providing warnings under the new provisions. In the interim, companies may comply with either the regulation in effect on August 30, 2016, or the provisions of the new regulation.
- Attorney General Amendments
The California attorney general amendments are intended to address litigation abuses by private party enforcers by modifying the Proposition 65 private party enforcement regulations impacting civil penalties, settlement terms, and attorneys' fees. Specifically, the new regulations state that civil penalties may not be "traded" for payment of attorneys' fees, create new requirements when the terms of a settlement waive civil penalties in favor of conduct by the defendant, and require that plaintiffs demonstrate that any "Additional Settlement Payments" made to the plaintiff or a third party as an "offset" to civil penalties are in the public interest. As to settlement terms, if a private party enters into a settlement in the absence of a filed complaint, the plaintiff must serve the attorney general with the settlement and an accompanying form "Report of Settlement." The new regulations also encourage the parties to submit all settlements that include "Additional Settlement Payments" for judicial approval. Finally, the amendments modify the guidelines that address recovery of a plaintiff's attorney fees by (1) requiring a showing that the public benefits derived from the settlement are "significant"; (2) making rebuttable the presumption that a public benefit is conferred by reformation of a product so as to reduce or eliminate exposure to a listed chemical in lieu of providing a warning; and (3) requiring contemporaneous record-keeping for investigation costs sought to be recouped in a settlement. The private enforcement amendments became effective Oct. 1, 2016.
Litigation Impact on Businesses
The question remains of how a business can protect itself in this changing regulatory and litigation environment. The list of chemicals known to the state of California to cause cancer and/or reproductive harm continues to grow, yet the majority do not have an established Safe Harbor Level. Even for those chemicals that do, the threshold levels are very low, in accordance with highly conservative and non-scientific risk assumptions. Importantly, the Safe Harbor thresholds identify the level of exposure to, and not the product contents of, a chemical that is deemed not to pose a risk or require a warning. Moreover, although the attorney general amendments may help curb litigation abuses, they will not end Proposition 65 claims by private party enforcers.
Given the cost and difficulty of establishing compliance with the Safe Harbor Levels or that a chemical in a food is "naturally occurring," which require often extensive and cost-prohibitively expensive testing and technical analysis, many companies—and small and fledging businesses in particular—may find that the best approach is to simply adopt prophylactic warnings if they have reason to believe a chemical on the list is present in their product, regardless of the potential for consumer exposure or risk of adverse health consequences. This "over-warn" approach may be even more appealing when considered against the added cost and time of defending against potential litigation, with expert analysis and discovery required to invoke the regulatory defenses, by eager private party enforcers hoping to extract a quick settlement.
Reprinted with permission from the April 18, 2017, edition of The Recorder © 2017 ALM Media Properties, LLC. All rights reserved. Further duplication without permission is prohibited. For information, contact 877-257-3382, email@example.com or visit www.almreprints.com.