HOT BUTTON ISSUES: What is Proposition 65?...an Update

HOT BUTTON ISSUES - California’s Proposition 65
More than 40 retailers, including Macy’s, J.C. Penney, Saks, Kohls, Sears, Dress Barn, Limited, H&M, New York & Co., etc. paid $1.7 Million in settlements in 2010 by entering into a consent judgment issued by the Superior Court of the California, Alameda County, and brought by the Center for Environmental Health (CEH). Payments from each defendant averaged $48K, with legal fees in the $30K range. In other cases, wholesale brand holders and distributors settled suits when they were found to be in violation.

What is Proposition 65?...an Update
Proposition 65 (Safe Drinking Water and Toxic Enforcement Act of 1986) is a law that imposes requirements for goods made, distributed or sold in the State of California. It applies to all businesses with 10 or more employees doing business in California, and is seen as the most stringent chemical control and consumer protection statute in the nation. The Proposition 65 list contains prominent industrial chemicals, additives and/or ingredients in common household and office products, toys, jewelry, foods, drugs, dyes, pesticides, solvents, as well as some trimmings attached to apparel. The listed chemicals may also be used in manufacturing and construction, or they may be by-products of production or combustion processes. Proposition 65 requires that any person exposed to one or more of the chemicals on the list first receive a warning that the state has determined the chemical in question may cause cancer, birth defects and/or reproductive harm.

WHAT IS ‘CLEAR AND REASONABLE WARNING’
Reasonable warning under Proposition 65 is defined to be “reasonably calculated, considering the alternative methods available under the circumstances, to make the warning message available to the individual prior to exposure. The message must clearly communicate that the chemical in question is known to the state to cause cancer, or birth defects or other reproductive harm…”
The warning message must include the following language:
“WARNING: This product contains a chemical known to the State of California to cause cancer.”
and/or
“WARNING: This product contains a chemical known to the State of California to cause birth defects or other reproductive harm.”

The warning may be by one or more of the following methods:
*Label or other labeling on product;
*Shelf labeling, hang tags, signs, menus, or a combination thereof; and/or
*A system of signs, public advertising identifying the system, and toll-free information services

Note: By label or sign, the warnings shall be prominently placed upon a product’s label or other labeling or displayed at the retail outlet with such conspicuousness as to render it likely to be read and understood by an ordinary individual under customary conditions of purchase or use.

ENFORCEMENT Proposition 65 allows private persons or organizations to bring actions against alleged violators of the Act on behalf of the “general public,” after providing notice to the California Attorney General and local prosecutors. If the Attorney General or local prosecutor does not take action within 60 days after the notice issues, the private party may then file a lawsuit. A business targeted by a bounty hunter for Proposition 65 enforcement will first receive a 60-Day Notice of Violation and Intent to Sue, which is intended to give the Attorney General and local prosecutor the opportunity to intervene in the action.

LIABILITY Failure to comply with Proposition 65’s strict warning requirements can lead to fines of up to $2,500 per day, per violation, with bounty hunters keeping 25% of the penalty amounts. Plaintiffs also are entitled to reimbursement of their costs of bringing a Proposition 65 suit, including their attorney fees, which is often the real reason private parties bring these actions. The majority of Proposition 65 claims are resolved through settlements (e.g., a consent judgment).

AVOIDING LITIGATION Effective compliance strategies begin with a thorough audit of a business’ operations and products to determine what, if anything, may be implicated by Proposition 65’s requirements. A business should assess whether it releases (environmental exposure), or its products contain (products exposure) Proposition 65-listed chemicals - even in trace concentrations. Although implementation of a compliance strategy will not necessarily immunize a business for past Proposition 65 violations of future enforcement actions, it will minimize the accrual of any additional potential liability from non-compliance.

Why so many settlements?
*Warning labels may be required for trace chemicals whose presence is unknown to the business at the time of sale. Thus, liability mounts before the business is aware of the violation;
*Plaintiffs’ lawyers are experienced at forcing settlement; and
*Trials are expensive and unpredictable

RECENT TRENDS
Cadmium
Benzene
Acrylamide
De (2-ethylhexyl)phthalate (DEHP)
Lead (Approximately 80% of all notices of violation in the past 12 months involved lead)
Polyvinyl chloride (PVC)

LIMITING LIABILITY
Upstream Indemnification
Testing
Monitoring trends in Proposition 65 litigations
Insurance

Source: Presentation by Michael Fisher and Russell Allyn of Buchalter Nemer, July 2010