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Prop 65

California Governor Targets Prop 65: A Nip or a Nod?

California Governor Jerry Brown has proposed Proposition 65 reforms to pare back misdirected use by plaintiffs’ attorneys. The governor’s attention is welcome, and his approach well intentioned. The measures he puts forward, however, barely scratch the surface if not simply affirm the status quo. Certainly, they don’t tackle the much larger issue of how Prop 65 has devolved into a virtual cottage industry for the plaintiffs’ bar.

Brown’s premise is strong – that some law firms “have abused Prop 65” by filing lawsuits against small retailers on iffy grounds. Legal actions can be “costly for small businesses to fight,” and if they settle out of court, the awards “generate attorneys’ fees but do not result in significant public health protection.”

However, the governor’s ideas for derailing the abuse may nip at Prop 65’s heels, but won’t soften its stride. In fact, his recommendations may actually give the nod to some of the law’s most troublesome provisions, if not make them more burdensome and less effective.

Brown Proposal
The governor’s approach focuses on trimming attorney incentives, raising the bar on allegations, changing warning parameters, and tightening the causation link for awards. Specifically, the governor is calling for:
• A cap or limit on attorneys’ fees, along with requiring a court finding of reasonableness and a five-year accounting of all awarded fees.
• Submission by the plaintiff of test results and other information relevant to demonstrating chemical exposure, as well as an exchange of supporting information with the defendant.
• Permission for the state’s Attorney General to present publicly the supporting information for a court review.
• Listing of the specific chemical, alleged harm and mitigation steps taken on the Proposition 65 public warnings.
• An accounting of specific activities to be funded by payments in lieu of penalties (PILPs) which must have a “clear and substantial” current connection to the basis of the allegations and cannot exceed the civil penalty.
• Easy access to a state-maintained website that provides more information about Prop 65 and chemicals commonly subject to warnings.

While Governor Brown’s proposals are well intentioned, they fall short of a significant impact on the abuse that he’s calling out. For example, while the proposals would require plaintiffs to do testing before filing suit, that’s something they must do anyway. Besides, there is plenty of published literature on chemical traces in foods, and so plaintiffs can get most of what they need.

Capping and scrutinizing attorneys’ fees may crimp the bottom line, but won’t undo the limitless availability of private actions based on the 800+ chemicals now on the Prop 65 list. The statute provided for private actions on the theory that the state would not have sufficient resources to prosecute deserving cases. However, private actions have become a tool for plaintiffs’ attorneys to skim large percentages from awards and settlements for their personal accounts.

Private actions continue to deliver disproportionate percentages to lawyers at the expense of state remediation programs. Since 2000, plaintiffs’ lawyers have reaped an average of 60% of total settlements. At its height in 2004, the attorneys’ cut reached 82%. From 2000 to 2011, settlements totaled $157 million, with lawyers taking about $96 million.

The governor’s proposal to require a five-year accounting of fees received by attorneys would simply measure the problem, not curtail it. To date, public awareness of the sums being reaped by plaintiffs’ attorneys appears to have had no chilling effect on lawsuits. A court finding of the reasonableness of fees, similarly, will not reduce the rampant practice of bringing suit against a virtually limitless pool of potential defendants.

Changing the warning signs also will have no impact on the inclination to sue or the outcomes of the suits. Prop 65 does not prohibit the sale of items containing listed chemicals, but rather requires consumer warnings in advance. That means liability hinges on the knowledge of the presence of a chemical in a consumer product presented for sale. A consumer warning clears a vendor of liability, while the state sets the rules about how the warning should read. Regardless of the nature or content of the warning, liability under the law does not change, and so the cause and motivation to sue remain exactly the same.

Where the money goes also has no bearing on the motivation to bring suit. Civil penalties in theory can total $2,500 per day per violation. Settlements to date, however, have never reached such levels. Requiring that payments in lieu of penalties (that is, settlements) not exceed the civil penalty, therefore, will have no impact on the settlement amounts. Nor will it reduce the percentage of the settlements that goes to the lawyers. Similarly, the “clear and substantial” connection to the basis of the allegations is a given – by definition, any lawsuit filed will be based on allegations that there’s been a failure to warn under Prop 65. In other words, on its face, each case has a “clear and substantial” connection to that basic legal fact.

So, kudos to Governor Brown for taking action and for a valiant attempt at reform. But, undoing the Proposition 65 cottage industry will take much, much more. Chipping away at the motivation of plaintiffs’ attorneys will take nothing short of a revamp of the statute’s procedural provisions. fundamental reform of the statute itself.

And, then there’s the substance on which the procedures and their abuse are built. Finding violations based on the presence of minute traces of chemicals in food is an essentially limitless playing field. And that playing field is being widened daily by advanced scientific techniques in molecular measurement.

Which one of the 800+ Prop 65 substances may be found in your product next? Will you be fully aware before knowledge is imputed and you’re hauled into court or forced to settle to avoid the costs of litigation?

Defusing this business-chilling dynamic will take a major overhaul of Proposition 65 itself. And, under California law, that would take a new public referendum or two-thirds of both houses of the state legislature.

It’s a major undertaking, but one that needs to be addressed. The National Coffee Association continues actively to explore ways to help that process begin. In the short term, perhaps Jerry Brown can use the governor’s pulpit to marshal public opinion against abusive tactics. He might also parlay his commitment and influence to spur action in Sacramento.

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Weak Anti-Proposition 65 Measure Gets Weaker

A California bill to open a narrow escape path from frontal assaults under Proposition 65 has faltered in the committee review process. A bill introduced by Los Angeles-based Assemblyman Michael Gatto would have given defendants a 14-day period during which they could “remedy” alleged violations and avoid threatened lawsuits by plaintiffs’ attorneys.

The bill passed the legislature’s Environmental Safety and Toxic Materials Committee in a unanimous, bipartisan vote. However, the political realities of confronting an uphill battle in the Judiciary Committee compelled Assemblyman Gatto to water down the bill. As presented for review by the Judiciary Committee, the bill is now restricted to allowing a 14-day remediation period where a listed substance is presented to the public in alcohol, tobacco smoke, or engine exhaust, or where formed on the premises in the process of food preparation.

Band-Aid Measure
To put the measure and its surrounding issues in perspective, here’s a typical scenario that the original bill was drafted to address. A plaintiffs’ attorney files a 60-day notice to sue, as required by law for private actions. (The state’s Attorney General does not have to give such advance notice.) The attorney then approaches the prospective defendant and proposes a settlement in lieu of filing the lawsuit. Particularly for small businesses, such as local coffee shops, the prospects of the cost of defending a lawsuit are unthinkable, and in many cases so are the sums demanded as a settlement. Moreover, the vendor is also typically required to comply with the “injunctive relief” of the statute, that is putting up a warning sign or labeling the product.

The Gatto bill, as originally drafted, would have given the prospective defendant 14 days to come into compliance by issuing a warning to customers along with paying a $500 fine. That would give a relatively easy out to the accused, saving the outlays of money that could make or break the business.

However, it should be noted that the relief would have been merely a temporary band-aid at best to provide a short-term “out” to the immediate, untoward circumstances. In many cases, such as with coffee, the industry maintains that no such “injunctive relief” – that is, posting a warning sign or label – is necessary at all. In the case of coffee, the traces of acrylamide formed from naturally occurring components in the roasting process do not trigger the statute’s requirements. That position is being put forward in the defense of two major lawsuits against the industry.

While the posting of signs or affixing of labels by some vendors does not create a legally binding precedent for others, it puts into play an unnecessary and unwarranted example that is out of step with the industry’s position. In other words, it muddies waters that should be clear. And, it subjects the defendants to burdens and costs associated with warning measures they should never have had to incur.

Toxic Climate
The scenario targeted by the Gatto bill is part of a larger, unfortunate picture. Proposition 65, or the Safe Drinking Water and Toxic Enforcement Act, was passed in 1986 to prevent businesses in the state from exposing individuals to certain chemicals without first giving warning. It was supported by a number of environmental groups, and passed as a public referendum garnering 2/3 of the popular vote.

However, the measure included a provision for private citizens and groups to bring suit under the statute. The reasoning was that the state may not have adequate resources to enforce the measure. This provision has given a green light to the plaintiff’s bar in the state to turn Proposition 65 into a cottage industry. Setting up shell organizations ostensibly devoted to environmental causes, they file suit against industries whose products contain trace amounts of Proposition 65-listed chemicals. (From the original 29, there are now over 800 chemicals on the list, designated by the state’s Office of Environmental Health Hazard Assessment, or OEHHA, as causing cancer or reproductive harm.) Most of the suits never go to trial, but are settled out of court. Historically, about 75% of the proceeds go to plaintiffs’ attorneys, rather than to the state for environmental uses as intended.

Alternatively, the plaintiffs’ attorneys approach prospective defendants, demanding out-of-court monetary and injunctive penalties, as described above. The Gatto bill aimed to give vendors an out, even though it did nothing for the industries struggling under such suits. The watered-down version will do even less, and nothing at all for coffee companies of any size, shape or form.

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