United States: California Takes New Step Toward Reforming Proposition 65

On October 5, 2013, California Governor Jerry Brown signed AB 227, a bill intended to decrease frivolous lawsuits under The Safe Drinking Water and Toxic Enforcement Act of 1986, popularly known as Proposition 65 or "Prop 65." While the bill is a small step toward reforming Prop 65, it may trigger bigger efforts to reform the law. Prop 65 currently allows for penalties of up to $2,500 per day that an individual is exposed to a listed chemical without being provided a clear and reasonable warning about the presence of the chemical. One of Prop 65's most unusual features is that it provides private citizens with the power to enforce the law once the California Attorney General, California district attorneys, and certain California city attorneys are notified of the alleged violation. According to the California Attorney General's data, settlement values in Prop 65 disputes ranged from $3,250 to $757,000 in 2012. The largest proportion of settlement funds reimbursed plaintiffs' claimed attorney fees, with smaller proportions going toward civil penalties or other expenditures meant to substitute for penalties.

Private party enforcement of Prop 65 has become one of the most controversial components of the law, as many now believe that Prop 65 predominantly enriches plaintiffs and their attorneys without providing a proportional environmental or safety benefit to the people of California.

California Assemblyman Mike Gatto (D - Burbank) championed AB 227 to give businesses an opportunity to correct the violation before they are subject to an enforcement action. Importantly, AB 227 applies to a small subset of Prop 65 violations, covering only the following circumstances: (1) exposures to alcoholic beverages consumed on the business's premises; (2) exposures to Prop 65-listed chemicals in food or beverages prepared and sold on the business's premises intended for immediate consumption if the chemical was not intentionally added and the chemical was formed as a result of cooking the food; (3) exposures to tobacco smoke as a result of a person, other than an employee, smoking on the business's premises; and (4) exposures to Prop 65-listed chemicals as a result of engine exhaust on a business's premises.

Under the new law, a business that is notified of a violation in these four circumstances has two weeks to correct the violation and sign a declaration under penalty of perjury that the violation has been corrected. The business would then pay a civil penalty of $500 per facility or premises. If violations have been corrected, AB 227 prevents further enforcement actions.

The new bill will primarily help owners of hotels, bars, restaurants, coffee shops, and parking garages. Because the bill's provisions are not retroactive, AB 227 will not help the multiple businesses that received notices of violation early in 2013 when a wave of notices were directed to a large number of outlets serving alcohol. Although the effect of AB 227 is narrower than industry would have liked, any revisions to Prop 65 are unlikely in the first instance because two-thirds of each house of the California State Legislature must approve revisions to laws that originated as voter initiatives. (Prop 65 was enacted via ballot in 1986.)

Earlier this year, Governor Brown announced his intention to reform Prop 65 in more significant ways. The Governor's proposed reforms did not make it into legislation this year because, by most accounts, the proposed changes were too broad to allow all interested parties an opportunity to comment before the end of the legislative year. We expect a renewed reform effort from the Governor in the spring of 2014. If the legislative route does not ultimately prove promising, the Governor may ask the Office of Environmental Health Hazard Assessment to propose regulations that could advance a narrower range of revisions.

AB 227, together with a recent trial court decision, Environmental Law Foundation v. Beech-Nut Nutrition Corp. et al. (Case No. RG11597384), may signal the start of a leveling of the playing field between private plaintiffs and manufacturers, suppliers and retailers of consumer products. The Beech-Nut decision, issued by a respected jurist on the Alameda County Superior Court, rejected the contention that baby food and pure juice products required Prop 65 warning labels, holding that food and beverage companies can average exposures over time when determining whether warnings are necessary on those products. While AB 227 and this recent decision suggest reforms to Prop 65 are aimed at narrowing the reach of Prop 65, businesses must continue to ensure that they are complying with existing regulations to better position themselves to aggressively respond to alleged notices of violation.

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