California Judiciary, not Governor, Leading Effort to Reign in Proposition 65 Abuse

by Proskauer Rose LLP

Earlier this year, we reported on California Governor Edmund Brown's call for reform of the state's Safe Drinking Water and Toxic Enforcement Act of 1986 – better known as Proposition 65, the number of the ballot initiative that resulted in its enactment. Governor Brown had called for sweeping changes to the Proposition 65 regime to reduce the potential for "frivolous 'shake-down' lawsuits" under the statute.

However, facing pressure from the plaintiffs' bar, the Governor's office recently released a much more modest proposal to amend Proposition 65. The proposal would expand slightly the statute's exemption for small businesses; permit the relevant state agency greater flexibility in determining safe-exposure levels; and subject payments made in lieu of civil penalties to greater scrutiny.

In addition, a California court recently took a significant step to establish reasonable implementation standards for Proposition 65. On August 7, the California Superior Court for Alameda County entered judgment in a rare and well-publicized Proposition 65 case against manufacturers of baby food and fruit products, exonerating the manufacturers from claims under Proposition 65 that they had failed to warn consumers of trace amounts of lead in their products. In reaching the judgment, the court provided welcome guidance on the proper approach to product testing under Proposition 65.

Governor Brown's Limited Proposed Amendment to Proposition 65

In May, Governor Brown pledged to seek broad statutory reform designed to curb abuse of the statute by plaintiffs' lawyers "who bring nuisance [Proposition 65] lawsuits to extract settlements from businesses with little or no benefit to the public or the environment."  The proposed reforms included imposing caps on attorney's fees, requiring a stronger factual showing by plaintiffs before they can initiate litigation, requiring greater disclosure of information by plaintiffs, and limiting the amount of settlement money being allocated for purposes other than civil penalties. With the state's legislative session drawing to a close in September, Governor Brown released on August 9 a proposed amendment to Proposition 65 that is much narrower in scope.

One of the most significant potential results of the proposed amendment is that it would discourage plaintiffs from skirting their obligation to share monetary recovery with the state of California. Plaintiffs who collect penalties under Proposition 65 are entitled to keep only 25 percent of those penalties; the remaining 75 percent must be contributed to California's Office of Environmental Health Hazard Assessment. Cal. Health & Safety Code § 25249.12. This requirement has incentivized plaintiffs to seek creative alternatives to civil penalties, including so called "payments in lieu of penalties," through which some or all of the settlement is paid to either the plaintiff or a third party. Governor Brown's most recent proposal would limit the size of such payments in lieu of penalties and would require that they be used only to fund activities having a clear and substantial nexus to the alleged Proposition 65 violation. The plaintiffs would be required to submit a disclosure documenting 1) how the payments in lieu of penalties are spent and 2) whether the plaintiffs have an economic interest in any recipient of such a payment.

The Governor's August 9 proposal would also provide the Office of Environmental Health Hazard Assessment with more flexibility in establishing safe-harbor levels for chemicals subject to the statute. Further, the proposed amendment would extend Proposition 65's exemption for small businesses – currently available to businesses with fewer than 10 employees – to retailers with fewer than 25 employees.

Thus, while Governor Brown's latest proposed reforms to Proposition 65 are much more circumscribed than those proposed in May, they would nonetheless be a step forward in curbing abuse of the statute.

Rare Proposition 65 Judgment Clarifies Testing Standard

Recently, a California court provided helpful clarification of the law that may prove to be a more substantial check on Proposition 65 abuse than the proposed legislative amendment.

In 2011, the nonprofit organization Environmental Law Foundation filed a Proposition 65 lawsuit against dozens of manufacturers and retailers of baby food and fruit products, Environmental Law Foundation v. Beech-Nut Nutrition Corp., Case No. RG11597384 (Super. Ct., Alameda Cty.). The Environmental Law Foundation alleged that trace amounts of lead found in food produced by companies such as Gerber, Beech-Nut, Dole, Del Monte, and Welch's necessitated a warning label under Proposition 65. While the economic realities of Proposition 65 commonly pressure defendants to settle early in litigation, the manufacturer defendants in the Beech-Nut case decided to take the case to trial in April of this year. The resulting judgment from the Alameda Superior Court – in favor of the defendants – is one of the few final judgments in a Proposition 65 case.

At trial, the manufacturer defendants did not dispute the presence of trace amounts of lead in some products. The outcome of the trial instead turned on the proper method for measuring the amount of lead to which a consumer would be exposed. Because Proposition 65 provides a safe harbor for exposures under certain government-set levels, the method of calculating exposure is often a much-controverted  subject among Proposition 65 litigants. In the Beech-Nut case, the plaintiffs proposed measuring lead exposure by assuming that consumers are exposed daily to the amount of lead present in the highest-content samples. The court rejected this approach.

The court instead adopted the manufacturers' methodology, which was based on the realities that lead levels fluctuate within the same food products and that the average consumer's diet varies from day to day. To account for these realities, the defendants' expert:

  1. Averaged various test results on a product-by-product basis, in order to measure the average amount of lead in each product. The court endorsed this averaging approach as the most accurate method to determine the exposure level for a typical consumer.

  2. Used government-published data on food consumption to determine the amount and frequency with which each product is consumed in a given two-week period. The court agreed that, because the products are typically not consumed on a daily basis, consideration of these factors was appropriate.

Under these real-world exposure conditions, defendants successfully established that their products did not exceed the safe-harbor levels of Proposition 65 and that no warning was required.

In addition to the safe-harbor defense raised by the manufacturers, the Beech-Nut judgment also addressed two legal defenses raised by defendants:  that Proposition 65 is preempted by federal law and that the lead in the products was naturally occurring. The court rejected both of these defenses, instead basing its judgment for defendants on their safe-harbor defense.

Because Proposition 65 judgments are so rare, the judgment in the Beech-Nut case provides distinct – and welcome – guidance on the critical issue of exposure testing. The judgment stands as a resounding refutation of attempts by Proposition 65 plaintiffs to artificially increase exposure levels by ignoring the realities of product manufacture and consumption. The decision may ultimately prove more useful in the quick resolution of spurious Proposition 65 litigation than the narrow legislation proposed by Governor Brown.

Read Governor Brown's proposed amendment to Proposition 65 here. Read the Alameda Superior Court statement of decision in Environmental Law Foundation v. Beech-Nut Nutrition Corp. here.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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