Newly Approved Amendments Put More Eyes on Proposition 65 Settlements

Overview of Proposition 65
Passed by California voters in 1986, Proposition 65 impacts businesses around the world. Primarily, the law requires a warning for exposure to one or more of the approximately 900 listed chemicals that the state of California, through the Office of Environmental Health Hazard Assessment, has determined may cause cancer, birth defects or reproductive harm at or above certain threshold levels. Placing a “clear and reasonable” warning should invoke the safe harbor provisions of the law and shield businesses from potential Proposition 65 liability; however, for many businesses, compliance with Proposition 65 is not always straightforward.

Private enforcers issue Proposition 65 Notices of Violation (NOVs) to target businesses. The NOV triggers a 60-day waiting period during which no lawsuit can be filed against the business. Upon the expiration of the waiting period, private enforcers can sue the business to enforce alleged violations of Proposition 65. Given the strict liability nature and economics of Proposition 65, most businesses typically settle the alleged violations.

How Courts Approved Proposition 65 Settlements Prior to AB 2577
After reaching a settlement with an alleged Proposition 65 violator, the private enforcer files a motion for judicial approval of the settlement. The court grants the motion if it finds all the following: (1) the settlement requires a compliant Proposition 65 warning; (2) the award of plaintiff’s attorney’s fees is reasonable; and (3) civil penalties are reasonable.

Prior to the hearing on the motion, the Attorney General will review the proposed settlement to ensure it meets the statutory criteria for judicial approval. If any criteria are not met, the Attorney General will typically notify the plaintiff to modify the settlement, and the Attorney General’s office can file objections to the settlement. For example, the Attorney General can object on the ground that an attorney’s fees request is unreasonable. Until the parties renegotiate the attorney’s fees request to the Attorney General’s satisfaction, the court will not approve the settlement.

How AB 2577 Changes the Settlement Approval Process
First, AB 2577 adds a finding that must be made for settlement approval. Under the terms of the proposed settlement, the alleged violator must do either of the following: (1) reduce exposure to the listed chemical(s) from the level(s) that existed before the settlement, or (2) provide a compliant warning if that warning was not provided previously.

Second, AB 2577 allows the court to bifurcate the approval process. If the Attorney General objects to an unreasonable fees’ request, AB 2577 allows the court to approve the remainder of the settlement so that injunctive relief (e.g., reformulation and/or warnings) can move forward. The fee request can then be briefed and heard separately. Plaintiff will be allowed to file a declaration that provides “additional information in support of its fee request, which shall include sufficient detail for the court to determine if the fees incurred are reasonable.” [forthcoming Cal. Health and Safety Code section 25249.7(f)(7).] The alleged violator and/or the Attorney General may respond or object to the declaration. After reviewing the declaration and any responses or objections, the court may approve the fee request, which shall not exceed the original amount set forth in the parties’ agreement.

Practical Effect of AB 2577
Unfortunately for the many businesses targeted by the cottage industry of Proposition 65 plaintiffs, AB 2577 will not stop the barrage of Proposition 65 NOVs. The NOVs will keep coming, but plaintiffs will likely be more strategic about how they structure their settlement agreements, how much they demand in attorney’s fees, and how they document their attorney’s fees request. However, in practice, nothing changes as to an alleged violator’s commitment to make changes—AB 2577 simply codifies that practice. The most effective way for businesses to defend against Proposition 65 NOVs is to test products for potential exposures to Proposition 65 chemicals and either reformulate the product or add a warning.

Contact your regular Pillsbury contact or the authors of this alert for questions regarding Proposition 65.