California's Proposition 65: A Law in Flux

The excessive litigation spawned by the enforcement features of the California Safe Drinking Water and Toxic Enforcement Act of 1986 (popularly known as "Proposition 65" or "Prop. 65"), has caught the attention of both federal and state authorities. Some on Capitol Hill see the need to rein in state warning laws such as Proposition 65. This, in turn, has resulted in the California legislature amending the statute in an attempt to curb the excesses that have resulted from the private enforcement incentives afforded by the statute.

Federal Legislative Initiatives

A variety of federal legislative initiatives designed to preempt state food safety laws would have a significant impact upon Prop. 65. For example, the National Uniformity for Food Act of 2001 (H.R. 2649), introduced in July 2001, seeks to amend the Federal Food, Drug, and Cosmetic Act to establish that federal notification requirements concerning "the safety of food, or any component or package of the food" preempt state requirements except in special circumstances.

This bill was referred to the Subcommittee on Health of the House Committee on Energy and Commerce on Aug. 10, 2001, where it remains. Several attempts have been made by some in Congress in the past to enact legislation to rein in the draconian effects of Proposition 65. However, all have met with failure as supporters of the Proposition 65 experience continue to press for state right sovereignty in this area.

State Statutory Developments

This does not mean, however, that the California authorities have refused to see some of the problems with Proposition 65. In fact, in September 2001, the California legislature passed into law an amendment to Prop. 65 (S.B. 471). The legislation, intended to address abusive enforcement actions brought by private parties, modifies the mechanisms by which Prop. 65 is administered. The amendment:

• establishes criteria for the courts to consider in assessing civil penalties for violations;
• provides for recovery of costs and attorneys' fees by public prosecutors assisting with Prop. 65 cases;
• requires the reporting of all settlements to the California Attorney General and approval by a court; and
• preserves the right of California's Attorney General to pursue unfair business practice act cases.

The most controversial provision of S.B. 471 at this time is the certificate of merit requirement. Under the Prop. 65 enforcement scheme, a private citizen may bring an action if the state does not act or declines to do so within 60-days of being notified of an alleged violation. Under S.B. 471 these so-called 60-day notice letters must now include a certificate of merit, in which the party threatening the enforcement action certifies that there is a reasonable and meritorious basis for the action based upon consultation with an appropriate expert who has reviewed the facts, studies or other data relevant to the exposure that is the subject of the action.

Under some very narrow circumstances, a court, which is later entertaining such an action, may review the basis behind the Certificate of Merit to determine whether the action is, in fact, frivolous. Supposedly, the Certificate of Merit requirement will help the Attorney General's Office weed out non-meritorious Prop. 65 cases.

As if to underscore the need for such a law and the lack of serious investigation that goes into many of these cases, just prior to the effective date of the new provision, Jan. 1, 2002, the Attorney General's Office was inundated with thousands of 60-day notices filed by private enforcers and plaintiffs' attorneys apparently seeking to avoid the requirement of filing certificates of merit. The Attorney General's office responded to many of these notices with letters warning that, although certificates of merit were not required at the time of filing, the 60-day notices must still comply with civil procedure and other laws. In doing so, the Attorney General signaled his displeasure at what was viewed as an attempt to evade the new requirement, and subsequently many of the 60- day notices were withdrawn.

Although the Certificate of Merit may help to weed out some frivolous cases, some wonder whether in reality it will be of much use since the validity of the certificate can only be reviewed by a court to determine whether it is frivolous at the conclusion of a Prop. 65 action. Needless to say, if an action has been resolved by way of settlement or judgment, court review of the certificate avails no one; after awhile its filing may simply become just another legal nicety.

Another provision in the new law requires notice of all settlements and judgments to be provided to the California Attorney General's Office, and all settlements to be approved by a court. The Attorney General and other public prosecutors will be permitted to participate in hearings on settlements and to advise the court as to whether they consider the terms of the settlement to be fair and in the public interest. Thus, in cases where it has been determined that a warning should not be required, or that a modified version of a warning should be required instead, the Attorney General's Office will have the right to put the government's collective foot down. Of course, under such circumstances, it would be rare for a judge to disagree with the Attorney General. The Attorney General may also object to the terms of a settlement, such as those that provide greater monetary relief to a lawyer's private bank account than to the public weal.

Under the Act, a court may approve a settlement only if it can make the following findings:

• Any warning that is required by the settlement complies with the requirements of Prop. 65;
• Any award of attorneys fees is reasonable under California law; and
• Any penalty amount is reasonable based on criteria established under the act.

The penalty criteria are another major provision of the newly enacted law. The criteria require the court to consider such matters as the nature and extent of the violation, the number and severity of the violations, the economic effect of the penalty, good faith measures to comply with the law, the willfulness of the alleged misconduct, and the deterrent effect the penalty would have on the violator and others.

It is hoped that such criteria will lead to more consistent assessments of penalties. Although these criteria may help bring some consistency to the penalty process-and by extension, the settlement amounts that are accepted by the courts-they could have the unintended effect of increasing settlement demands as well. Already, we have seen the Attorney General's Office respond to a "typical" defendant's settlement offer with a counterproposal demanding huge sums of money-justifying the demand with reference to these criteria. We can only hope that this is an aberration particular to that case, and not the beginning of a trend.

Second, even though the court must now approve all settlements, and the California Attorney General is provided an opportunity to speak to the validity of such settlements, the law specifically provides that such settlements do not necessarily preclude subsequent suits for the same alleged violation by public or private enforcers. This is especially meaningful because in several instances, companies that thought that they had reached a resolution through settlement with a bounty hunter have been subject to suit by others who disagreed with the scope or the terms of settlement. The finality of a judgment or court-approved settlement is a bedrock principle of our judicial system. It is undermined by laws such as this, which allow an action to be constantly reopened.

Some in the state legislature have expressed the hope that this is just the first stage of needed modifications to Prop. 65. In this regard, a meeting to discuss additional modifications to Prop. 65 has taken place already between industry representatives, the California Attorney General's Office, and staff of potential legislative sponsors. Although the Attorney General's Office did not find any of the proposals particularly acceptable, some would say at least the talking is going on. However, it also has to be recognized that the more modifications made to Prop. 65 in an attempt to ameliorate the more obvious problems, the less momentum that critics on Capitol Hill will have to advance preemptive legislation. The California Attorney General openly admitted that these amendments were an attempt to appease the U.S. Congress, which continues to consider legislation that will partially or wholly preempt Prop. 65. Measures such as those passed by the state, no matter how half-hearted they are, can be spun to suggest that the state is attempting to achieve real balance and fairness with the law and thus mute the criticism that it often encounters.

Even worse, if other states believe that California has effectively cured the statute's defects, you can expect Prop. 65 proponents to promote similar legislation in other states, declaring the Prop. 65 experiment to be a success.

So far, laws modeled after Prop. 65 have been introduced in Massachusetts regularly since the late 1980s, but they have never been passed. Other states, such as Ohio and Connecticut, also have considered Prop. 65-like legislation, but no such laws have been passed in these states either. Whether that will occur in the future, only time will tell.

State Regulatory Developments

Proposed regulations designed to implement the settlement reporting changes required by S.B. 471 were issued by the California Attorney General's Office on Dec. 27, 2001 (effective Jan. 1, 2002). Public hearings on the proposals were slated for April 23 and April 26, 2002. Specifically, the regulations would change some of the reporting requirements, adopt binding requirements for the certificate of merit, and adopt guidelines for reviewing Prop. 65 settlements. Regulations specifically addressing the certificate of merit requirements apparently will be issued in the near future.

The lead agency for the implementation of Prop. 65, the California Environmental Protection Agency's Office of Environmental Health Hazard Assessment (OEHHA), also has undertaken an initiative to revise the Prop. 65 implementing regulations. Specifically, OEHHA is proposing changes to outdated terminology, consistency of references, consolidation and alphabetization of definitions into one section coupled with the repeal of other definition sections, relocation and renumbering of sections for regulatory continuity, and grammatical corrections. (See the Notice of Proposed Rulemaking, found at www.oehha.ca.gov/prop65/law/set1notice.html.)

In October 2001, OEHHA put forth a draft amendment package for public comment -- the first of a series of amendments intended to clarify the existing regulations. These amendments have since been revised. The second draft regulatory amendment package was made available for comment in February 2002 and a public workshop was held on March 18, 2002.