Prop 65 is a labeling law enacted in 1986 by a proposition put to the voters. The law does not require anything other than that companies warn consumers of exposures to a number of chemicals and carcinogens which have been determined by the State of California to cause cancer or reproductive harm. This means that products sold in the state (even if the company is located outside of the state) might need to have a Prop 65 warning label. It also means that business locations within the might require a warning label or sign informing consumers and employees that they may be exposed to certain chemicals on the premises. There are significant liabilities for failing to provide a warning on a product or at a business location.
What about “The List”?
The Governor’s List is maintained by an agency in Sacramento, the California Office of Environmental Health Hazard Assessment. That Prop 65 list, which is available here, not only sets forth the chemical but the exposure level that requires a label.
How the Lawsuit Gets Off the Ground
What are the consequences then for a failure to label a product or area of exposure?
First, the California Attorney General or any county prosecutor may bring a civil action for penalties. The penalties may be quite steep–$2,500 per sale or occurrence. This can create millions of dollars in potential penalties.
Second, any private individual may bring a lawsuit to recover penalties and attorney fees. There are several non-profit organizations that have been created for the sole or primary purpose of bringing Prop 65 lawsuits, collecting penalties and filing more lawsuits. This regime presents a significant financial incentive for Prop 65 lawyers around the state to target companies for Prop 65 violations—the “bounty” can be quite lucrative.
There are a few limitations to these private civil actions. Before bringing the civil action, the private plaintiff must provide notice to the offender as well as the Attorney General, all county district attorneys and a few of the city attorneys. This notice, called a 60-Day Notice Letter,” provides the public enforcers an opportunity to bring the case. Often the first that a company will learn of a Prop 65 claim is through receipt of the 60-Day Notice Letter. (In my practice, I make every attempt to resolve the claim during that 60-day period and before a lawsuit is filed.)
Another limitation is that any settlement between the plaintiff and defendant must be approved by the court with notice to the Attorney General. This requirement in the statute was added because excessive damages and attorney fees were being racked up by lawyers and companies were settling claims and agreeing to affix a warning label on a product even when not required. “Over warning” defeats the whole purpose of the law because consumers tend to disregard Prop 65 warnings.
In my experience, the chances of a company being named in a lawsuit by the Attorney General are much smaller than chance of being named in one of these private plaintiff actions. I have dealt with both the Attorney General’s Office and the leading private plaintiff firms on a wide variety of Prop 65 cases over the years. The dynamics to settling these two types of cases are quite different.
A Prop 65 claim can be an expensive and difficult liability for a company, including an out of state company which merely sells its products to a distributor or retailer which then sells to California consumers. A plaintiff may demand a substantial payment of penalties and attorney fees and an agreement to affix a label to product or post a warning at certain premises. A company may be convinced that its product does not contain an chemicals at levels which should require a warning. But the risk of proceeding with defending the lawsuit is significant, perhaps at millions of dollars. If the case goes to trial after a year or more of discovery and dueling experts and the claim is established, the penalties and attorney fees can be significant.
And those costs may be just the beginning of the problems. Often, the lawsuit names the retailer. The retailer may have a contract with the manufacturer requiring that the manufacturer defend and indemnify the retailer for these types of claims. There may be other claims against raw materials suppliers for the products. A chain reaction of costly litigation can flow from the Prop 65 claim. Similar Prop 65 concerns can be triggered in real estate context where a claim is made that activities or conditions require a Prop 65 warning.
A WORD TO THE WISE . . .
An ounce of Prop 65 prevention is certainly worth a pound of cure. Any company doing almost any type of business in California should be aware of Prop 65 liability.
There are two major questions that should be considered.
- Do any of my products require a Prop 65 label?; and
- Do any of my business operations expose either my employees or customers to chemicals which require a Prop 65 label to those employees or customers coming on the premises?
The product cases are divided into two categories: (a) products that come in contact with the mouth or are ingested (such as food, beverages, coffee, dinnerware, drinking glasses, decorative plates that might be used for food, baby toys, bibs, etc.); and (b) ordinary household products.
Although I have done plenty of cases in the latter category, it should come as no surprise that when the product is ingested or placed in the mouth, it is much easier for a plaintiff to demonstrate an exposure and the need for a Prop 65 label. Be mindful of the fact that, if your business sells a product that kids use, there is significant risk because kids often put things in their mouths which are not intended.
It is a smart idea to do a Prop 65 “audit” of all products and have each one tested to ensure that a warning label is not required.
The next thing that I would do if I were operating a business with potential Prop 65 liability is to review all the indemnity issues that may arise. What I mean by that is determining whether you can and should contractually shift the risk of a Prop 65 loss to another contracting party. The most common example that we see is retailers requiring all of their manufacturers who sell products to contractually agree to step forward defend the product and the retailer in any action alleging Prop 65 violation. The way this works is that, even if the retailer is the named plaintiff, the manufacturer must bear the risk and hire the outside counsel to defend the case. Similar indemnity provisions arise in the context of landlord-tenant relationships with one party shifting the Prop 65 risk to the other. (Expect further posts at this blog dedicated to the concept of how to reduce the risks of Prop 65 lawsuits.)