On September 9, 2016, the California Attorney General's Office issued final regulations regarding the private enforcement of Proposition 65 (i.e., California’s Safe Drinking Water and Toxic Enforcement Act of 1986). The requirements are intended to: limit the settlement funds that are currently diverted away from the State's Office of Environmental Health Hazard Assessment ("OEHHA"), the agency that administers Proposition 65; increase the transparency and judicial review of settlements in private party Proposition 65 cases; and reduce the financial incentives for private enforcers to bring, and for defendants to settle, Proposition 65 cases that do not confer a significant public benefit. The new regulations go into effect on October 1, 2016.
As background, the new enforcement rule responds to Governor Jerry Brown’s May 2013 call to reform the private enforcement of Proposition 65. While private enforcement of Proposition 65 should result in a lowering of overall exposure to listed chemicals, and thus provide a greater public benefit than enforcement solely by public prosecutors, Governor Brown expressed concern that the private enforcement of Proposition 65 was enriching lawyers and not necessarily resulting in a benefit to the public. Proposition 65 requires that 75% of civil penalties (in cases brought by the Attorney General or private enforcers) be paid to OEHHA to administer the statute. However, in practice, the vast majority of payments made under Proposition 65 are for attorneys' fees and to “payments in lieu of penalties” (PILP). For example, in 2015, of the total $26.3 million in settlements, $17.8 million (68%) went to attorney's fees and costs; and $3.3 million (13%) went to PILP. Only $5.1 million (19%) consisted of civil penalties, $3.8 million of which was paid to OEHHA. PILP paid to plaintiffs or plaintiffs groups have been used to fund environmental activities, public education programs, and/or funds to the plaintiff for additional enforcement of Proposition 65 or other laws.
The final regulations eliminate PILP and establish payments called “Additional Settlement Payments” (ASP), which are payments other than civil penalties, attorneys' fees, or costs. Under the new regulations, plaintiffs and their attorneys must demonstrate a nexus between the public harm allegedly caused by the defendant(s) in the particular case and the way the ASP funds would be spent to benefit the public. Previously, it had been sufficient to state generally that PILP funds would be used to further Proposition 65 enforcement, but plaintiffs now will have to connect ASP funds more closely to the product and/or chemical at issue and ensure that the funds are spent in California. For example, if the matter is regarding lead in children’s jewelry, the ASP funds could be spent on educational efforts to reduce lead exposure in children in California. A failure to demonstrate a sufficient nexus between the ASP funds and the matter may result in rejection of the settlement.
Other noteworthy aspects of the new regulations include the following:
- Proposition 65 plaintiffs are required to provide pre-lawsuit settlements to the Attorney General. Although many of the settlements entered at this early stage are already reported to the Attorney General's Office, this proposed amendment mandates that they be reported.
- There is a higher burden for showing that product reformulation results in a public benefit. Plaintiffs will be required to show that at least some of the products at issue were above the Proposition 65 warning threshold and that the reformulated products will be below the warning threshold. Failure to demonstrate that the reformulation results in a public benefit may result in the settlement not being approved.
- ASP funds should not be greater than the noncontingent civil penalties (75% of which are diverted to OEHHA).
While the new regulations are intended to discourage frivolous private Proposition 65 enforcement that does not result in a meaningful public benefit, there is concern that the new regulations may instead increase the costs to defendants in Proposition 65 actions. In the past, when additional substantive and procedural requirements for prosecuting and settling Proposition 65 actions were imposed on private plaintiffs, costs were frequently passed through to defendants in some manner. Thus, defendants may be faced with higher attorneys’ fees and costs as an indirect result of the new regulations.