Portfolio Media. Inc. | 860 Broadway, 6th Floor | New York, NY 10003 | www.law360.com Phone: +1 646 783 7100 | Fax: +1 646 783 7161 | [email protected] New Prop 65 Is A Relief For Calif. Manufacturers Law360, New York (November 01, 2013, 1:11 PM ET) -- California’s Safe Drinking Water and Toxic Enforcement Act of 1986 (Cal. Health & Safety Code §25249.5 et seq.), known as Proposition 65, has, since its inception, exposed businesses selling products or operating premises in California to strict warning requirements and citizen lawsuits if its requirements are not met. In recent years, restaurants and coffee shops, bars and sellers of natural food products and nutritional supplements have been targeted by plaintiff citizen groups enforcing the statute's warning requirements and seeking reimbursement for hefty attorneys' fees incurred as a result of their efforts. Two new recent developments limit the exposure of food and beverage businesses to these citizen lawsuits going forward. First, on Aug. 7, 2013, Alameda County Superior Court Judge Brick entered judgment for a group of food grower, manufacturer and distributor defendants in Environmental Law Foundation v. Beech-Nut Corporation et al. He found that in determining the level of chemicals in foods and beverages that trigger a Proposition 65 warning, food and beverage companies can average human exposure to the alleged chemicals over time. Second, new legislation signed into law by Gov. Jerry Brown on Oct. 5, 2013, amended Proposition 65 (§25249.7) to permit California businesses either involved in the sale of food or alcohol or owning premises on which there is tobacco smoke or engine exhaust to remedy any alleged violation of Proposition 65 by promptly posting a Proposition 65 warning and paying a small fine. In combination, these two new developments in Proposition 65 law present significant opportunities for food and beverage businesses in California to better manage their Proposition 65 risk and limit their exposure to, and potential liability in, citizen initiated lawsuits. Proposition 65 Overview Proposition 65 requires businesses to warn the public when they sell a product or maintain premises in California that contain chemicals known to cause cancer or birth defects or other reproductive harm, above a certain listed threshold level, called the "safe harbor" level. The state of California maintains a list of these chemicals, which has grown to include approximately 800 chemicals since it was first published in 1987.[1] For example, if a product sold in California contains a listed chemical, and a warning is not posted on or near the product at its point of sale, Proposition 65 expressly provides that businesses selling the product are subject to citizen lawsuits which enforce the warning requirement and seek statutory penalties paid to the state and for attorneys' fees. Concerned citizen groups must first send a notice of violation to the offending business 60 days prior to filing their case in order to give the California attorney general's office, and any district or city attorney, time to bring their own enforcement action. Penalties for violating Proposition 65 by failing to provide warnings can be as high as $2,500 per violation per day, in addition to attorneys' fees and costs. Environmental Law Foundation v. Beech-Nut Corporation The Environmental Law Foundation (ELF) is a self-described "non-profit organization which works to enforce environmental laws (such as Proposition 65) against polluters."[2] In the Beech-Nut case, ELF sued 34 defendants, including food growers, food manufacturing and packaging companies and food retailers, alleging that the defendants sold various canned or packaged fruit products, fruit drinks and baby foods containing concentrations of lead above the Proposition 65 safe-harbor threshold, without providing a warning. This summer, in a rare turn of events in Proposition 65 litigation (where virtually all cases settle), the case went to a court trial in Alameda County. At trial, the plaintiff argued that exposure to lead on any given day of consumption of the food products exceeded the statutory safe-harbor levels. The defense argued that the products are consumed intermittently, not every day, and average lead exposure over time (14 days) fell within the safe-harbor limits. In the final verdict in Beech-Nut, Judge Brick accepted the defense methodology and held that it is appropriate to average exposures to lead over more than a single day when determining whether concentrations of lead in food products were under the safe-harbor warning threshold.[3] Based on this premise, the court determined that none of the exposures exceeded the safe-harbor level for lead. Until Beech-Nut, no judicially accepted the methodology for determining whether a product met the safe harbor levels for lead existed. At present, Beech-Nut is on appeal. If not overturned on appeal, Beech-Nut will be a significant victory for future defendants in Proposition 65 lawsuits. The ruling will allow defendants to pursue safe-harbor warning arguments more easily and provides a judicially accepted methodology for measuring exposures to chemicals regulated by Proposition 65. New Legislation Amending Proposition 65 Under the new law, concerned citizens who have given notice to businesses (which employ 10 or more people) of alleged Proposition 65 violations may not commence litigation if: The notice was served after Oct. 5, 2013 The alleged violation only concerns: o Alcoholic beverages consumed on premises o Food or beverages prepared and sold for immediate consumption on or off the premises if the chemical was not intentionally added, and the chemical was formed by cooking or preparing food or beverages to render them palatable or to avoid contamination o Nonemployee tobacco smoke on premises where smoking is permitted o Engine exhaust at a facility primarily intended for parking noncommercial vehicles The alleged violator has not been served with a notice of violation arising from the same exposure in the same facility If within 14 days of serving the notice,[4] the alleged violator has: o Corrected the problem by posting a warning or eliminating the alleged exposure o Agreed to pay a civil penalty of $500 (to be adjusted every five years for inflation, starting April 1, 2019) per facility where the alleged violation occurred o Sent to the noticing attorney a completed compliance form under penalty of perjury that describes the corrective action taken with a copy of the new warning and a photograph showing its placement on the premises Within 30 days of service of the notice,[5] the alleged violator must pay the civil penalty to the noticing party's attorney, who then pays the state of California 75 percent of that amount (within 30 days of receiving funds from the alleged violator) and retains 25 percent. Importantly, nothing prevents the attorney general, or any district or city attorney, from bringing an action against the alleged violator. This new legislation is the first legislative effort to substantively amend Proposition 65 in last 15 years, and only the second time Proposition 65 has been substantively amended since its inception over 25 years ago. Before the new law, businesses that received a Proposition 65 notice were faced with the Hobson's choice of either going to court to litigate the matter or settling the case. Both options exposed businesses to the payment of substantial attorneys' fees to the citizen groups serving the notice. The new legislation offers a much more cost-effective alternative: posting a notice and paying a small fine. With only a $125 "reward" going to citizen groups and no additional provision providing for the payment of attorneys' fees, there appears to be very little incentive for citizen groups to target the food and restaurant industry to force settlements related to the issues above. While the effect of this new legislation remains to be seen, the food and beverage industry should see some relief from Proposition 65 litigation and bounty-hunter settlements. The new legislation may also pave the way for other industries in California to seek similar protections from Proposition 65 litigation. --By Sophia Belloli and Eric Junginger, Hanson Bridgett LLP Sophia Belloli is a senior counsel, and Eric Junginger is a partner in the firm's San Francisco office. The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm, its clients, or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice. [1] Proposition 65 also prohibits the release or discharge of these chemicals to a source of drinking water. [2] See the Environmental Law Foundation's website at http://www.envirolaw.org/. [3] Judge Brick also rejected defense arguments that the federal Food, Drug and Cosmetic Act and U.S. Department of Agriculture policies preempted Proposition 65, and that the lead in the food products was naturally-occurring and therefore exempted from the Proposition 65 warning requirement. [4] There are certain discrepancies in the law relating to when the 14 day period to correct an alleged violation expires. The text of the bill [Health and Safety Code section 25249.7(k)(2)] indicates that the alleged violator has 14 days "after service of the notice" to correct the problem. However, the notice form and introduction to the bill indicates that the alleged violator has 14 days "after receiving the notice" to correct the problem. [5] Another discrepancy in the law is when the alleged violator must actually pay the fine. The text of the bill [Health & Safety Code section 25249.7(k)(3)] indicates that the alleged violator must pay the civil penalty within "30 days of service of that notice". However, the compliance form states that the alleged violator must pay the civil penalty within "30 days of completion of this notice". All Content © 2003-2013, Portfolio Media, Inc.