California Legislature Taking A First Step Toward Reform Of Proposition 65
Seller Beware: Consumer Protection Insights for Industry
For over 25 years, Proposition 65 has plagued businesses in California. The law gives private "bounty hunters" an incentive to find even small violations, resulting in millions of dollars in settlements and a plethora of signs in parking garages, hotels, restaurants, and other businesses. If one of those signs isn't posted, or falls down, it can cost the business owner a pretty penny
After hearing complaints from business owners for many years, members of the California legislature, led by Assemblyman Mike Gatto (D-Los Angeles), are poised to enact a modest step toward reforming the law in favor of certain businesses. AB 227 would allow certain businesses such as restaurants, bars, hotels, and parking garages a one-time 14-day grace period to post warning signs after they receive a bounty hunter's notice of alleged violation. The bill has unanimously passed the California Assembly and two Senate Committees and appears headed for the Governor's desk before the end of the legislative session this fall. It will take effect immediately once enacted into law.Background on Proposition 65 and the Targeted Abuses
Proposition 65 requires businesses that expose consumers to chemicals known to cause cancer and birth defects or other reproductive harm to give "clear and reasonable warning" to consumers. Failure to comply with the notice requirement could result in fines of up to $2,500 per day for each violation in addition to attorney's fees and costs. Prop. 65 can be enforced by the Attorney General and other designated public prosecutors, but also contains a provision that permits citizens to bring civil enforcement actions in the public interest. More than 95% of all such enforcement actions are brought by these so-called "bounty hunters," who are permitted to keep 25 % of the penalties. The law therefore provides a significant financial incentive for private enforcement, allowing the less scrupulous of these enforcers to leverage monetary settlements for their own gain against businesses who have neglected to provide sufficient warnings.
AB 227 gives three examples of businesses that have elected to enter a settlement because they could not afford the cost of litigation. In Santa Monica, a bar entered into a $5,500 settlement over an alleged failure to post a Prop. 65 warning pertaining to the sale of alcoholic beverages. In Norwalk, a bar entered into a $7,000 settlement, also over an alleged failure to post a Prop. 65 warning pertaining to the sale of alcoholic beverages. And in Berkeley, a supermarket agreed to pay a $4,000 settlement plus $21,000 in attorney's fees and costs over alleged failures to post Prop. 65 warnings pertaining to hamburgers.
Assembly Bill 227
AB 227 is intended to deter these predatory lawsuits. It would amend the citizen enforcement provision of Proposition 65 by giving businesses 14 days to comply with the warning requirements before an enforcement action could be filed. It would also set the fine at a one-time payment of $500. The fine would not need to be paid right away and the citizen bringing the claim would be permitted to retain $125 of the fine. (These figures would also be indexed for inflation, a key demand of the plaintiffs' bar, which is seeking such indexing, on a retroactive basis, for the cap on medicalmalpractice damages.)
The amended provision will apply to businesses that fail to provide warning in the following situations:
- exposure to alcoholic beverages and/or chemicals formed on the alleged violator's premises by necessary preparation of food or beverages that are sold for immediate consumption on the premises;
- exposure to environmental tobacco smoke caused by entry of persons (other than employees) on such premises where smoking is permitted; and
- exposure to chemicals known to the state to cause cancer or reproductive toxicity in engine exhaust, to the extent the exposure occurs inside a facility owned or operated by the alleged violator and primarily intended for parking noncommercial vehicles.
The Political Winds
This is only the second substantive amendment to Proposition 65 since its enactment in 1986. SB 227 has garnered widespread support from a variety of groups including Consumer Attorneys of California; Consumer Healthcare Products Association; Consumer Specialty, Products Association; National Federation of Independent Business; California League of Food Processors; California Manufacturers and Technology Association; California Metals Coalition; California Restaurant Association; California Retailers Association; and California Citizens Against Lawsuit Abuse to name a few. The law can only be amended by a 2/3rds vote of each house, meaning that widespread consensus is needed.
AB 227 was loosely modeled on a law enacted in 2012, SB 1186, which amended California's Unruh Act – the state law that requires businesses to provide equal access to individuals with disabilities. That amendment added additional notice and procedural steps to help businesses comply with the law and reduced the minimum fine from $4,000 to $1,000.
Prospects for Broader Reform
Perhaps prompted by the introduction of AB 227 and certainly by the same complaints of business owners that prompted AB 227, Gov. Jerry Brown initiated a process for considering reforms of Proposition 65 in May 2013 with a major press announcement. Said Gov. Brown: "Proposition 65 is a good law that's helped many people, but it's being abused by unscrupulous lawyers. This is an effort to improve the law so it can do what it was intended to do - protect Californians from harmful chemicals."
His office has convened multiple sessions for stakeholders to propose and comment on reforms, with the goal of developing a consensus bill for introduction later this legislative session. Sen. Ted Lieu (D-Torrance) has agreed to carry the bill. Participating in the process are multiple trade associations, representatives of the California Attorney General's office and other California agencies, activist organizations, and representatives of both the plaintiff's attorneys and tort reform organizations.
© Arnold & Porter Kaye Scholer LLP 2013 All Rights Reserved. This blog post is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.