Editor’s Note: Not much has changed since our original post regarding civil penalties. Unfortunately, Prop 65 enforcers are still out attempting to collect vast amounts of civil penalties (and attorney’s fees) in private enforcement actions.

The obvious concern for many companies facing potential exposure for a Prop 65 violation is what is this going to cost me? The short answer: a lot. The potential for high civil penalties is daunting to many companies, a fact of which private litigants are well aware and bank on to incentivize quick settlements.

Penalty amount

Prop 65 authorizes monetary penalties of up to $2,500 “per day for each violation …” In determining how much to assess for each violation, a trial court considers:

• the nature and extent of the violation;
• the number of, and severity of, the violations;
• the economic effect of the penalty on the violator;
• whether the violator took good faith measures to comply with this chapter and the time these measures were taken;
• the willfulness of the violator’s misconduct;
• the deterrent effect that the imposition of the penalty would have on both the violator and the regulated community as a whole; and
• any other factor that justice may require.

The sliding scale of the penalty amount generally means that any violators who act quickly to remedy problems and are perceived as cooperating are unlikely to be on the hook for the full $2,500 per violation, which is reserved for actors that willfully disregard warning requirements. However, the multiple factors give courts considerable leeway in determining the amount of penalties.

Violation, defined (or not)

What is a violation? Surprisingly, neither the statute nor the regulations define a violation for the purposes of penalties, leaving the question somewhat ambiguous. Courts generally interpret one “violation” for each product unit that does not contain an adequate warning, although there is no controlling or definitive opinion on the subject. As you can well imagine, the amount of penalties can add up very quickly for even small inventories.

As we will discuss more in a future post about the parties that bring these lawsuits, private litigants can receive 25% of any civil penalties collected (not to mention attorneys’ fees), providing a large incentive for them to maximize the number of violations alleged and the amount of penalties assessed per violation.

Applicable statute of limitations

Penalties for Prop 65 violations are governed by California’s one year statute of limitations for statutory penalty actions, Code of Civil Proc. § 340. Plaintiffs will often argue that violations accrue for any units sold without warnings going back one year prior to the date of the Prop 65 60-day notice or the date of the complaint.

Lack of insurance coverage

One of the nasty little side notes for penalties is that insurance policies will usually not cover them, leaving the company to pay the penalties completely out of pocket.

Coverage claims brought under standard form commercial general liability (CGL) insurance policies, which typically cover claims arising from bodily or personal injury, will usually be denied by insurers who argue there is no coverage because Prop 65 claims almost never allege bodily injury.

Many policies will also not cover civil penalty actions based on the implication that the business has violated the law when civil penalties are sought.

Of course, an analysis should be made of existing insurance policies to determine whether coverage exists because there could be exceptions. For example, directors’ and officers’ (D&O) policies, which frequently provide coverage for a company’s own wrongful acts, could have provisions broad enough to encompass a failure to warn.

The bottom line, however, is that standard insurance policies will typically exclude coverage for civil penalties.

Editor’s Note: The way that chemicals get added to the list has not changed; however, the list of Prop 65 chemicals has. Here are some recently added chemicals that may be found in consumer products:

• Aloe Vera (non-decolorized whole leaf extract)
• Goldenseal root powder
• Malathion
• beta-Myrcene
• Nickel (soluble compounds)
• Perfluorooctanoic acid (PFOA) and perfluorooctane sulfonate (PFOS)
• Styrene
• TBBPA (tetrabromobisphenol A)
• Tetrachlorvinphos, and
• Vinylidene chloride (1, 1-Dichloroethylene).

With the exception of PCBTF (added on June 28, 2019) and Nickel (added on October 26, 2018), all of the aforementioned chemicals have all been added to the list at least 12 months ago, which means that products containing these chemicals must have required warnings if an exposure will be significant.

To determine whether Prop 65 impacts your company, the starting point is the Prop 65 chemical list. Knowing the listed chemicals and keeping up to date on new additions could mean the difference between facing a lawsuit or avoiding thousands of dollars in legal fees and settlement payments through advanced compliance.

Adding chemicals to the list

Under Prop 65, the Office of Environmental Health Hazard Assessment can add chemicals to the list in four ways. Once OEHHA identifies a chemical for possible listing, it initiates a regulatory process including public notice of intent to list, a public comment period, OEHHA’s review of any comments, and public notice of the final decision.

Listing by the state’s qualified experts mechanism

The Science Advisory Board is a group of expert scientists, appointed by the Governor, who determine whether unlisted chemicals are carcinogens or reproductive toxins.

There are two factions of the board: The Developmental and Reproductive Toxicant (DART) Identification Committee and the Carcinogen Identification Committee.

Although the two committees determine risks for different types of concerns, both follow the same process when making decisions about adding chemicals to the list:

• OEHHA staff scientists prepare hazard identification reports identifying scientific evidence showing a chemical’s carcinogenity or potential for reproductive harm. Once complete, the report is released for a 45-day comment period and the committee members review it.
• Committee members hear public testimony on the chemical and deliberate.
• If a chemical has been “clearly shown through scientifically valid testimony according to generally accepted principles” to either cause cancer or reproductive harm, OEHHA will add it to the list.

Listing by the authoritative bodies mechanism

The Science Advisory Board deems certain organizations “authoritative bodies.” If any authoritative body identifies a chemical as either causing cancer or reproductive harm, OEHHA may add it to the list. The Prop 65 regulations outline the process for adding chemicals through this mechanism and identify the following authoritative bodies:

• International Agency for Research on Cancer (solely as to transplacental carcinogenicity)
• National Institute for Occupational Safety and Health
• National Toxicology Program (solely as to final reports of the National Toxicology Program’s Center for Evaluation of Risks to Human Reproduction)
• U.S. Environmental Protection Agency
• U.S. Food and Drug Administration 

Listing by the formally required mechanism

If a state or federal government agency requires that a chemical be labeled or identified as causing cancer or reproductive harm, OEHHA can add it to the Prop 65 list. OEHHA typically lists prescription medications requiring FDA warnings this way.

Listing by the Labor Code listing mechanism

If a chemical is identified as causing cancer or reproductive harm via one of the lists identified in California’s Labor Code, and meets listing criteria, OEHHA can add it to the list.

Updating the list

OEHHA must update the list at least once a year, but it is usually more frequent than that. We will post updated lists on a regular basis, including new listed chemicals and chemicals OEHHA intends to list. You can also review OEHHA’s California Regulatory Notice Register Notices, which provide public notice of potential and new listings.

Effect of new additions to the list

Prop 65 requires warnings for significant exposures to listed chemicals starting 12 months after OEHHA adds the chemicals to the list (this 12 month window is designed to allow for impacted companies to determine whether a warning is required). Private Prop 65 enforcers commonly issue a rash of notices of intent to sue (called “60-day notices,” discussed further in an upcoming post) for products shortly after the listing anniversary.

As a result, keeping up-to-date on listed chemicals for products you currently sell in California, or checking the list before entering the California market with a new product, is your first (and, perhaps, most effective) line of defense against Prop 65 enforcement actions.

Editor’s Note: This post has been updated to reflect 2018 revisions to the Prop 65 regulations, which for the first time allocated responsibility for compliance within the supply chain. These revisions place the primary responsibility for compliance on manufacturers, distributors, and importers, while limiting the circumstances in which retail sellers are responsible for providing consumer product warnings.

To the average person in California, if they know anything about Proposition 65 at all, it is usually because they have a seen a warning sign in a bar or at a store. In most instances, after seeing the sign, they likely kept drinking or kept shopping.

Back in 1986, however, Californians’ concern over toxic chemicals in the environment, workplaces, and consumer products was a hot button issue because it was much more difficult to get information about everyday exposure to chemicals. As a result, 63% of California voters approved Proposition 65, and shortly thereafter, the ballot initiative became codified in the California Health & Safety Code as the Safe Drinking Water and Toxic Enforcement Act of 1986 (Health and Safety Code § 25249.5 et seq). The following sections provide an overview of Proposition 65. Detailed discussions will follow in upcoming posts.

Prohibitions

Prop. 65 prohibits a person from knowingly discharging chemicals known to cause cancer (carcinogens) or reproductive harm in a place where those chemicals are likely to end up in drinking water. We will skip the drinking water part, as it is relatively straightforward and not controversial.

The statute also prohibits a person from knowingly and intentionally exposing any person to carcinogens or reproductive toxins without first providing a warning, if the exposure is significant. This is the key provision of Proposition 65 that gives retailers, manufacturers, and vendors of consumer products heartburn, and on which we will focus this series.

Enforcement

Prop 65 authorizes both public and private enforcers to bring enforcement actions against parties alleged to have failed to provide required warnings to the tune of up to $2,500 per day per violation in civil penalties. Under California’s Private Attorney General Statute (Code of Civ. Proc. § 1021.5), private enforcers may also seek attorney fees for “enforcement of an important right affecting the public interest” if the action results in a “significant benefit” to the public.

Procedural requirements

The statute contains a number of procedural requirements that public and private enforcers must follow in bringing an enforcement, including the infamous 60-day Notice requirement and settlement procedures, which we will discuss in upcoming posts.

The list of chemicals

The statute directs the Governor to publish the list of carcinogens and reproductive toxins that require a warning if causing a significant exposure, and to revise it at least once per year. Chemicals can get on the list four ways, including (1) determination by designated scientists and health professionals, (2) identification by specified “authoritative bodies,” such as the US EPA, (3) identification by a federal or state agency as requiring warning labels (e.g., FDA drug labeling requirements); and (4) identification as a hazardous substance under the California Labor Code.

Exemptions

Proposition 65 provides three exemptions for the warning requirements. First, it exempts any exposure that is already governed by a federal warning law that preempts Prop 65. Second, it exempts exposures that take place within 12 months of a chemical being added to the list. Third, it exempts exposures that are not significant (no significant risk assuming lifetime exposure at the level in question for substances known to the state to cause cancer and no observable effect assuming exposure at one thousand (1000) times the level in question for substances known to the state to cause reproductive toxicity).

In addition, Prop 65 excludes “any person employing fewer than 10 employees” from the warning requirement.

Allocation of responsibility

Prior to August 2018, any party in the supply chain could be held liable for failing to provide a warning. But revisions to the warning regulations, effective August 2018, allocate responsibility for warnings primarily to manufacturers, distributors, and importers (together, suppliers), with retailers responsible only in specified circumstances.

Suppliers can meet their warning obligation “either by affixing a label to the product bearing a warning…, or by providing a written notice directly to the authorized agent for a retail seller.”  27 Cal. Code Regs. § 25600.2.

Retailers are responsible for providing a warning (i.e., may be liable in an enforcement action) when:

• The retailer sells the product under its private label or a brand or trademark owned by the retailer.
• The retailer has knowingly and intentionally introduced a listed chemical into the product, or caused a listed chemical to be created in the product.
• The retailer has covered, obscured, or altered a warning label.
• The retailer has received warning information and materials from the supplier and does not post them—note that consent for the warnings from the retailer is not required; the supplier need only send the information to the retailer’s authorized agent.
• The retailer has actual knowledge of the potential product exposure requiring the warning, and the suppliers are exempt and have no place of business in California or agent for service of process in California.

A retailer can modify this allocation by contract, requiring its suppliers and other vendors to provide a warning, as long as a required warning is ultimately provided.

Regulations

The statute directs the Governor to appoint an agency to implement Proposition 65. The California Office of Environmental Health Hazard Assessment (OEHHA – pronounced “o-wee-ha” or “o-hee-ya”), part of CalEPA, is tasked with implementing Prop 65. To do so, it has promulgated a series of regulations and issued various guidance documents that more fully explain Proposition 65 compliance. OEHHA also publishes the list of chemicals.