Virtually all Proposition 65 enforcement actions—whether brought by public prosecutors or private enforcers—resolve by a settlement agreement. In this post, we will discuss the features and mechanics of a settlement. We will focus on private enforcement actions, which make up well over 90 percent of all settlements.

The Good

Typically, a settlement will result in a release of all claims against a product manufacturer, distributor, and/or retailer, and all of their downstream customers. Settlements often allow for continued distribution of products that have left the possession of the manufacturer or distributor and are in the stream of commerce without the need to reformulate or warn, and apply prospectively to products that are manufactured, sourced, imported, or shipped after the settlement’s effective date. Settlements also usually provide a compliance standard for a product (e.g., 1,000 ppm of DEHP in accessible components), translating an incomprehensible exposure limit (e.g., 0.5 micrograms of lead per day) into a content level that can be the subject of a compliance standard and testing program. Settlements often deem compliance with that standard to be compliance with Proposition 65, thus prohibiting other enforcers from bringing lawsuits who might allege that lower levels should apply, or that the defendant should take different actions to comply.

The Bad

Although the law requires only a warning, private enforcers are usually uninterested in securing a warning, and insist that the company agree to “reformulate” a product to remove the listed chemical to a level deemed appropriate. Companies that want to comply with the law by providing a warning are told that the settlement will be far more expensive, because the enforcer claims to want to eliminate exposures not just require warnings.

The Ugly

The attorney’s fees. On average, 75% of all the money paid in private settlements go to the attorney’s fees for the plaintiff’s lawyer, which typically run two to three times the amount most companies pay their own lawyers to evaluate the claim, defend the company, and negotiate the settlement. In 2013, the most recent year in which data is available, private settlement payments totaled $16.8m, comprising attorney’s fees (75 percent), civil penalties (14 percent), and other monetary payments (12 percent). Four law firms were responsible for more than $15m of these settlements, with attorneys’ fees in excess of $11m. One law firm alone was responsible for $7.7m in settlements, of which $6.2m was allocated to attorney’s fees. Clearly, there is a small group of lawyers who are reaping the lion’s share of the monetary payments resulting from private enforcement of Proposition 65.

The Process

The law requires that a judge approve settlements of private actions, and find that the warning complies with the law, the penalty is reasonable, and the attorneys’ fees are reasonable. Case law also requires that the court determine that the settlement is in the public interest. The Attorney General is given the opportunity to review and object to settlements. Since the vast majority of settlements are not opposed, courts usually do not conduct a rigorous inquiry into a case that is settled and being taken off their docket. Once a court approves the settlement, other private enforcers are barred from bringing a case over the violation that is covered by the settlement (the same chemical(s) and the same product(s)). Private settlements may not exceed the scope of the products identified in the 60-day notice.

Despite the seemingly clear requirement for court approval, many cases settle before complaints are filed, without a judge ruling on the adequacy of the settlement. These settlements are often less expensive, but because a judge has not ruled that the settlement meets the conditions of the law, they do not preclude other enforcers from bringing another action over the same violation.

Negotiating settlements of Proposition 65 cases can pose traps for the uninitiated, and retaining experienced counsel who can advise regarding the merits of certain features of a settlement and of the likely settlement value will often save a business money in the long run.