Continuing a flurry of activity this year to reform Proposition 65 in California, the Office of the Attorney General is proposing amendments to the Proposition 65 regulations that would affect settlement terms, penalty amounts, and attorneys’ fees in civil actions filed by private persons in the public interest. For a more detailed discussion of Proposition 65 settlements in private enforcement actions, please see our prior post on this topic.
Per the Initial Statement of Reasons, this rulemaking is intended to:
- ensure that OEHHA gets the civil penalties specified in Proposition 65,
- limit the ability of private plaintiffs to divert the statutory penalties to themselves or to third parties in the form of “additional settlement payments,”
- increase transparency of settlements in private enforcement actions to ensure that “additional settlement payments” are spent on matters with a sufficient nexus to the alleged violation, and
- reduce the financial incentives for private plaintiffs to bring and settle Proposition 65 cases that do not confer a significant public benefit.
The AG identifies one of the problems the proposed regulations seek to address as “excessive attorney’s fee awards in relation to public benefit conferred.”
The AG proposes to amend the regulations in four ways:
- Cap the fraction of settlement payments that can be paid “in lieu of” civil penalties.
These “additional settlement payments” may not exceed the amount of any non-contingent civil penalty.
- Require greater judicial scrutiny and private enforcer justification of settlements in which all or a portion of the penalty is waived in response to certain conduct by the defendant and/or an “additional settlement payment” is provided for in lieu of a portion of the penalty.
The new regulations would require that projects with an “additional settlement payment” component be subject to ongoing judicial supervision, meaning that out-of-court settlements could only contain penalties and attorney’s fees. They would also require that such payments fund projects with a “clear and substantial nexus” to the specific violations alleged (i.e. fund projects designed to produce public health benefits in California). And, where all or a portion of a civil penalty may be waived in exchange for certain conduct by the defendant (e.g., product reformulation), the plaintiff must show a verifiable link to the alleged violation and there must be a verifiable benefit to California.
- Discourage the initiation of private enforcement cases that confer little public benefit by raising the bar for determining when a settlement confers the “significant” public benefit required in order to obtain attorney’s fees.
While the current regulations provide that reformulation constitutes a “public benefit,” the proposed regulations clarify reformulation may not establish a “significant public benefit” unless reformulation results in an actual reduction or elimination of exposures to listed chemicals. And, for fee award purposes, investigation costs must be justified through contemporaneous records of time/costs incurred.
Per the Initial Statement of Reasons, the AG has “grown concerned” about the amount of attorneys’ fees recovered in cases that “involve quantitatively insignificant exposure to a listed chemical, and/or untenable exposure scenarios.” The AG notes that in such cases, the noticed party may agree to reformulate products in order to avoid the cost of litigating the case and proving that the exposure is below the level requiring a consumer warning—and in such cases reformulation may not be required and reformulation may provide little if any public benefit. Therefore, the determination of whether reformulation confers a significant public benefit will be a fact-based inquiry under the proposed regulations. The proposal does not indicate how the court would make such a determination, given that the parties have already settled and the defendant is presumably not motivated to challenge the settlement.
- Require out-of-court settlements to be reported to the AG within five days after a settlement is reached.
While reporting all Proposition 65 settlements appeared to be a requirement under the existing regulations, the proposal clarifies any potential ambiguity as to whether out-of-court settlements must be reported to the AG.
The AG will be accepting written comments through 5 p.m. on November 9, 2015. And, a public hearing will be held regarding the proposed amendments on November 9, 2015 at 2 p.m.