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Proposition 65 Hits Manufacturers Far and Wide

Nov. 22, 2022
Penalties for banned chemicals reach beyond California's borders.

For companies in the supply chain for consumer products sold in California, paying attention to the California law known as Proposition 65 is important. Private enforcement of the law is so widespread that many companies have been forced to learn about it. For those still unaware of the law and those aware but hoping they will not be targeted, taking proactive steps to address the law is likely the most economical path forward, both financially and in terms of company resource drain and stress.

Proposition 65 was adopted in California in 1986 through California’s ballot initiative process. Despite its age, it has not been duplicated in other states. The basic structure of its product warning provisions is: no company shall “knowingly and intentionally” supply to Californians any consumer product that could expose them to a listed carcinogen or reproductive toxin, without providing clear and reasonable warning. This prohibition/requirement applies to all companies in the supply chain for products sold in California, regardless of physical presence in California. Manufacturers, distributors, retailers, and other supply chain entities all may be subject to liability. Even entities with fewer than 10 employees often are swept up in enforcement actions, despite a carve-out for them, as a result of contractual commitments made (often unwittingly) with other suppliers.

The California agency that administers Proposition 65 maintains a list of known carcinogens and reproductive toxins. There are currently approximately 1,000 chemicals on the list, and California continues to add new chemicals

Proposition 65 authorizes penalties of up to $2,500 per day per violation. Non-governmental plaintiffs (ranging from environmental public interest organizations to individuals) can enforce the law, obtaining contractual commitments from defendants to come into compliance with the law, and can recover their attorney’s fees and a percentage of the penalties imposed. This structure has led to the development of an aggressive Proposition 65 plaintiffs’ bar. Private plaintiffs and firms have polished their practices to the point of being able to extract nuisance-value settlements very efficiently. As a result of the internet warnings requirement of the law, plaintiffs can manage an enforcement practice without ever visiting a defendant’s location.

As of this writing, the California Attorney General’s office reports 484 out-of-court settlements in 2022, and 110 consent judgments (settlements reached after the filing of a Proposition 65 lawsuit). Many of these settlements involved entire supply chains. A representative example of such a settlement might consist of the marketer, distributor and retailer of a sporting good, all operating in different states. Proposition 65 settlement agreements are publicly available here. That webpage lists defendants of all sizes and levels of sophistication.

Companies faced with private enforcement actions very often respond by settling and agreeing to treat their products as though they require a warning, even if it’s less than clear that the law requires a warning. This essentially sets up two possible paths for companies that have not yet evaluated Proposition 65 or been the target of enforcement—evaluate Prop. 65 proactively, on your own terms, with the aim of preventing an enforcement case; or wait until an enforcement case, and then urgently implement a warning program under the scrutiny of a California private enforcer (whose attorney’s fees you’ll likely pay). Proactive compliance is normally more economical than forced compliance. This holds true across a massive variety of consumer products sectors, whether that be food products, apparel, electronics, cosmetics or any number of other sectors.

Finally, a fairly typical example, drawn from the above-linked settlements page: Early in 2022, a food ingredients manufacturer located in the Midwest received notice from a private Proposition 65 plaintiffs’ attorney that a certain flour it manufactures contains lead at levels requiring a warning. By June, this company had settled out-of-court, agreeing to either reformulate the flour product or provide warnings, and agreeing to a civil penalty of approximately $5,000 and attorney’s fees of approximately $50,000. The number of settlements finalized in 2022 following this general pattern will likely near 1,000.

The California Office of Environmental Health Hazard Assessment’s (OEHHA) primary Prop. 65 webpage is a useful starting place for those looking to learn about this law.

Paul Jacobson is an associate at Spencer Fane, helping businesses manage their environmental and workplace safety challenges.

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