Authors: Lauren A. Hopkins, Gary J. Smith, Meghan A. Quinn
Beveridge & Diamond, P.C. , September 19, 2016
The California Office of Environmental Health Hazard Assessment (OEHHA) and the California Attorney General each adopted regulatory amendments to the Proposition 65 regulations at the close of August 2016. The OEHHA amendments modify Article 6 of Title 27 of the California Code of Regulations, which sets forth the method and content deemed to be clear and reasonable for Proposition 65 warnings. The California Attorney General amendments (AG Amendments) modify the Proposition 65 private enforcement regulations and affect settlement terms, penalty amounts and attorney’s fees in actions brought by private plaintiffs.
Together these amendments further Governor Brown’s proposed Proposition 65 reform tenets, set out in 2013. The Article 6 amendments are the first comprehensive modifications to the Clear and Reasonable Warning requirements since the original regulations were adopted. Given the significant differences between the old and new safe harbor content and method, we expect companies to take a fresh look at their Proposition 65 compliance program. The AG Amendments are intended to reduce the Proposition 65 litigation abuse that has discredited the statute. We expect companies that have received a recent Proposition 65 60-day notice letter to incorporate the guidelines into their settlement negotiations to reduce the amount and misuse Additional Settlement Payments and attorney’s fees.
Article 6 Modifications
On January 16, 2015, OEHHA first proposed amendments to repeal and replace the Article 6 Clear and Reasonable Warning regulations. The regulations primarily set forth the method and content deemed by OEHHA to be clear and reasonable for providing a warning prior to exposure. In response to the proposed amendments, OEHHA received numerous comments, which led the agency withdraw its first proposal and to issue a new set of amendments on November 24, 2015. According to OEHHA, the November 24, 2015 proposal took into account the comments received on the first regulatory package.
On March 25, 2016, and again on May 18, 2016, OEHHA issued further modifications to its proposal, which addressed comments received from the public. The May 18, 2016 proposal was adopted without modification on August 30, 2016. The Article 6 amendments include clarifying changes to the definitions provided, the method and content for consumer product exposures, environmental exposures and other product specific exposures, and clarification of the entity having responsibility for providing a consumer product warning. For a full discussion of the history of the Article 6 Amendment Process see OEHHA Issues Additional Modifications to Proposition 65 Article 6: Clear and Reasonable Warning Requirements ; and Prop 65 Regulatory Activity Raises New Compliance Questions for Industry .
Summary of the Article 6 Amendments
The amendments to Article 6 modify the definitions provided in the California Code of Regulations by:
Method and Content of the Warnings
The Article 6 amendments also set forth the safe harbor method and content deemed by OEHHA to be clear and reasonable. Although some in industry may think of these regulations as requirements, use of alternative methods is permissible. The regulations will take effect on August 30, 2018. In the interim, businesses may either provide a warning that uses the new safe harbor method and content warning language contained in the Article 6 amendments, or warnings that comply with the regulations currently in effect. Products manufactured prior to August 30, 2018, need not comply with the amendments.
Pursuant to the regulations, a consumer product warning that includes the following content is considered to be clear and reasonable:
The warning may also contain information that is supplemental to the content set forth above, but only to the extent that the supplemental information either (1) identifies the source of the exposure; or (2) provides information regarding how to avoid or reduce exposure to the identified substance(s). Further, if a consumer product bears consumer information in a language other than English, the warning provided must also be provided in that language.
The regulations further provide that the following methods for providing a warning are considered to be clear and reasonable:
The above method and content generally apply to consumer products. However, the regulations also set forth product-specific safe harbor warning method and content. Where the product-specific provisions apply, the content and method listed above should not be used when providing a warning. The following products are subject to differing safe harbor provisions:
Responsibility for Providing a Warning
The regulations also clarify which entities have responsibility for providing a warning. According to the regulations, the manufacturer, producer, packager, importer, supplier, or distributer has primary responsibility for providing a consumer product warning. However, these entities may shift warning responsibility to the retail seller by furnishing notice and warning materials, in accordance with the regulations. Retail sellers are also responsible for providing a warning in the following scenarios:
Private Enforcement Amendments
On August 31, 2016, the Attorney General amended the Proposition 65 regulations related to enforcement actions brought by private parties (Private Enforcers). The regulations were first proposed on September 25, 2015, and were modified in response to comments on February 4, 2016. For a discussion of the original proposal for the AG Amendments see California Attorney General Proposes Proposition 65 Amendments To Address Litigation Abuse.
Summary of the Attorney General Amendments
Recovery of Plaintiffs’ Attorney’s Fees
The AG Amendments make three modifications to the guidelines that address recovery of a plaintiff’s attorney’s fees as part of the settlement of a Proposition 65 action. First, the amendments call for a showing that the public benefits derived from the settlement are "significant." Second, the presumption that a public benefit is conferred by reformulation of a product is rebuttable and proponents of such settlements are expected to submit evidence demonstrating that at least some of the products in controversy were above any agreed-upon reformulation standard set forth in a settlement. Finally, the AG Amendments require contemporaneous record-keeping for investigation costs sought to be recouped in a settlement.
The Proposition 65 regulations related to civil penalties have also been amended. The AG Amendments create new requirements where the terms of a settlement waive civil penalties in favor of conduct by the defendant ( i.e. , reformulation of a product). Specifically, the regulations require that a defendant’s conduct be related to the purpose of the litigation and provide environmental and public health benefits to California; the settlement agreement must include a mechanism designed to verify that the agreed upon conduct has been performed. The AG Amendments also require plaintiffs to demonstrate that any Additional Settlement Payments made as an "offset" to civil penalties, such as payments to health organizations or NGOs in lieu of penalties, are in the public interest.
Settlements and Additional Settlement Payments
The AG Amendments aim to increase oversight of and transparency in the settlement process. Under the amended regulations, if a Private Enforcer enters into a settlement in the absence of a filed complaint, it will be required to serve the Attorney General with the settlement and a Report of Settlement. The AG Amendments also encourage parties to submit all settlements that include Additional Settlement Payments for judicial approval.
The Attorney General includes a list of criteria it will employ to determine whether it will object to the inclusion of Additional Settlement Payments. The criteria include the following elements:
The private enforcement amendments become effective on October 1, 2016.
Over the course of the next two years businesses required to provide a Proposition 65 warning will need to revisit and revise their warnings to comply with the new regulations and may choose to arrange for retailer sellers to provide warnings. The on-product warning may provide some relief to industry given the lack of obligation to identify a chemical for which the warning is being provided. However, the decision to use the more compact warning should take into account consumer reactions to the warning symbol, and words "cancer" or "reproductive harm" absent clarification or qualification.
Though, at first glance, the truncated warning may be useful to side-step the requirement to identify the chemicals necessitating the warnings, OEHHA, pursuant to its authority under the Lead Agency Website regulations, can request additional information about the product, the substance for which the warning is provided and the location of that substance in the consumer product. For a full discussion of the website regulations see OEHHA Issues Further Modification of Warning Website Regulations and Prop 65 Regulatory Activity Raises New Compliance Questions for Industry.
Further, those businesses manufacturing products for which a product-specific safe harbor warning has been adopted should be careful to ensure that the appropriate elements from the general warnings for consumer products are incorporated into any warning system adopted (i.e., Internet and catalog sales).
Finally, manufacturers must choose the best way to reach California consumers with a Proposition 65 warning, while, considering potentially negative reactions to the warnings from consumers outside the state. Though the regulations permit manufacturers to transfer responsibility for providing a warning to the retail seller, manufacturers should be cautious when using these alternative arrangements, given the issues they may pose for litigation risk exposure to entities in the supply chain.
Beveridge & Diamond's Consumer Products Practice advises clients in California and worldwide on Proposition 65 issues, as well as a wide range of other product-related environmental issues. For more information about OEHHA’s Proposition 65 Clear and Reasonable Warning requirements, Proposition 65 litigation, and how Proposition 65 relates to your business, please contact Gary J. Smith at email@example.com , (415) 262-4045 or Lauren Hopkins at firstname.lastname@example.org , (415) 262-4013.