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California AG Office Proposes Reforming Private Enforcement of Prop 65

The California Attorney General's Office recently proposed regulations intended to reform the private enforcement of Proposition 65.  Specifically, the Attorney General intends to limit the settlement funds diverted away from the State's Office of Environmental Health Hazard Assessment (OEHHA), the agency that administers Proposition 65; increase the transparency of settlements in private party Proposition 65 cases; and reduce the financial incentives for private plaintiffs to bring and settle Proposition 65 cases that do not confer substantial public benefit.

In theory, private enforcement of Proposition 65 should result in a lowering of overall exposure to listed chemicals and, thus, a greater public benefit, than enforcement solely by public prosecutors.   Proposition 65 expressly allows for recovery of civil penalties, but attorneys' fees are awarded to private plaintiffs under California's private attorney general statute and an additional form of payment, so called "payments in lieu of civil penalties" (PILPs), is permitted under the Attorney General's Proposition 65 enforcement regulations.  PILPs are funds paid to plaintiffs or plaintiffs groups to fund environmental activities, public education programs, and/or funds to the plaintiff for additional enforcement of Proposition 65 or other laws.

Under the current private enforcement scheme, 75% of civil penalties are required to be paid to OEHHA, which are spent administering the statute.  However, according the Attorney General's analysis, the vast majority of payments under the statute go toward attorneys' fees and PILPs.  These payments are not shared with OEHHA.  For example, in 2013, of the total $17 million in settlements, 73% went to attorney's fees and costs; 11% went to PILP, and only 15% consisted of civil penalties.

The proposed regulations would limit the circumstances under which civil penalties could be diverted to plaintiffs and their attorneys.  This would be accomplished by eliminating PILP and establishing payments called Additional Settlement Payments (ASPs).  ASPs are defined as payments that are not civil penalties, attorneys' fees, or costs.  The ASPs would "offset" civil penalties and require plaintiffs to demonstrate to a judge that the offset is in the public interest.  In addition, ASPs are prohibited for any settlement not subject to judicial review.

Currently, defendants faced with a Proposition 65 suit may decide to settle and reformulate even when a listed chemical is likely present in a product at a level below which a warning would be required. The proposed regulations would no longer deem that product reformulation resulting in lower chemical exposure will always results in a public benefit.  Instead, they would require a showing that at least some of the products at issue are above the Proposition 65 warning threshold and that the reformulated products would be below the warning threshold.

Ultimately, these proposed regulations could increase the costs to defendants in Proposition 65 actions.  For example, the showing required to demonstrate to a court that a reformulation standard confers a "significant public benefit" could be very expensive for plaintiffs.  To prove that a settling defendant's product caused an exposure that was above the warning threshold before reformulation and under it thereafter, will require two exposure assessments and perhaps the consultation of experts.  This cost would likely be passed along to defendants in the form of additional attorneys' fees and costs. Similarly, the tying of ASPs to civil penalties in a way that would reduce payments to private plaintiffs, without limiting attorney’s fees, could result in plaintiffs seeking additional attorneys' fees to cover the "shortfall" or increasing the amount of civil penalties requested.

Comments are due by November 9, 2015. For more information in the proposed regulations, see the California Attorney General’s website.