You receive an email from a client asking, “What’s this, and what do we do next”? Included with the email is an attachment entitled, “60-Day Notice of Violation.” Uh-oh, your client has just received an official notice that their company is in violation of California’s Proposition 65 (“Prop 65”) – a consumer warning statute instituted twenty-eight years ago and a bear trap to nearly every business in the state.
Passed by the voters in November 1986, Prop 65 requires the State to publish a list of chemicals and substances known to cause cancer, birth defects, or reproductive harm. It also states that persons doing business in California cannot expose individuals to these components without first giving ‘clear and reasonable warning’, nor can they release them into the drinking water. Currently, there are over 800 chemicals and substances on this list.
There is no substitute for knowing the technical workings of the statute, but understanding how these cases resolve and how to avoid common mistakes can make the difference between getting a toe trapped, or an entire leg.
Depending on the type of product found in violation, your client may be lucky to get out of harm’s way by opting into a settlement negotiated by other defendants. If the client is not eligible for an opt-in, you can still mitigate the exposure to costs by using the vast amount of public information regarding other settlements.
What Is An Opt-In Settlement?
Opt-in settlements have long been a hallmark of Prop 65 litigation. They are, just as they sound, an option for defendants to simply choose to settle a potential Prop 65 violation rather than to litigate with a private plaintiff and/or public enforcer (usually the State Attorney General or a city attorney). The opt-in settlements are typically the by-product of lengthy negotiations between a defendant (often a representative member of a trade association) and the party that issued a 60-Day Notice for a particular chemical and product group. They must be approved by a trial court, and typically have a limited time for opting in.
The statute makes Prop 65 cases exceptionally burdensome to defendants – and nearly all result in payment to plaintiffs. The opt-in is essentially a short cut that avoids much of the litigation, often increasing incurred expense without any benefit to the client. It is, in many ways, the least repugnant choice on a menu full of bad options.
How Does An Opt-In Settlement Work?
Typically, Prop 65 cases are settled when the defendant enters into a Consent Judgment. This Judgment includes monetary and injunctive provisions limiting the manner in which the business manufactures or distributes the products in question. The monetary provisions are generally broken into two or three categories – civil penalty, cy pres, and the plaintiff’s attorney’s fees and costs. When cases are settled individually, each figure is negotiated and variable depending on the number of violations, the degree of the defendant’s knowledge, and amount of litigation involved. Opt-in settlements usually have various settlement categories with monetary amounts pre-determined based on a defendant’s position in the chain of commerce and/or number of products at issue. Attorney’s fees are also set. By way of example, in a recent opt-in, Held v. Aldo Group, Inc., the settlement amounts ranged from $28,000 to $46,000 inclusive of penalties and fees(1). The injunctive terms will apply to all defendants that opt-in, regardless of size.
Is An Opt-In Right For My Client?
Opt-in settlements are generally very specific to both a chemical and a product. The Aldo settlement referenced above was limited to companies that sell or manufacture fashion accessories containing DEHP(2), a toxic chemical commonly added to plastics to make them flexible. Prior to Aldo, there was a large opt-in that focused on glass and ceramic products containing lead and lead paint(3). Whether or not a client is eligible is entirely dependent on whether or not it sold products that are subject to an existing opt-in, and if it believes it cannot obtain a better result from litigating the alleged violation.
While each case will possess different facts, the primary determinant of whether or not an opt-in is appropriate will be the economic realities of Prop 65 litigation. As noted earlier, a successful plaintiff is permitted to recover their reasonable attorney’s fees and costs(4). A quick investigation into supporting declarations show that plaintiff’s attorneys often report hourly rates that mirror large national firms – i.e., $450 for associates and up to $900 for partners. Thus, it does not take a significant amount of litigation, or even negotiating a settlement for a plaintiff’s attorney to incur at least $20,000 in fees. It is also important to remember that while your file was opened with receipt of the client’s 60-Day Notice, the plaintiff’s attorney began billing time during their investigation into the alleged violation. This includes testing the product, researching whether your client has sufficient employees to be subject to the statute(5), and drafting the 60-Day Notice.
Moreover, because of the requirements to support a 60-Day Notice, it is not uncommon for a plaintiff to have paid $10,000 – $15,000 in fees and costs into a case before the defense even starts. If a complaint is drafted and discovery occurs, the plaintiff can quickly acquire more than $25,000 in fees, while you may have incurred more than $10,000 – exposing your client to nearly $35,000 before a penalty figure is assessed. It is this reality that can make an opt-in a reasonable economic alternative.
My Client Was Not Eligible To Opt-In, Now What?
If your client is left to litigate its case without the alternative of an opt-in, then it is important for you to either do a significant amount of research into the various safe harbors and allowable levels of chemicals, or reach out to experienced counsel who understands how to navigate these highly technical issues. As discussed above, the ability of the plaintiff to recover attorney’s fees can make litigation very costly for a defendant, since they are essentially paying two law firms to fight amongst themselves.
For more information, please call (408) 500-9255 or email me at firstname.lastname@example.org.
George Dowell is the founder of San Jose based Dowell LLP. He has particular expertise litigating environmental cases and advising clients on California regulatory and environmental issues such as Proposition 65 compliance and defending related enforcement actions.
1 Held v. Aldo Group, Inc., SF Superior Court CGC-10-497729
2 Fashion Accessories are defined by the settlement.
3 Brimer v. The Boelter Compaines, SF Superior Court CGC-05-440811.
4 Cal. Civ. Code §1021.5; Cal. Health & Safety Code §25249.7
5 Cal. Health & Safety Code §25249.11(b).