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Brace Yourself (Part 2): How Will The New Proposition 65 Warning Regulations Affect Settlements?

As GLO previously reported, the California Office of Health Hazard Assessment recently adopted new Proposition 65 warning regulations. Those regulations become effective on August 30, 2018. During this two-year period until the new regulations become effective in 2018, companies may comply either with the still-current warning regulations or the new regulations.

The new warning regulations establish safe harbor warnings and other requirements which are substantially different than the requirements in the current regulations. What will happen to the warning programs established by Proposition 65 settlements, which likely impose warning requirements more aligned with the current regulations?

The answer: It depends.

Section 25600(e) of the new regulations provides that “a party to a court-ordered settlement or final judgment establishing a warning method or content is deemed to be providing a ‘clear and reasonable’ warning for that exposure for purposes of [the new warning regulations], if the warning complies with the order or judgment.” In other words, warnings provided in compliance with court-approved settlements are grandfathered as “clear and reasonable” warnings.

The situation is much less clear for parties to out-of-court settlements. The grandfathering provision of new Section 25600(e) does not cover out-of-court settlements. Further, such settlements contain release of claim provisions affecting only the parties to the settlement. Thus, unlike a court-approved consent judgment, which precludes different plaintiffs from bringing the same claim against the settling defendant, an out-of-court settlement only precludes that same plaintiff from bringing the same claim against the settling company. Theoretically at least, a different plaintiff could assert the exact same claim that was resolved by the settlement, against that same settling company.

For a company complying with warning requirements established by an out-of-court settlement, this means that: (1) it may be vulnerable to claims that the settlement’s warning requirements do not establish “clear and reasonable” warnings after all; and (2) a plaintiff other than the one who settled with the company may bring a claim identical to the one resolved in the out-of-court settlement, in order to impose different warning or other requirements – and obtain attorneys’ fees and civil penalties. With the high number of out-of-court settlements imposing warning requirements, this is indeed low-hanging fruit for private enforcers.

In these kinds of disputes, companies providing warnings under such settlements would have to establish that the warnings are clear and reasonable under Proposition 65. Such companies should be successful in these efforts. Still, the outcome of such disputes can never be predicted with certainty, and the cost and other resources required to prevail could be substantial.

Practical considerations arise even with court-approved settlements. To the extent that such settlements address less than all of a company’s product lines, a company may face a situation in which one or more product lines are subject to the settlement’s warning requirements (based on the current regulations), and other product lines are subject to the new – and very different – warning requirements established by the new regulations. Such a situation invites inadvertent errors that can cause problems and claims of noncompliance with either the court-approved settlement, or the new regulations, or both.

Companies must comply with the terms of their settlements, for otherwise they may be deemed in breach. Businesses which are parties to out-of-court settlements should examine those settlements and evaluate whether their terms would allow them to use different warning content and/or methods, and if so, under what circumstances. To protect against different plaintiffs bringing the same claims, such companies may wish to re-negotiate their out-of-court settlements with the original plaintiffs, and revise the settlements’ terms to allow the use of the safe harbor warnings established by the new regulations.

Similarly, to avoid the practical difficulties inherent in maintaining multiple warning programs, companies to court-approved settlements also may wish to review the terms of those settlements, and evaluate whether they would be allowed to use alternative warning methods and/or content. If the court-approved settlements are silent on this question, affected companies may have to weigh the fairly significant cost and resources required to modify the court-approved settlements.

The new warning regulations will have broad and, in many ways as-yet-unpredictable, consequences on companies doing business in California. Businesses would be well advised to use the next two years, before the new regulations’ effective date, to do what they can to evaluate those impacts and prepare accordingly.

Ms. Grimaldi maintains a diverse environmental law practice focusing on chemical and product regulation and litigation defense. Her practice areas include Proposition 65, California's Safer Consumer Products Regulations, California's Rigid Plastic Packaging Container Act and the federal Toxic Substances Control Act. Ms. Grimaldi graduated from the University of California Hastings College of the Law magna cum laude and holds a Bachelor of Science Degree in Bacteriology from University of California, Davis. Prior to attending law school, she worked as a research assistant in laboratories at the University of California, San Francisco Cancer Research Institute and at the University of California, San Francisco School of Medicine.