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California Attorney General Adopts New Proposition 65 Settlement Regulations and Guidelines

The California Attorney General has adopted new regulations and guidelines, codified at Title 11 of the California Code of Regulations (beginning with Section 3000) and affecting Proposition 65 settlements. These regulations and guidelines became effective on October 1, 2016. Settlements executed prior to October 1, 2016 are not subject to the new regulations and guidelines (and remain subject to their prior versions) even if motions to approve such settlements are scheduled to be heard after October 1, 2016.

Background

The Attorney General not only enforces Proposition 65, but also exercises a supervisory role over private Proposition 65 enforcement including settlements of private enforcement actions. In that supervisory role, the Attorney General in 2003 promulgated regulations and guidelines governing reporting of private enforcement actions and their settlements, as well as establishing standards for penalties, evaluation of attorney’s fee awards, the scope of release agreements and other aspects of settlements of private actions.

In September 2015, the Attorney General proposed revising the settlement regulations and guidelines for the first time since their promulgation in 2003. According to the Notice of Proposed Rulemaking, the proposed revisions were prompted by “[o]bservations of litigation and settlement trends with respect to payments-in-lieu-of penalties, attorney’s fees, and transparency in use of funds.” The revised regulations and guidelines were finalized after public notice and comment, and adopted in August 2016 with an effective date of October 1, 2016.

The revised regulations and guidelines

Among other things, the revised regulations and guidelines now:

  • Clarify that all “settlements,” including those resolving claims in 60-day notices where no lawsuit has been filed, are subject to their provisions. The prior version of the regulations and guidelines appeared to suggest that “settlements” subject to their provisions included only those resolving enforcement lawsuits.
  • Establish in Section 3201(b)(1) of the revised guidelines that reformulation of a product or other changes in the defendant’s practices that reduce or eliminate exposures to a listed chemical are “presumed” to confer a significant public benefit. The prior version of this provision stated more definitively that such changes constituted a sufficient showing of a public benefit. Inasmuch as attorneys’ fees for Proposition 65 settlements are only warranted when the settlement confers a “significant public benefit” (among other requirements), this revision is intended in part to rein in unnecessary enforcement actions and excessive attorneys’ fees by establishing a rebuttable presumption of such public benefit. Query, however, who would try to rebut such a presumption at the time a settlement is submitted to the Attorney General for review. Certainly not the parties to the settlement, and such an objection by the Attorney General likely would upset a resolution in which the parties have made a significant investment and which the parties want to finalize as quickly and efficiently as possible. In other words, any intervention to rein in unnecessary enforcement actions and attorneys’ fees has come too late at that point.
  • Impose restrictions on “payments in lieu of penalties” (“PILPs”) in new Section 3204. Such payments are sometimes required by settlements and are used to fund the activities of the plaintiff and/or of other organizations. The guidelines now cap the amount of any PILPs, requiring them to be no more than the amount of the noncontingent civil penalties required to be paid under the settlement. This provision may induce plaintiffs to demand higher noncontingent penalties to avoid the impact of the cap. PILPs also are to be awarded only in court-approved settlements, and must have a “clear and substantial nexus” to the violation alleged. Further, to ensure accountability plaintiffs should disclose certain specific information to the Attorney General relating to PILP awards and should comply with certain record-keeping requirements.

Will the new regulations and guidelines help or hurt?

As the Attorney General stated in promulgating the revised regulations and guidelines:

The broad objectives of the present rulemaking are to ensure that the State in fact receives the civil penalty funds contemplated by the Proposition 65 statute; to constrain private parties’ use of payments-in-lieu-of penalties (described as “Additional Settlement Payments” in the proposed regulations) to insure a sufficient nexus between funded activities and the violation; to ensure benefit to California; to increase the transparency of settlements in private party Proposition 65 cases; and to reduce excessive attorney’s fee awards.

Certainly these regulations and guidelines may well achieve these beneficial results. By imposing new restrictions and documentation requirements for plaintiffs, however, they also may cause settlements to be more difficult to achieve and more expensive for defendants, to whom plaintiffs will shift any additional costs of compliance. It remains to be seen whether the proposed benefits will in fact outweigh such difficulties and costs.

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.