California Attorney General Issues Report on 2013 Proposition 65 Enforcement Activity

As part of the California Attorney General’s statutory obligation to monitor Proposition 65 enforcement, that office annually compiles data about the number of settlements, the parties entering into those settlements and how the monetary payments break down.  The AG just released its report for 2013, revealing that over 350 settlements resulted in total payments of over $17 million.  Plaintiffs’ attorneys’ fees accounted for over 70% of the total payments made by settling defendants.  The report also shows a continued high profile presence of plaintiffs represented by The Chanler Group, who collectively are responsible for over $7.6 million in payments in almost 200 settlements.

In a May 14, 2014 letter sent to various Proposition 65 plaintiff and defense counsel and posted on the AG’s Proposition 65 website, the AG also expressed concern about the continuing trend of “payments in lieu of civil penaties,” or “PILPs.”  Although regulatory criteria exist for PILPs paid in Proposition 65 settlements, PILP provisions are hard to enforce and render the settlement process opaque, according to the letter.  These payments also divert penalties from the State of California; the State receives 75% of Proposition 65 civil penalties, but no percentage of PILPs.  And that makes a difference:  according to the report $2 million in PILPs were paid in 2013, meaning that the State lost out on $1.5 million in possible additional civil penalty payments.  With the continuing budgetary constraints faced by all California state agencies, that’s a significant loss.   The AG apparently will be proposing modifications to the Proposition 65 regulatory criteria for PILPs.

The AG letter also raised concerns about the high transaction costs of resolving Proposition 65 claims as reflected in the high attorneys’ fee awards to plaintiffs.  The regulated community has been concerned about that for decades.  According to the letter, the AG will be considering whether “it is appropriate to presume that every settlement that provides for a warning or reformulation automatically provides a significant public benefit” warranting an award of fees to the plaintiff.  Appropriately styled, a revised approach for review of fee awards could remove one of the key motivations driving private enforcement:  a virtual guarantee of a fee award to the plaintiff.  The AG should remember, however, that the California courts are the ultimate arbiters of whether any given exposure requires a warning. Given the lack of substantive guidance on Proposition 65 compliance and on numerous unanswered questions about even the basics of developing a defense, settlements likely always will be favored over full litigation defense.  In light of that, the AG should be careful to avoid an approach that could inadvertently backfire by incentivizing plaintiffs to try a case rather than settle, in order to assure an award of fees.

Increased scrutiny of how Proposition 65 private enforcement really works in the trenches would be welcome — as long as it results in meaningful change that alleviates the current compliance and litigation burdens on the regulated community.  Perhaps one significant legislative fix would be to amend Proposition 65 to add a “prevailing party” attorneys’ fee provision.  That at least could start leveling the playing field.