California Attorney General Proposes New Proposition 65 Settlement Regulations

On September 25, 2015, the California Attorney General published proposed regulations and guidelines governing Proposition 65 settlements. Largely focusing on the allocation of payments required in Proposition 65 settlements, the proposed regulations aim to increase transparency and accountability in the settlement of private enforcement actions, and to curb abusive private enforcement. The deadline for public comment is November 9, 2015.

Although the Attorney General is the primary public enforcer of Proposition 65, that office also exercises a supervisory role, authorized by statute, in reviewing private enforcement activity. The Attorney General is authorized to, and frequently does, object to settlements and require further documentation of their terms. The current proposal amends prior regulations and guidelines promulgated by the Attorney General to promote transparency and accountability. Inasmuch as the guidelines are not mandatory, they act more as an alert to the private enforcement community about issues that the Attorney General will consider in reviewing settlements and whether or not to object to any particular term.

The current proposal has three main parts:

• Additional Settlement Payments. The proposed guidelines impose a number of requirements on “Additional Settlement Payments” (ASPs). This form of settlement payment, often referred to “payment in lieu of civil penalties,” is a payment required to be made to the plaintiff or a third party. Unlike “regular” civil penalties, 75% of which must be paid to the California Office of Environmental Health Hazard Assessment (OEHHA), the ASP recipient keeps the entire payment. Frequently, the amount of ASPs exceed the civil penalty amounts paid under settlements.  Accordingly, it is the Attorney General’s view that ASPs improperly divert large amounts of funds that otherwise would statutorily be required to be directed to OEHHA, which needs these funds to fulfill its Proposition 65 implementation duties.  For this and other reasons, the Attorney General proposes, among other things, that:
  • The plaintiff must demonstrate that the ASP, which essentially acts as a “offset” to a civil penalty payment, is in the public interest;
  • The amount of an ASP in a settlement should not exceed the amount of a noncontingent civil penalty payment;
  • Activities to be funded by the ASP should have a clear, substantial and verifiable nexus to the alleged violation;
  • The settlement should specifically describe the activities to be funded by the ASP;
  • The settlement should include a statement supporting the recipient’s ability to demonstrate how the funds will be spent; and
  • The settlement should require the plaintiff to obtain and maintain adequate records to document that the funds paid are spent on the activities described in the settlement.

• Reformulation As Conferring A “Significant Public Benefit.” The current guidelines state that product reformulation or other changes in defendant’s practices “constitute a sufficient showing” of the public benefit necessary to establish plaintiff’s entitlement of attorneys’ fees under California Code of Civil Procedure section 1021.5. The proposal would instead create a rebuttable presumption of a public benefit, and clarifies that the mere fact of reformulation may not alone establish the requisite significant public benefit.  This part of the proposal is intended “to discourage the initiation of cases that confer very little (i.e., trivial) public benefit, by raising the bar for determining when a settlement confers the ‘significant’ public benefit” required to establish entitlement to fees.  The proposed guidelines would require evidence showing that at least some of the products in controversy were above the warning level and that such products will be below the warning level as reformulated. The reference to “warning level” appears to refer to the exposure level of a Proposition 65 chemical; however, the phrasing of the proposed guideline is unclear.

• Out-of Court Settlements.  The proposed regulation clarifies that out-of-court Proposition 65 settlements must be submitted to the Attorney General for review, just like court-approved settlements, thereby clearing up an longstanding ambiguity on that question.

The Attorney General’s goals are commendable. It will remain to be seen whether, if promulgated in their current form, they will actually achieve the goals of accountability and reduction of trivial enforcement actions.