Governor Jerry Brown has shown a growing interest in reforming laws that are leading to abusive litigation in California. Last year he signed a bill to cut down on Americans with Disabilities Act lawsuits. This year he made reforming the California Environmental Quality Act (CEQA) a top priority because CEQA lawsuits have been blocking important development projects. And last week, Brown announced that he is taking on a new effort – reforming the well-intentioned but widely misused Proposition 65, an initiative approved in 1986.
We Californians have all seen the warnings…the store where you are shopping or the product you are about to use “contains chemicals known by the State of California to cause cancer or reproductive harm.” Sadly however, as the Sacramento Bee has reported in recent weeks in its coverage of pending legislation dealing with Prop. 65 (AB 227), a cottage industry of “shakedown” lawsuits has developed around these extremely generic warnings, which are filed when signs or labels are absent and allegedly needed. As the Brown administration put it, Prop. 65 is being “abused by some unscrupulous lawyers driven by profit rather than public health.”
AB 227 was introduced by Assemblyman Mike Gatto (D-Burbank) earlier this year to curb these lawsuits. Unfortunately, while the latest version of Gatto’s bill is a step forward by providing some narrow protections against lawsuits, it does not tackle Prop. 65’s underlying problems.
Enter Governor Brown. The Governor’s proposal cuts to the core of Prop. 65’s flaws.
First, he wants to limit the ability of attorneys to obtain large fees from Prop. 65 lawsuits and require plaintiffs to provide more support for their claims before litigation begins.
Prop. 65 can be enforced not just by the state attorney general and district attorneys, but also by private citizens. There is a civil penalty of up to $2,500 for each day a violation has occurred (which is why defendants often have to settle quickly), but a large majority of the money paid out goes to plaintiffs’ attorney fees.
In 2011 alone (the most recent year available), over $16 million was paid in Prop. 65 settlements and almost $12 million of that (73 percent) went to attorney fees. Since 2000, private plaintiffs’ attorneys have received, on average, 60 percent of Prop. 65 settlements ($96 million out of $157 million).
The financial incentives explain why more than 85 percent of the 338 cases in 2011 were filed by five plaintiffs and only three percent were brought by the Attorney General. As the Governor’s office pointed out, since 2008 nearly 2,000 complaints have been filed by private plaintiffs.
As if there weren’t enough financial incentives, there has also been a trend of diverting settlement dollars to private organizations “in lieu” of paying civil penalties, even though the state is supposed to get 75% of civil penalties for public health purposes.
In response to these trends, Brown’s proposal calls for courts to consider the reasonableness of attorney fee awards in light of the alleged violation, the benefit provided, and previous fee awards in Prop. 65 cases.
Plaintiffs would also have to demonstrate that the public would actually be exposed to a particular substance. Additionally, there would be limits on the amount of money that could be diverted in lieu of civil penalties and there would have to be a stronger connection between the case and how the money would be used.
Brown’s proposal also addresses the extremely low threshold used to determine where the law is applicable. When Prop. 65 was passed it applied to 29 substances. Now it applies to over 700. The result has been warning signs that are so commonplace that they are generally discounted and some businesses unnecessarily post warnings just out of fear of being sued.
Right now all exposures must fall 1000-fold below the “no observable effects” level to avoid the warning requirements. Brown would change this to 100-fold below that level, still very cautious, if the research is based on human exposure rather than animal exposure.
Lastly, the Governor would require Prop. 65 warning signs to be more specific so they are actually useful to consumers. There will be more discussion on how to accomplish this in a way that is feasible for businesses.
Prop. 65 is simply not working the way it was intended, and many small businesses are bearing the brunt of that. Brown is to be commended for recognizing this. Let us hope the Legislature follows his lead and improves Prop. 65 in a fundamental way.