Thursday, January 30, 2014

Traps for the Unwary: California’s Prop 65

In a previous blog post in our ongoing series about legal and regulatory challenges specific to the multichannel merchant, I indicated that I would next discuss quirky California laws that can create traps for unwary merchants. The first of these is one of the many voter-initiated statutes enacted by referendum in California. Popularly known as Prop 65, the Safe Drinking Water and Toxic Enforcement Act of 1986 requires the State of California to publish a list of chemicals known to cause cancer or birth defects or other reproductive harm. This list, which must be updated at least once a year, has grown to include approximately 800 chemicals since it was first published in 1987.

Many of the chemicals on the list are present in common, every day products, and would require massive doses every day for a lifetime to produce an observable effect. For example, acrylamide is a chemical found in many common food products such as potato chips, breads, coffee, tomato sauce, breakfast cereal, and fruit preserves.  See But an individual would have to consume massive quantities of any of these foods every day to create any kind of appreciably increased cancer risk.  See id.  Nevertheless, Proposition  65 requires businesses to notify Californians about the presence of acrymalide and hundreds of other chemicals in the products they purchase.

Theoretically, by providing this information, Proposition 65 enables Californians to make informed decisions about protecting themselves from exposure to these chemicals. In practice, however, the law’s private enforcement (or “bounty hunter”) feature has resulted in a cottage industry of threatened and actual lawsuits brought for the purpose of extorting settlements. Because the statute permits the recovery of attorneys’ fees and places the burden on the defending company to prove that the chemical in question does not cause cancer, the cost of litigation is potentially astronomical. Consequently, there are strong incentives for defendants to settle Prop 65 lawsuits even if good defenses exist.

As of October 2013, Proposition 65 has been amended to provide relief to certain businesses that fail to provide warnings to consumers in specific situations, including restaurant sales of alcoholic beverages and food, secondhand smoke, and engine exhaust. But, the most onerous provisions, including the bounty hunter provision, remain.

Prop 65 can create a very thorny problem for unwitting business selling products in California; it applies even if the business is not located in California, and is unaware of the law’s requirements. Because the sweep of the law is so broad, it is virtually impossible to ensure that all products in a merchant’s assortment are compliant. Indeed it is likely that all are not. And even if all products themselves comply, packaging and labels also create risk. Accordingly, as with many compliance burdens, the best planning technique is to make sure that vendors’ suppliers are responsible for Prop 65 compliance for the products that they supply.

Please stay tuned for my next installment, in which I plan to discuss the California Abolition of Child Commerce, Exploitation and Sexual Slavery Act of 2011.

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