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Thursday, October 20, 2016

California Attorney General Adopts Litigation Amendments to Cap “Additional Settlement Payments”

California Attorney General Adopts Litigation Amendments to Cap “Additional Settlement Payments”

California’s Office of the Attorney General (OAG) has adopted amendments to its regulations governing private litigation brought under Proposition 65.

 

The new regulations will affect settlement terms, civil penalties, and attorney's fees in civil actions filed by Prop. 65 citizen enforcers.

 

The amended regulations:

  1. Cap the amount of additional settlement payments paid in lieu of civil penalties;
  2. Specify that penalty payments are used for purposes relevant to furthering the goals of Proposition 65.
  3. Clarify the criteria for determining whether a “significant public benefit” has been conferred, which is the prerequisite for a plaintiff to be awarded attorney's fees.

 

In September 2015, the California Attorney General’s Office proposed its amendment to Proposition 65 to ensure OEHHA received civil penalty funds as specified in Proposition 65 and to limit the ability of citizen enforcers to divert the statutory penalty to themselves or to third parties, in the form of additional settlement payments commonly characterized as In lieu of civil penalty payments.

 

According to the AG’s final statement of reasons the amended regulations will:

 

  1. Ensure California’s Office of Environmental Health Hazard Assessment (OEHHA) receives civil penalty funds so that it has adequate resources to implement Prop 65;
  2. limit plaintiffs’ abilities to “divert the statutorily mandated penalty to themselves” through additional settlement payments;
  3. increase the transparency of private party settlements; and
  4. reduce the financial incentive for private plaintiffs to bring Prop 65 cases that do not confer a substantial public benefit.

 

In response to the new regulations, the American Chemistry Council (ACC) said that Prop 65 remains “fundamentally flawed.” “Only a major overhaul will yield meaningful relief to businesses and meaningful information for consumers.”

 

The trade group said the same about OEHHA’s recently adopted Warning Regulation.

 

In its final statement of reason (FSOR), the Attorney General responded to public comments submitted to its office, acknowledging ambiguities concerning how the Attorney General would determine what type of relief qualifies as a “significant public benefit.”

 

In response to this question, it changed some portions of the final rule to clarify its intent that “agreements to reformulate, change emissions, or make changes to a defendant’s practices are presumed to confer a significant public benefit, only if the changes reduce or eliminate exposures to a listed chemical.”

 

According to a source at the OAG “the AG’s office will apply the presumption that reformulation confers a significant public benefit only if there is evidence that reformulation will in fact result in reductions. There is no significant public benefit if a company agrees to meet a standard that it’s been meeting the whole time. The regulation thus protects against sham reformulation agreements. It does not place a value on warnings over reformulation or other types of reductions.”

Many commenting parties to the proposed amendments have argued that ASPs should be eliminated entirely. The Attorney General countered this argument explaining that “with proper safeguards, ASPs have the potential to fund activities that further the purposes of Proposition 65 and are directly connected to the litigation.” This could include programs to monitor ongoing compliance with a settlement the OAG observed.

 

With respect to out-of-court settlements, the Attorney General rejected a comment calling for it to ban these type of settlements.  However, the OAG stated in its FSOR that out of court settlements should not be used to circumvent the judicial review of private Prop 65 settlements.

 

The OAG added that it intends to put private enforcers on notice of its view that ASPs do not belong in out-of-court settlements.

 

The OAG also stated that recovery of civil penalties, including ASPs, shall not be traded for payment of attorney’s fees, and cannot exceed the civil penalty assessed in a settlement.

 

The OAG’s statement was in response to concerns raised last year by a coalition of companies and trade associations spearheaded by the  

California Chamber of Commerce that capping ASPs would result in increased attorney’s fees that are not otherwise justifiable. 

 

The OAG said that it would consider additional amendments to prevent that scenario if it becomes necessary in the future.

 

 

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Jack Schatz

Jack Schatz

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