CALIFORNIA'S INNOVATIVE WAYS TO SUE BUSINESS
Proposition 65, the originally well-intentioned law enacted in 1986, is now one of the plaintiffs’ bar’s favorite tools to exploit. Baseless Prop-65 litigation unjustly burdens companies that do business in California. The money companies spend on compliance and litigation unnecessarily drives up the cost of goods for California consumers. Prop-65 also subjects consumers to frivolous warnings declaring that everything from brass knobs to Disneyland causes cancer.
Under Prop-65, businesses are required to place ominous warning signs on products when tests reveal the presence of even the slightest, non-threatening trace of close to 1,000 listed chemicals that state environ- mental regulators deem carcinogenic or otherwise toxic. A troublesome part of the law allows private citizens, advocacy groups and attorneys to sue on behalf of the state and collect a portion of the monetary penalties and settlements, creating an incentive for the plaintiffs’ bar to pursue these types of lawsuits. Each year, they send thousands of notices to companies threatening Prop-65 litigation and demanding a settlement. Food and beverage companies are among the prime targets.
Prop-65 also harms small businesses that do not have the in-house expertise or means to add the necessary warnings or handle litigation. Failure to comply can cost up to $2,500 per day in fines, and settlements could cost $60,000 to $80,000.
Prop-65 bounty hunter actions have nearly doubled since 2015 and quadrupled over the past decade.
According to the California Attorney General’s office, businesses settled approximately 613 Prop-65 claims in 2019 totaling $12.7 million. Nearly 90 percent of this money ($11.2 million) went to the attorneys who brought the lawsuits to cover their fees and costs. There were an additional 283 judgments in 2019 that led to a total payout of $18.5 million, over $13 million of which was attorneys’ fees.
Through the first ten months of 2020, businesses settled another 322 Prop-65 claims to the tune of $6.6 million. 85 percent of that amount ($5.6 million) went straight into the pockets of plaintiffs’ lawyers for their fees. Prop-65 claims also resulted in 175 judgments totaling $9.4 million with $6 million going to the lawyers.
The Office of Environmental Health Hazard Assessment (OEHHA) issued two amendments to Prop-65 regulations in 2020. The first limits when a retailer is required to provide a Prop-65 warning. The other allows manufacturers and producers to decline to place warnings on packaging if they provide authorized notice to the in-state retailer. Businesses that sell in California are required to place Prop-65 warnings on products, even if they are not based in the state. Because of the liability associated with Prop-65 and additional costs to add warnings, some companies have limited their business in the state. These amendments should help ease some of the burden, but it remains to be seen how courts will interpret these changes.
While lawyers continue to file Prop-65 lawsuits at a rapid rate, 2020 brought about some positive developments in the litigation over two of the most targeted Prop-65 chemicals.
The most infamous Prop-65 case involves Bayer’s Roundup® products. California added the popular weed killer’s active ingredient, glyphosate, to the Prop-65 listing in July 2017; however, in June 2020, a federal judge pushed back against California’s baseless warning requirement.
Regulators and scientists worldwide have deemed glyphosate safe, with the exception of the International Agency for Research on Cancer (IARC), whose study was riddled with controversy. The single IARC report stating glyphosate is carcinogenic is in stark contrast to more than 800 studies submitted to the U.S. Environmental Protection Agency.
Federal Judge William Shubb ruled that California cannot require Bayer AG to label its glyphosate-based weedkiller Roundup as “known to the state of California to cause cancer.” Judge Shubb stated “Notwithstanding the IARC’s determination that glyphosate is a ‘probable carcinogen,’ the statement that glyphosate is ‘known to the state of California to cause cancer’ is misleading. Every regulator of which the court is aware, with the sole exception of the IARC, has found that glyphosate does not cause cancer or that there is insufficient evidence to show that it does.”
Aside from Prop-65 litigation involving glyphosate, there are also several personal injury lawsuits. California judges have allowed plaintiffs’ lawyers to present and juries to rely on the rogue IARC report as the basis for multi-million-dollar and even multi- billion-dollar judgments in cases claiming Roundup caused a person’s cancer.
Bayer was hit with a nearly $2.5 billion judgment in a California state court in May 2019, including $2
billion in punitive damages. In that lawsuit, a couple blamed Roundup® after they developed non-Hodgkin’s lymphoma (NHL) (the cause of NHL is unknown and has many common risk factors). The judgment was reduced to $78.5 million and then reduced further by a California appeals court. In June 2020, Bayer, facing the cost and risk of defending approximately 125,000 lawsuits – many of which are in California state courts or federal multidistrict litigation in California – proposed an $11 billion settlement to cover about 75 percent of its Roundup® cases nationwide. Under the proposed agreement, plaintiffs’ attorneys will receive 25-33 percent of the settlement cost, around $3 billion.
Bayer later withdrew its request for approval of $1.25 billion of the settlement to be allocated to future claims. The judge handling the case expressed skepticism and said he was inclined to reject this portion of the settlement because of the uncertainty surrounding future cases.
While the settlement is yet to be finalized, negotiations continue, as does the litigation.
California businesses are fighting back against another Prop-65 labeling requirement for products that contain Acrylamide. Acrylamide is a chemical that can form in some foods during high-temperature cooking processes, such as frying, roasting, and baking. The chemical was added to the Prop-65 list in 1990 as a carcinogen and in 2011 as “causing reproductive and developmental effects.”
In March 2020, the California Chamber of Commerce filed a lawsuit challenging enforcement of the state’s requirement to provide a cancer warning on food and beverage products containing acrylamide. The complaint claims the cancer warning is highly misleading because acrylamide is not intentionally added to food products, but is instead formed naturally. Furthermore, there is no reliable scientific evidence to show that acrylamide is a human carcinogen. Thus, this requirement violates companies’ First Amendment rights. Over 560 60-day notices have been filed for violation of Prop-65 related to acrylamide.
No government entity, including the California Environmental Protection Agency’s Office of Environmental Health Hazard Assessment (OEHHA), has identified acrylamide as a known human carcin- ogen. The OEHHA website explains that acrylamide may be formed when “[p]lant-based foods that are rich in carbohydrates… [are] baked, fried, or roasted,” whether prior to selling the product or at home after purchasing the product. Acrylamide can be found in many products, from breads to cereals to potato chips. In 2019, OEHHA adopted a regulation that states, “exposure to chemicals known to cause cancer that are created during coffee bean roasting and brewing do not pose a significant risk of cancer.”
In July 2020, a judge for the Superior Court of Los Angeles County ruled that Starbucks could use OEEHA’s 2019 regulation to defend allegations it had violated Prop-65. Following this decision, the court dismissed the lawsuit. On August 25, 2020, the Superior Court of Los Angeles County granted summary judgment for several coffee roasters, holding that the plaintiff’s lawsuit was barred by the regulation. The court further held that the defendants had met their burden of proof in showing that acrylamide does not cause cancer, and that Plaintiff could not show that the regulation was invalid.
An issue that continues to escalate is the plaintiffs’ bar’s abuse of California’s Song-Beverly Consumer Warranty Act, otherwise known as the California Lemon Law. While problem rates with auto manufacturing have generally decreased since 2012, lemon lawsuits have increased. Suits doubled between 2015 and 2019. Los Angeles Superior Court Judge Richard L. Fruin, Jr. estimates that 10 percent of cases on an Independent Calendar (IC) judge’s docket are Lemon Law claims.
The Song-Beverly Consumer Warranty Act clearly defines the obligations of consumer goods manufacturers. Under the law, a manufacturer guarantees that a product is in order when sold. Should a product fail in utility or performance, the manufacturer must repair or replace the product or make restitution to the buyer in the form of a purchase refund. The Act also limits punitive damages to no more than twice the amount of actual damages.
The intent of the law was to ensure manufacturers would repair, replace, or repurchase a consumer’s defective vehicle as quickly as possible. However, plaintiffs’ lawyers have learned to exploit loopholes in the law and create windfalls for themselves at the expense of a fair resolution for consumers. The law provides an incentive for attorneys to pursue litigation even when companies make a reasonable offer and consumers may be inclined to settle. This draws out the process for consumers and delays the time it takes to reach a fair resolution. The costly litigation also drives up the price of vehicles in the state. The true winners of the prolonged litigation are the plaintiffs’ lawyers. By dragging out a case, they run up hefty legal fees on top of the statutory Lemon Law fee entitlement.
The most egregious example to date came out of the San Diego County Superior Court in August 2020. In this case, the plaintiff was awarded a mere one dollar in damages, but the plaintiff’s attorneys in the case received over $680,000. The plaintiff’s lawyers claimed they worked over 1,505 hours on what was a very straightforward Lemon Law case and initially requested over one million dollars.
In yet another example of abuse, a plaintiff sought to be reimbursed for her defective car, a new Dodge Avenger that she purchased for $25,749. FCA made several reasonable offers, and the plaintiff accepted the fifth amended offer of $75,000 plus reasonable costs, expenses and attorneys’ fees. She then filed a motion requesting fees and costs totaling a whopping $163,205.60. FCA opposed the motion because the plaintiff’s attorneys “apparently thwarted FCA’s efforts to settle this case in early 2014 for no valid litigation objective.”
The trial court greatly reduced these fees to those incurred prior to FCA’s first settlement offer ($2,221.95), because it “had acted reasonably and in good faith in making its settlement offer.” On appeal, the appellate court reversed, finding that the trial court had applied the incorrect legal standard in determining attorney’s fees.
In another case, after the jury awarded the plaintiff $30,412, she requested $510,247.50 in attorney’s fees for multiple firms and $46,852.09 in costs and expenses. The court in large part rejected the request because the defendant’s settlement offer in 2017 was $37,106, greater than the jury award. Instead, the plaintiff was awarded attorney’s fees incurred up until the settlement offer, totaling $5,510. The court also largely rejected the plaintiff’s request for costs and expenses, awarding $1,159.18. While the court handed down a fair out- come, the requested attorneys’ fees exemplifies perfectly the abuses taking place in California.
In July 2020, the California Supreme Court further expanded liability under the Song-Beverly Warrant Act by incorporating registration renewal and nonoperation fees as incidental fees that a buyer may recover in a suit. The plaintiff initially invoked the Lemon Law to return his car for a settlement, but the parties could not agree on an amount. At trial, the plaintiff was awarded $47,708.06, including the initial registration fee, but excluding registration renewal fees and a nonoperation fee. Defendant appealed, and the appellate court affirmed. The Supreme Court held that registration fees, including renewal nonoperation fees, may qualify as incidental damages for which the buyer may recover if the fees are incurred after the seller has failed to promptly provide the buyer with restitution.
CALIFORNIA’S “SUE YOUR BOSS LAW”
Enacted in 2004, California’s Private Attorneys General Act (PAGA) has become known as the “Sue Your Boss” law. While its initial purpose was to protect workers, it has done little to help them. The plaintiffs’ bar has been the true beneficiary. “PAGA lawsuits have made it more difficult for family-owned businesses like mine to be flexible with employees,” says Ken Monroe, chairman of the Family Business Association of California and president of Holt of California.
PAGA authorizes “aggrieved” employees to file lawsuits seeking civil penalties on behalf of themselves, other employees, and the State of California for labor code violations. Many PAGA lawsuits revolve around technical nitpicks, such as an employer’s failure to print its address on employees’ pay stubs, even though the address was printed on the paychecks themselves.
75 percent of the penalties paid by non-compliant employers go to the state’s Labor and Workforce Development Agency while only 25 percent goes to the “aggrieved employees” and their lawyers who take a third or so of that. In some cases, the plaintiffs’ lawyers receive even more.
California courts have allowed plaintiffs to circumvent arbitration clauses by refusing to enforce them with regard to PAGA claims. In May 2020, defendants attempted to compel arbitration of the plaintiff’s multiple wage and hour claims under the employment contract provision. The appellate court compelled arbitration of all of the claims except the PAGA action for the initial employer because PAGA actions are brought on behalf of the state, who was not party to the original contract. According to California courts, because employees act as agents of the state when filing PAGA cases, pre-dispute arbitration provisions in employment contracts are invalid. The state is not a party to the employment contract, and therefore, PAGA litigation is not bound by the contract provisions.
A March 2020 California Supreme Court ruling will further expand liability under PAGA. In Kim v. Reins International California, Inc., the Court held that even after an employee settles his or her own labor claim with an employer, the employee can bring a PAGA lawsuit on behalf of others. Although both the trial and inter- mediate appellate court found the plaintiff was no longer “aggrieved” as a result of the settlement, the state high court disagreed. California lawyers have observed that the decision is “yet another example of judicial ingenuity coming to the aid of an employment plaintiff, while complicating efforts to resolve PAGA claims.”
UNCERTAINTY SURROUNDS CALIFORNIA TRIAL LAWYERS’ LATEST STATUTORY GOLD MINE – THE CALIFORNIA CONSUMER PRIVACY ACT
The California Consumer Privacy Act (CCPA) went into effect on January 1, 2020, and a cloud of uncertainty surrounds it. Enacted in 2018, the CCPA is considered the most radical privacy law in the country. The California attorney general has not clarified ambiguities (including key terms) in the CCPA, which leaves businesses to fend for themselves in interpreting the legislation and dealing with enforcement actions.
Enforcement began on July 1, despite the ongoing COVID-19 pandemic. It is all but certain that the confusion around the statute will benefit the trial bar, as a flood of litigation is sure to follow. This places additional burdens and stresses on businesses in the state that are struggling to survive the economic fallout from COVID-19.
Consumers can sue for cash awards following a data breach without proving an actual injury, making it easy for trial lawyers to bring massive class actions. The law also provides for treble damages and attorneys’ fees, creating a large incentive for the plaintiffs’ bar to file lawsuits.
California voters weighed in on the CCPA in November, and increased its significant burden on businesses. The California Privacy Rights and Enforcement Act (Prop 24) passed on November 3. This Act will replace the CCPA and addresses some of the CCPA’s ambiguities. It also eliminates a business’ 30-day window to cure, grants new rights to consumers, and increases business’s contractual obligations. It also creates the California Privacy Protection Agency to enforce the CCPA, which will fine businesses $2,500 for violations and $7,500 for intentional violations and those involving a minor. The Act takes effect in January 2023, but applies to data being collected from January 1, 2022.