Changing Tide: Ruling for Defense in Prop. 65 Case
Bucks the Trend

By Scott D. Pinsky and William W. Funderburk Jr.

© Copyright 1997 Daily Journal Corp. Reprinted with Permission.

Scott D. Pinsky and
William W. Funderburk, partners in the Los Angeles office of Radcliff, Frandsen & Dongell, practice in the areas of environmental compliance and litigation. The firm represents the defendant in California Earth
Corps v. U.S. Battery.

Companies besieged (or fearing imminent attack) under California’s Proposition 65 can take heart that all is not bleak on the horizon as cases brought under that law wend their way through the courts.

Of all the environmental laws in the arsenal of prosecutors and citizens groups in California, the weapon often perceived by industry as the most predatory is Proposition 65, the Safe Drinking Water and Toxic Enforcement Act of 1986, Health and Safety Code Section 25249.5 et seq.

The act provides for $2,500 daily civil penalties for companies that "knowingly and intentionally" fail to warn others of exposures to listed carcinogens or reproductive toxicants. It also authorizes suits to enjoin and punish the discharge of such chemicals into a "source of drinking water" within California. (Drinking water sources include most of the states ground water and many of its surface waters. See "Policy for Water Quality Control Defining Sources of Drinking Water," Resolution No. 88-63, State Water Resources Control Board (May 19, 1988).)

Passed as a voter initiative 11 years ago, Proposition 65 has cropped up frequently of late in the legal and general press due to the near epidemic of citizens’ suits and government prosecutions that have germinated in recent years. This rising tide of public and private Proposition 6.5 actions – still far from its likely peak – has manifested in cases from product-warning suits to effluent-discharge claims to the highly publicized water-faucet and calcium cases. See, e.g., Committee of Dental Amalgam Manufacturers
v. Stratton, 92 F.3d 807 (9th Cir. 1996) (holding Proposition 65 warnings are required of manufacturers of silver dental fillings); People v.
Warner Lambert, 984503 (action filed in San Francisco Superior Court against manufacturers of calcium-supplement products).

Thus far, most of the news for industry has been bad – or worse. Some courts have interpreted the act expansively (as the California Supreme Court did while finding water faucets to be a "source of drinking water" in the recent American Standard decision, California
v. Superior Court of the City and County of San Francisco, 14 Cal.4th 294 (1997)). Other courts have refused to curtail the applicability of Proposition 65 to manufacturers doing business within the state (e.g., by finding that the Federal Hazardous Substances Act. 15 U.S.C. Section 1261, does not pre-empt the Proposition 65 warning requirements in the recent decision in People v. Cotter & Co., 53 Cal.App.4th 1373(1997)).

Now, a Riverside County Superior Court judge has bucked the trend by issuing a ruling that, if followed by other courts, could dramatically shift the entire debate over Proposition 65.

In his July order in California Earth Corps v. U.S. Battery Mfg..Co., 277313, Judge Gary Tranbarger granted the defendant’s motion for summary adjudication in part by issuing three unprecedented rulings.

First, Judge Tranbarger held that the applicable statute of limitations under Proposition 65 is one year, not four years as argued by plaintiff California Earth Corps.

Second, the judge found that under the applicable regulation’s quarterly-warning requirement, US Battery could be penalized for, at most, four violations per year, not hundreds of violations as California Earth Corps maintained.

Third, Judge Tranbarger limited the applicability of any related claims (such as California Earth Corps’ unfair competition count) to the Proposition 65 one-year limitations period.

The judge’s ruling was occasioned by what began as a fairly routine citizens’ lawsuit under Proposition 65. Based on US Battery’s regulatory filings with the South Coast Air Quality Management District and other agencies, California Earth Corps filed suit alleging that US Battery, a local specialty battery fabricator, had "knowingly and intentionally" exposed area residents and workers to lead without an adequate warning that conformed to Proposition 65 regulatory standards. US Battery fought back.

First, the company developed a substantial technical defense by conducting costly source tests of the facility’s air-emissions control equipment. These tests demonstrated that no lead exposures requiring Proposition 65 warnings had occurred as a result of the company’s operations.

Next, US Battery moved for summary judgment (or summary adjudication in the alternative) based on a number of factual and legal arguments. The company asserted that it is not responsible for emissions causing exposures to lead in violation of Proposition 65. Therefore, no warnings were required, US Battery maintained.

Even assuming, arguendo, that a warning requirement existed, US Battery argued, the applicable regulations, 22 Cal. Code of Regs. Section 12601(d), require only quarterly notification to area residents, not daily warnings. Thus, as a matter of law, a party charged with violating such a warning obligation cannot be subjected to daily fines.

While the court stopped short of making the factual findings that US Battery contended would entitle it to summary judgment, the court’s ruling was nonetheless a clear win for the defendant because it effectively limits the civil penalty that can be assessed against US Battery to $10,000 (that is, $2,500 per fine multiplied by four).

The plaintiff, California Earth Corps, has also asserted its right to collect attorney fees under Code of Civil Procedure Section 1021.5.

The court’s ruling on the number of chargeable violations pursuant to Proposition 65 appears to have been based in part on the fact that US Battery issued quarterly newspaper warnings during the year prior to California Earth Corps’ 60-day notice of intent to sue under the act. The adequacy of these warnings was held to be a triable issue of fact: California Earth Corps contends the warnings must be more specific and must be mailed to separate households. Nevertheless, the court’s decision to limit the potential penalty facing the company was based on the fact that US Battery had endeavored to comply with the alleged quarterly published-warning obligation each quarter for at least one year – the limitations period under the court’s ruling.

The US Battery ruling, while a trial-level decision, is a landmark in the efforts of industry and the defense bar to thwart what many see as frivolous litigation under Proposition 65’s citizens’-suit provision. If this holding is affirmed on appeal or otherwise followed by courts throughout the state, the playing field under the statute could be transformed. While attorney fees and costs would continue to drive citizens’ suits, the hammer of $2,500 daily civil penalties may become essentially unavailable in cases where a quarterly warning requirement is the appropriate means of complying with the act.