Lawsuit Abuse

Under most federal or state environmental regulations, the government is in charge of ensuring that businesses comply with the law. But California’s Proposition 65 contains a unique “citizen lawsuit” provision. That means private citizens can file lawsuits against businesses they claim aren’t fully complying with the law—regardless of whether or not that’s true.

There are heavy incentives for citizens to file as many lawsuits as possible:

  • As a “bounty” reward, citizens or organizations that bring lawsuits against businesses are awarded one-quarter of the civil penalty paid by a business found in violation;
  • The majority of businesses opt to settle lawsuits out of court rather than going through the expensive and time consuming process of a trial—that means the odds of winning a judgment against a business is relatively high.;
  • There is no requirement that organizations or individuals prove that they have been injured in any way by whatever violation of the Prop 65 they are claiming; and
  • The plaintiffs’ attorneys’ fees are almost always paid at the end of litigation.

Some of those most active bounty hunters have brought in more than $100,000 per year in collected enforcement fees.

Ambulance

Trial Lawyers Profit over Taxpayers

Proposition 65 lawsuits are extremely lucrative for law firms. In 2013, businesses paid $17.4 million in Proposition 65 settlement payments. Of that total, a whopping 73 percent ($12.7 million) went to attorneys fees.

In 2012, businesses paid roughly $22.5 million in settlements under Proposition 65—up from $11.8 million in 2007.

lawyer-cartoonBetween 2000 and 2010, businesses paid more than $142 million to settle Proposition 65 cases—a figure that does not include the amount paid from cases that actually went to trial. Almost $90 million or 68 percent of that settlement money went to attorney’s fees.

Over that time period, cases brought by the State of California (rather than citizen bounty hunters) only accounted for $21 million, less than 15 percent of all settlement money collected.

The civil penalty component of Proposition 65 was set up so that the law would pay for itself and wouldn’t rely on funding from the legislature. But now civil penalties only account for a small portion of the money collected under Proposition 65 lawsuits.

Analysis of a 2012 report from the California Attorney General’s office shows that when businesses opt to settle rather than taking the case to trial, attorneys’ fees typically constitute 70-80 percent of the total amount businesses pay. For a handful of law firms, Proposition 65 lawsuits represent the majority of their caseload, collecting millions of dollars through Prop 65 lawsuit settlements.

Bounty Hunters Target Law-Abiding Businesses

These “bounty hunters” often go after businesses that are actually in full compliance with the law, but fighting the lawsuit is more expensive than just settling the case out of court. As an LA Times piece explains:

[T]he problem is that the law allows anybody to bring a case by finding a listed chemical in a product even if it is present in an amount 1,000 times below the ‘no observable effect’ level. The defendant can prove the level is meaninglessly low — but that is extremely expensive to do in court. Defendants end up settling with the plaintiff even when they are not liable, to avoid the expense of litigation.

Step-by-Step Guide for Prop 65 Bounty Hunters

new-flow-chart-prop65

Disproportionate Harm to Small Businesses

frowning-businessmanAny business, whether based in California or out-of-state, can be sued for violation of Proposition 65 by either the State of California or a citizen bounty hunter. While a larger corporation can more easily absorb the costs of such lawsuits, these lawsuits can devastate small businesses.

Small businesses are an easy target for lawyers specializing in Prop 65 litigation. They often lack the resources to fight a case in court and are more likely to settle cases out of court—a win for attorneys. Many are also unaware that they have to provide Prop 65 warnings if their establishments serve alcohol, have any exposure to tobacco smoke from customers smoking outside, or serve food items like coffee or burgers, which contain Prop 65-listed chemicals from the process used to roast or cook them.

Legislation passed by California’s legislature last year slightly alleviates this burden by giving businesses with fewer than 25 employees a 14-day window to put up Prop 65 signage, pay a $500 fine, and avoid a lawsuit. However, the new law doesn’t set any limits on how much trial lawyers can reap in fees from these lawsuits or require stronger evidence from those who bring lawsuits that there actually is a Proposition 65 violation.

Some of these small businesses have had to declare bankruptcy because of the lawsuits that were filed against them. Rather than having ‘gotcha’ lawsuits, we have to have a more reasonable approach for dealing with the issue.
—Former Assembly member Art Torres, one of the authors of Proposition 65

When my business was sued under Proposition 65, it was clear that the lawyer was far more interested in collecting attorneys’ fees rather than protecting the environment….When small business owners like me can so easily become the victims of shakedown lawsuits, it hurts California’s business climate and makes it more difficult for our state to attract businesses and create jobs.
Joe Derian, owner of Party Warehouse in Montebello