Prop 65 - Escaping a “Notice of Violation”
By Barbara Snider, Senior Counsel and John Hinman, Partner | March 25, 2019
Why do Proposition 65 notices matter? Every business – wherever located - that sells or ships a product with a chemical on the Proposition 65 list (over 1,000) to a California resident, must comply with the mandatory warnings.[i] And it doesn’t matter if the business is not physically in California. If the merchant sells directly to California residents over the Internet, or ships product to retailers in California, compliance with Proposition 65 and the required warnings is mandatory.
Last August we published a Booze Rules blog post outlining the requirements in the recently amended Proposition 65 law that became effective August 30, 2018. The August blog post contains detailed information regarding how to comply with Proposition 65 in different scenarios. Since the new regulations became effective we have performed multiple Proposition 65 audits and helped alcoholic beverage manufacturers and retailers (including restaurants and hotels) to become compliant. Click here to see the August 2018 blog post.
Recent events prompted us to revisit the requirements for Proposition 65 warnings for alcoholic beverages sold on the Internet.
Round One - Next Generation Notices of Violations by Fee-Seeking Plaintiff Lawyers
Notices of Violation for “failure to provide” required warnings for Internet purchases of alcoholic beverages have been received by many of our clients within the last month to six weeks. Each Notice was sent from the same private plaintiff and attorney. This attorney and plaintiff filed similar Notices against 52 companies within a two-week period.
Coincidence? We think not. This is a campaign to capture fees and penalties by leveraging compliance requirements with a bounty hunter statute.
The Notices were faulty because each client had complied with the basic Prop 65 regulations. We went to the California Attorney General’s office, pointed out the deficiencies in the Notices and succeeded in having these Notices dismissed.
Not only were the Notices against our clients dismissed, but the Notices for all the other businesses served with complaints by the same plaintiff lawyers were dismissed - - once we brought the deficiencies in our Notices to the Attorney General’s attention
Round Two – a New Tactic.
ALERT: The Attorney General’s office informed us that the same plaintiff (and his lawyers) have a new tactic - - they are now purchasing product from licensees in any state that sells alcoholic beverages to California residents over the Internet and are sending out new Notices for any business that does not have the required warning on the website and invoices. The purpose is to reach through the website to the check-out page, and to increase the universe of potential defendants to a nation-wide class of internet sellers.
Meanwhile, the Attorney General asked us to re-publish our blog post to be sure everyone is compliant (they are also encouraging education through trade associations). Note that while we had our clients’ Notices dismissed, it was only because they WERE compliant. Noncompliance with Prop 65 not only provides a bonanza for the Prop 65 Plaintiff’s Bar, it can be very costly to your business. Therefore, we recommend that you follow the new detailed rules and “safe harbor” texts to be compliant.
The August 30, 2018 Regulations in Detail
On August 30, 2018 new regulations requiring warnings about the dangers of exposure to alcoholic beverages and BPA in packaging went into effect. The regulations apply to all products requiring a warning sold to a California resident. If these detailed regulations are violated, the licensee may (and as of now will) face significant monetary penalties and attorney’s fees from the plaintiffs gathering to commence enforcement.
The California Attorney General has primary responsibility for enforcement but rarely sues for Proposition 65 violations. It is the private individual/lawyer allowed to act “in the public interest” who “enforces” the law by serving a business with “notice” of some alleged violation. The law provides a 60-day waiting period from the time the Notice is served before the plaintiff may file a civil lawsuit. The 60 days allows the Attorney General to take any action it deems appropriate. If the Attorney General takes no action within the 60 days, the party serving the notice may then file a civil suit upon the expiration of the 60-day waiting period.
If a business receives a Notice of Violation and is not yet compliant, it is allowed 14 days to become compliant and to notify the plaintiff and his/her attorney of this compliance (and pay a $500 fee). However, if the business does not become compliant within the 14 days, the law imposes penalties on a sliding scale ranging up to $2,500 per day per violation - going back as far as one year - plus attorneys’ fees and costs for the plaintiff. And, the penalty is not dependent on how much product is sold.
Unfortunately, most businesses who are not compliant already or become compliant within the 14 day “grace period” are generally forced to settle out of court for a significant sum because:
(1) In these cases, the law places the burden on the defendant to prove a violation did not occur;
(2) Very few insurance policies will cover the costs of Proposition 65 litigation;
(3) If the plaintiff wins, the defendant must pay all the plaintiff’s attorneys’ fees and costs but if the defendant wins, under this law, the defendant cannot recover attorneys’ fees from the plaintiff (the only possibility for the defendant to recoup costs is by seeking sanctions for filing a frivolous lawsuit); and
(4) The cost of litigation is generally too high for the benefit received.
To further illustrate: in the years 2016 and 2017, there were 687 private party “notices” that were settled out of court for a total amount of nearly $18 million. Over $14 million of the $18 million was awarded directly to the private attorneys for “attorney fees and costs.”
Providing the Mandatory Warning
The law requires that every manufacturer, distributor, importer, or retailer who sells an alcoholic beverage to a California resident regardless if the seller is located in-state or out-of-state, provide a “clear and reasonable” warning to every California purchaser of the alcoholic beverages before the consumer finalizes the purchase.
Although companies with 9 or fewer employees (small wineries for example) are generally exempted from providing the required warning, if products are sold to a larger retailer who is not exempt, the large retailer may require compliance by the small producer with the Proposition 65 warning requirement regardless of size or location. It is always a good practice to check your general retailer vendor agreements, and the terms of any retailer purchase order.
Specific Warnings Required for Alcoholic Beverages Sold on the Internet
These rules affect the alcoholic beverage warnings for Internet sales.
• Alcoholic beverages manufacturers/distributors have primary responsibility to provide the warnings. If selling directly to California residents, this notice must appear on the Internet site before completing the final purchase. If retailers are selling the manufacturer’s product on the retailer’s own Internet site, the manufacturer/distributor must provide the warning to the retailer and it is the retailer’s responsibility to provide the warning before completion of the purchase by any California resident.
• Note: The mandatory federal government warning on the label will not provide “safe harbor” under California law. The mandatory California warning is separate and distinct from the federal warning on the label, therefore a picture of the label and the federal warning on it is not sufficient warning for Proposition 65 purposes.
• The manufacturer/distributor/importer must keep a record proving it has provided the retailer with the mandatory warning text to be used for online product pages - - and keep a record that the retailer received it.
• The required notice to the retailers must be renewed annually.
• The retailer is responsible for the placement and maintenance of warnings for products sold over the Internet.
• The retailer can be found liable if he/she fails to adequately post the warnings provided by the manufacturer.
Electronic Warnings on the Internet
Proposition 65 warnings for online alcoholic beverage sales must provide the full warning text as described below and the warning must be “clearly associated” with the item being purchased. The warning “must be displayed with such conspicuousness as compared to other words” as to assure the warning is “likely to be seen, read, and understood by an ordinary individual under customary conditions of purchase or use.” The warning must be always be provided to the consumer before finalizing the purchase.
Placement of the Warning on the Internet
These three methods for providing the warning on the Internet are acceptable:
(1) Place the full text in a text box as described below directly on each product display page,
(2) Put the word “WARNING” on the product display page with a hyperlink that provides one-click immediate access to the full text, or
(3) Include the warning as part of the check-out process before the final purchase. Because the warning is only required for California residents, most websites use a pop-up for the warning during the checkout process whenever a California zip code is entered.
Important Note: A warning symbol alone without the hyperlink on a product display page is not compliant if the actual warning language is located elsewhere on the site and the purchaser must search for it in the general content of the website. The purchaser must not be required to search for the warning – it must be readily available.
Direct-To-Consumer Alcoholic Beverage Shipments
If an alcoholic beverage is being shipped directly to a consumer in California using a “package delivery service,” the alcoholic beverage warning must be on or in the shipping container or package “in a type size no smaller than the largest type size used for other consumer information on the product.” And never may the type size be smaller than 8-point. The rule requires that the warning “be readable and conspicuous” to the consumer before consumption of the alcoholic beverages.
A Quick Word about BPA Warnings
Although the federal Food & Drug Administration determined that any possible migration of BPA into the food is at safe levels and disagrees with the California listing, under the new Proposition 65 rules, any manufacturer with packaging containing any BPA must provide the warning.
BPA is commonly used in linings for beverage cans and bottle caps and in some synthetic corks. The only way to assure that your beverage packaging does not contain BPA is to obtain a letter of certification from the suppliers. If you are not sure, the safest way to proceed is to simply post the new BPA warning in tasting rooms, product catalogs and internet listings along with the alcoholic beverages warning.
The “Safe Harbor” Texts
The warnings must be in text boxes and include the word WARNING. The text should be large enough to be easily seen and read, but there is no mandatory size of the text when placing it on the Internet (note: physical signs to be posted in tasting rooms, et cetera, have mandated sizes and font sizes).
WARNING: Many food and beverage cans have linings containing bisphenol A (BPA), a chemical known to cause harm to the female reproductive system. Jar lids and bottle caps may also contain BPA. You can be exposed to BPA when you consume foods or beverages packaged in these containers. For more information, go to: www.P65Warnings.ca.gov/BPA
As we noted in our earlier Blog, the magic word is “safe harbor.” Know where the safe harbor is and dock there! NOW!
And, as always, please consult us, or your own personal counsel, for advice about specific situations.
[i] Proposition 65 is known as the “Safe Drinking Water and Toxic Enforcement Act of 1986.” The law is found in California Health & Safety Code § 25249.5 et. seq. and the specific regulations implementing the law are found in 27 CCR §25600 et. seq.