Nailed By A Bounty Hunter-A California Prop 65 Violation Can Cost Your Company

In the November 2012 issue, Michele continued her ongoing challenges as a newbie compliance manager. We felt her pain as she conducted her first product safety recall of a huge order of kids’ golf visors because they contained too much lead and violated the Lead Paint Rule of the CPSIA.

In this issue, we can again commiserate with Michele because she’s just received a California Prop 65 “Notice of Violation” advising her company, Golfster Promo, that an insulated lunch cooler bag they sold to a leading golf club manufacturer was found by a private enforcer (aka “bounty hunter”) to contain excessive levels of phthalates in violation of Prop 65. So, what is poor Michele supposed to do now?

First, Michele needs a crash course to learn what phthalates are. After searching various websites and consulting with her test lab, she learned they are chemical plasticizers added to plastic materials to make them softer and more pliable when manufacturing common products such as tote bags, stress balls, padfolio covers, inflatable pool toys and rubber ducks.

Michele learned that phthalates can leach from plastics into food and liquids from food containers, drinkware and plastic food wrap or when young children suck on plastic toys or teething rings. Studies show that when infants and toddlers ingest high levels of phthalates in their early development years, some types of phthalates may cause a disruption of their normal male and female reproductive development. In 2008, the Consumer Product Safety Improvement Act (CPSIA) was enacted with a rule to limit, in toys and child care products, the amount of six different types of phthalates that are suspected of causing hormonal disruption in young children. Those limits are set at 1,000 parts per million (ppm) for each of the banned phthalates that may be found in children’s toys and child care articles such as pacifiers, sippy cups and baby bottles. Michele was extremely relieved that her lunch cooler bag, which is intended as a general-use item, was safe under the CPSIA.

However, Michele’s uplifted spirits were quickly dashed when she discovered that Prop 65 has a different set of rules when it comes to phthalates and the products that contain them. She was shocked to learn that with Prop 65 there is no age limitation for products containing phthalates. So, Prop 65 was applicable to her vinyl lunch cooler bag, even though it was not a toy or a child-care article. She was stuck and didn’t know what to do with the Notice of Violation she had received from the private enforcer.

In her research, Michele quickly learned some basic points about Prop 65:

  • There are more than 800 chemicals listed under Prop 65 that are known to cause cancer, birth defects or other reproductive harm to humans if they are exposed to certain levels of the chemicals.
  • Unlike the CPSIA, which regulates the content, or how much of a harmful chemical is contained in a product, Prop 65 is an exposure regulation, meaning that it is intended to regulate how much of a harmful chemical is exposed to a member of the general public.  Exposure can be through touch, inhalation, ingestion and other means.
  • However, in recent phthalate and lead cases, instead of following the usual course of regulating chemical exposure levels for these chemicals, private enforcers and the state attorney general have made it easier for all parties by limiting the maximum amount of regulated phthalates to 1,000 ppm, thereby mirroring the CPSIA’s content limits for phthalates.
  • Michele also learned that her company could have avoided this violation if she had known that she could have applied a warning label to the product, giving California consumers a “clear and reasonable” warning that the cooler bag:“Contains a chemical known to the State of California to cause birth defects or other reproductive harm.” This warning label would have solved a lot of problems if she had known it was permissible under Prop 65 for most items sold or distributed in California.
  • Private enforcers are given full authority under the law to seek damages, fines and penalties on behalf of the state. They can also recover their attorneys’ fees and court costs. After a private enforcer serves its 60-Day Notice of Violation to the alleged violator, the California attorney general has a right of first refusal to take the case and prosecute it in its own capacity or to allow the private enforcer to bring the action in California courts on behalf of the state.
  • The vast majority of these cases settle out of court. Michele knew that she was “a little lamb on the way to a big barbecue” if she didn’t get her boss to hire a skilled Prop 65 attorney to help defend or settle this case in California. Luckily for Michele, her boss agreed that professional legal representation was needed, and he hired an experienced lawyer in San Francisco to file the necessary legal responses and start settlement negotiations. Unfortunately, the golf club client was also named as a party in the action, so Golfster Promo also had to defend and indemnify it from all damages and costs as well.

Independent testing of the bag revealed that samples of the bag contained high levels of DEHP, a banned phthalate, ranging from 1,176 to 2,295 ppm, which was clearly in violation of the 1,000 ppm maximum allowed by Prop 65. Is Golfster Promo doomed to lose this case? “Not so fast!” says the outside lawyer. If a company has fewer than 10 employees on its entire staff, the company is exempt from Cal Prop 65 requirements. Michele was elated! Golfster Promo had only five total employees, including the boss’ golden retriever, Emily, who served as the company’s receptionist in the front office.

Michele thought they had won. “Not so fast!” again said the lawyer. Unfortunately, the golf club client was also named in the Prop 65 suit, and they had more than 5,000 employees worldwide.  The attorney said that Golfster Promo must still resolve the action on behalf of its client. Golfster can either settle the action or go all the way to trial. Unfortunately, this case was a sure loser and the cost of litigating it would be prohibitively expensive, according to the lawyer, so Michele’s boss gave the attorney the instructions to try to settle the case for as little money as possible. After several weeks of intense negotiations, Golfster Promo agreed to pay $125,000 in fines and penalties, a $12,000 “donation” to the private enforcer’s nonprofit environmental education foundation and a reimbursement of $65,000 in attorneys’ fees. The total amount came to $202,000. Of that amount, the state received about $94,000 and the private enforcer got the remainder.

Learn How To Avoid Michele’s Situation

This scenario can happen to any supplier and distributor in our industry. When sourcing products that you believe may have a chance of being shipped to California, the best practice is to have the product tested to reduce the risk of violating Cal Prop 65. Although it’s impossible to test for all of the 800-plus listed chemicals, your lab may advise on what the “usual suspects” can be for the chemicals that may be found in the products you are testing. Recently, the most frequently filed actions have been for lead, cadmium, phthalates and formaldehyde, but always consult your test lab for additional guidance.

Leeton Lee has been in the product safety and compliance industry for 18 years, starting as in-house legal counsel at The Walt Disney Company where he worked for seven years and helped to form Disney’s industry-leading Corporate Product Integrity Department and managed the company’s legal matters for its worldwide product safety and liability program. As an attorney for approximately 25 years, he has extensive experience in regulatory compliance and product safety, namely in toys, children’s products, promotional products and apparel. In addition to working at Disney, he has performed associate general counsel duties at industry leaders Sega Gameworks and Equity Marketing (aka EMAK Worldwide). He is currently vice president of regulatory compliance and general counsel at drinkware supplier ETS Express, Inc. in Oxnard, California. He is also a member of PPAI’s Product Responsibility Action Group (PRAG).

 

>>What You Don’t Know…
…Can hurt your company—especially where product safety is concerned. Access PPAI’s website at www.ppai.org/productsafety for dozens of resources including product guides, live and on-demand webinars, articles and other documents and links designed to help educate distributors and suppliers about product safety requirements and compliance. Click on PPAI’s Product Safety Best Practice Guide on Prop 65 at the above link for more information on this topic.

 

7 Responses to Nailed By A Bounty Hunter-A California Prop 65 Violation Can Cost Your Company

  1. Mike Reno says:

    This is a fascinating — and SCARY article.

    Of course, if you are a California-based company, and selling to a California-based company, then I can see how this is an issue that you voluntarily face.

    But how on earth is a distributor supposed to know whether a product MIGHT be distributed in California?

    Should manufacturers and distributors provide warnings at the time of the order, saying something like, “These products are deemed safe everywhere EXCEPT MAYBE California. If you intend to distribute these products in California, you will be subject to an additional testing / certification surcharge.”

    Not trying to be sarcastic! I can imagine this could be an enormous problem for everyone selling ANYTHING ANYWHERE! All this would take would be for the end customer to send ONE of something to California.

    Of course, all of us in the United States want safe products, and we work to abide by the Consumer Product Safety Improvement Act (CPSIA). But we must now become experts in the unique laws of all 50 states?

    Maybe something less inflammatory, such as “These products were manufactured to the high standards established by the United States Consumer Product Safety Improvement Act, or CPSIA. If you intend to distribute these somewhere with more restrictive regulations, then please be sure to provide those regulations at the time you are placing the order.”

    Am I the only one who thinks this is nuts?

    • Mike, thank you for your thoughtful comments. Yes, it’s impossible for companies in our industry to know (1) if all of our products are fully compliant under Prop 65; and (2) if they will be shipped to California (most of the time, the end-buyer clients will ship products to their clients or satellite offices in CA without our knowledge). The PPAI PRAG group often uses the advice “make yourself a hard target” when giving webinars and courses on product safety and compliance. The more risk you reduce in your product compliance program, the smaller the target you become to regulators and “bounty hunters”. “Risk reduction” is the key goal in every company’s product compliance program, whereas “risk elimination” is virtually impossible. So, with Prop 65, the best practice is to simply assume that your product will end up in CA, and work with suppliers who have the testing data to share with you to confirm that they have tested for the “usual suspects” (meaning, the usual Prop 65-listed chemicals that are often found in the product in-mind). Eliminating hazards in the early stages of design/production is a huge step towards compliance and gaining confidence in your products.

      Applying warning labels does have its drawbacks because clients and consumers outside of CA may become alarmed by them and this can hurt future orders. Most CA residents are used to the labels because they’re everywhere. Don’t forget…most warning labels must be precise in the wording (Prop 65 warning labels are no exception) and the location of placement must be in-line with regulatory requirements.

      While on the issue of warnings, warning labels do not always shield a manufacturer or distributor from liability. This is very true with CPSIA and most state regulations. The old safety adage “you cannot warn away known hazards” rings true under all federal safety schemes. CA (under Prop 65) and Illinois (lead law; 40 ppm) allow for warnings so long as the product still complies with applicable federal regulations.

      Unfortunately, all of us in the consumer products world will be continuously challenged by new and more stringent regulations as time goes on. Various states, such as Washington, Maine and CA, have new regulations that will require manufacturers to register “chemicals of high concern” used in their products if such products are sold in their state. The WA and ME regulations apply to Children’s Products, but the CA Green Chemistry Initiative applies to all products. If it makes you feel any better, the EU has way more regulations than we have here in the U.S. for product safety and environmental protection.

      For more information about Cal Prop 65 and other state regulations, as well as on other product safety issues, PPAI has an excellent library of Best Practice Guides and past webinars available on its website. I also suggest attending the PPAI Product Safety Summit in Chicago on August 14 & 15, 2013 for an incredible day and a half of education in product safety and responsible sourcing. The Summit, together with PPAI NALC (held in conjunction with the safety summit) provide a great networking opportunity for those who attend.

      Thanks again for your insightful comments.

      • Mike Reno - Kopy-Rite says:

        Hi Leeton.

        Just now found my way back to this thread.

        I understand your point; to just choose suppliers that can provide the test data you need.

        Would you say there are a MAJORITY of suppliers, or a MINORITY of suppliers who could provide the test data needed for compliance?

        A few years back we needed to obtain some sort of material certification for optical discs — CD’s and. DVD’s — and it was absurd, premium vendors like Taiyo-Yuden, JVC, and even Sony struggled to provide the information. Eventually we were able to get it out of one of them, but it was a Herculean task.

        And those were common products manufactured by substantial international companies. Certainly not the typical supplier base for promotional products.

        I think that requiring test data would eliminate 90% of the potential vendors, which would be far more harmful to the business than simply slapping a “Not for use in California” label on products.

        Couldn’t we shift the burden — and the cost — of some of these absurd laws back on those that pass them?

        • Hi, Mike,

          Thanks for your latest post. Your interest and excellent questions are representative of the frustrations and challenges faced by many suppliers and distributors in our industry. It is encouraging that most companies share these challenges because there is power in numbers, as the old saying goes. If the industry keeps up the pressure, the manufacturers will have no choice but to assist their customers by providing testing documents and raw materials certificates. I’ve been seeing much progress in this area already in the promo products world.

          Four years ago, after the enactment of CPSIA, only a handful of suppliers did regular testing; if you took a survey today, you may be pleased to learn that almost all of the larger suppliers have testing programs in place and many can even provide you with a Bill of Materials (listing all of the components and materials used in making the product) to aid you in your compliance verification requests. There are many suppliers (and even component manufacturers) that produce items that are the “usual suspects” in Prop 65 actions that will have the appropriate Cal Prop 65 testing done to protect themselves and their customers. Plus, it’s an added marketing advantage to be able to tell their clients “yes, we are Prop 65 compliant with our products and our items don’t need warning labels”. How good is that for a buyer to hear?

          Here’s a tip when you are seeking chemical compliance documentation from a big component manufacturer, such as JVC, Sony and others like it: if you run into a wall with your contact, simply ask them to reach out to their Environmental Compliance Dept. and I will bet you a box of donuts that the environmental people will have the appropriate documentation you are asking for. Why? because all of these multi-national companies have to file chemical registration documents under REACH, RoHS, the EC General Product Safety Directive, and other environmental and safety schemes in the EU. In order to properly register their products, and the chemicals used in them, they have to have a properly documented Technical File for each item they make and distribute. Plus, many items in the EU are required to have a Declaration of Conformity that is based on testing. So, the next time you are faced with a challenge in getting documentation, have your contact check with their environmental compliance people. You may be surprised.

          Our industry is quickly getting up-to-speed with compliance requirements; although we are a few steps behind the toy industry, we’re making progress, and soon, any company that wants to compete, will have better documentation to verify their compliance.

          Thanks again for your response.

  2. Steve G. says:

    Mike,
    You are right on. This is nothing short of outrageous. My company has no choice but to put the warning labels on our product packaging. No way can we afford to test for over 800 chemical/phthalates, and we certainly can’t afford the fines and “donations”. You can’t even state “may contain”, you have to state “contains”. It seems that you’re suggestion is very good, but I would like to put “Item may not be sold in California due to unreasonable requirements not required anywhere else in the USA”.

  3. Jim Blair says:

    I don’t recall in the article, where this item was made.
    I suppose the old test for food will have to be used.
    “If it taste good….SPIT IT OUT!!!”
    So if it is soft and pliable, don’t buy it!
    I should think, the responsibility would be on the importer. Or if domestically produced, the mfg. If a car mfg produces and sells a car that does not meet emissions standards throuigh a dealer in Calif, would the dealer be liable as well as the mfg? Either way, it is over reaching, and has been made a precedent in a past case where the seller had made millions selling this stuff. But now the law is applied to the ma and pa 5 employee vendor, and is punitive beyond reason.

  4. jules rosen says:

    Another reason not to sell into crazy California nor keep assets in your company name

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