LEGAL NEWSLINE

SACRAMENTO (Legal Newsline) - As California Assemblyman Mike Gatto, D-Los Angeles, learned more about Proposition 65 and its impact on small businesses, he heard several stories that struck him as clear abuses of the law.

Restaurant and bar owners were being sued for failing to warn customers that beer could cause cancer. Coffee shop owners were forced to put up signs about the health risks associated with coffee beans. Another business owner who did display a warning sign was sued anyway because the sign was an inch too small.

"They had to pay a $5,000 settlement," Gatto said. "It's things like that, where people were taking the intent of a really terrific law and trying to stretch it to apply in a way that was just improper."

In recent years, Prop. 65, the Safe Drinking Water and Toxic Enforcement Act, has become one of many controversial topics that surface during debates over California's litigious environment. Political and community leaders laud the original purpose of the law, enacted by voters in 1986 to protect residents from chemicals known to cause cancer, birth defects and other reproductive harm.

But like Gatto, many of these leaders also recognize the law could further damage California's economy. The state identifies nearly 800 chemicals that could be harmful and requires business owners to warn consumers about potential exposure to each one of them. Business owners who fail to comply face fines of $2,500 a day.

Prop. 65 also includes a private right of action, meaning that private plaintiffs and their attorneys - whether or not they have been harmed - can sue business owners who don't display proper warning signs. In many cases, business owners agree to settle these cases rather than deal with costly litigation.

According to the Office of the Attorney General, there were 338 Prop. 65 settlements in California in 2011. Business owners paid $16.29 million to settle these cases. Nearly $11.94 million went to attorney fees and costs.

These statistics represent a significant increase from the previous year. The Office of the Attorney General shows that there were 187 Prop. 65 settlements in California in 2010. Business owners paid out $13.62 million in settlements, with $7.81 million directed to attorney fees and costs.

In Gatto's talks with small business owners, he learned that since 2012, nearly two dozen more brick-and-mortar businesses in southern California were threatened with Prop. 65 lawsuits for failing to post warning signs, or signs of the right size, for beer, wine or chemicals that result while cooking food.

Gatto introduced AB 227 in February as a way to eliminate what he calls "shake-down" lawsuits. The new bill gives small business owners who receive notice of a signage violation 14 days to reach compliance. It also requires them to pay a smaller $500 civil penalty.

"One of the goals with Prop. 65 was certainly to make sure warnings were put up," Gatto said. "You could look at my bill as somewhat as a 'fix-it' ticket ... We want to encourage compliance. We want to make sure that the public is fully informed. This is just an opportunity for businesses to get into compliance without facing very, very expensive lawsuits."

The Assembly Judiciary Committee passed AB 227 by a bipartisan, 10-vote in late April. The Appropriations Committee, currently chaired by Gatto, will now consider the bill.

Legal reform advocacy groups like Citizens Against Lawsuit Abuse and the Civil Justice Association of California agree that lawyers who file lawsuits for the primary purpose of extracting settlements from small businesses are abusing Prop. 65. They support Gatto's bill, contending that the state should refocus on its primary goal of protecting the public.

Tom Scott, executive director of CALA, a nonpartisan grassroots organization based in Sacramento, compares Prop. 65 lawsuits to Americans with Disabilities Act lawsuits, which have also plagued California.

"It took a long time for ADA lawsuits to really become an issue," Scott said. "I think part of it was because businesses didn't want to come forward and talk about it. They settled the lawsuit, and then, 'I'm done. I just want to get on with it.' Prop. 65 is sort of where ADA was eight years ago."

From Scott's perspective, AB 227 will be successful since Republicans and Democrats can both appreciate its ability to improve their state's economy.

"There's no reason why legal reform can't be bipartisan," he said. "The fact that a Democrat from Los Angeles is carrying this bill is great. To amend an initiative, you need a two-thirds vote, so the Democrats have to be players in this legal reform fight."

The Center for Environmental Health, despite initial opposition, also plans to support AB 227. CEH helped initiate hundreds of Prop. 65 legal agreements with dozens of major companies, including Target, Macy's and Disney, that forced them to eliminate harmful chemicals from their products.

But now, Charles Margulis, CEH's communications director, points out that the organization recognizes the importance of protecting both consumers and small business owners.

"We worked together with the Assemblyman to narrow down the concerns, which we share, around protecting small businesses that shouldn't be burdened by lawsuits that are really intended for major companies that put millions of people at risk," he said.

Last week, California Gov. Jerry Brown also answered the call to address problems with Prop. 65. He announced that the California Environmental Protection Agency, legislature and other stakeholders will consider measures that could strengthen and reform the law. These measures will build on current legislative efforts, including Gatto's proposed AB 227.

"Proposition 65 is a good law that's helped many people, but it's being abused by unscrupulous lawyers," Brown said in his announcement. "This is an effort to improve the law so it can do what it was intended to do - protect Californians from harmful chemicals."

According to the Office of the Governor, nearly 2,000 complaints were filed in the past six years by "citizen enforcers" who wanted to push businesses into settlements that provided little or no public health or environmental benefits.

Brown has proposed a package of potential Prop. 65 reforms, including capping or limiting attorney fees in Prop. 65 cases, allowing the state to adjust warning levels for certain chemicals and requiring more useful exposure information for consumers.