Client Alert: California's Green Chemistry Initiative Raises Many Litigation Concerns

Date: Jul 19, 2010

Understandably, most of the focus on California's Green Chemistry Initiative has been on regulatory issues.[1] In 2008, the California legislature enacted Assembly Bill (AB) 1879, requiring the California Department of Toxic Substances Control (DTSC) to establish a process to identify and prioritize Chemicals of Concern in consumer products and analyze their potential alternatives.[2] Once Chemicals of Concern have been identified, DTSC will have the authority to regulate their use in consumer products, with children's products and packaging as priorities.

Although seen primarily as a regulatory law, manufacturers cannot lose sight of the potential litigation concerns raised by the Green Chemistry Initiative. To clarify the identification and alternative assessment processes, DTSC published a "Draft Regulation for Safer Consumer Products" last month, and is required to finalize the regulation by the beginning of next year.[3] However, the draft regulation has raised more questions than answers. The draft rules provide little guidance as far as enforcement but there are provisions that could be important once the rules are finalized.[4] If the draft rules are enacted as currently written,[5] manufacturers could well be addressing these issues in a litigation scenario:

What Constitutes a Consumer Product and a Chemical of Concern?

California defines "consumer product" broadly, as "a product or part of the product that is used, brought, or leased for use by a person for any purposes."[6] Consumer products do not include:

  • dangerous drugs or devices;
  • dental restorative products;
  • food;
  • drug and food packaging;
  • pesticides; and
  • mercury-containing lights.

The DTSC is tasked with determining Chemicals of Concern, which are to be those chemicals of the highest priority based on a myriad of factors, such as the degree of threat posed by the chemical and the availability of data to substantiate the threats. Once the list of Chemicals of Concern has been prepared, DTSC will identify and prioritize Priority Products containing a Chemical of Concern, which are then subject to limitations under the regulations.

DTSC is relying heavily on information from other nations and states to identify Chemicals of Concern. Under the companion bill to AB 1879, Senate Bill (SB) 509, DTSC is required to establish a Toxics Information Clearinghouse to identify, organize and manage available data on chemicals.[7] The data will then be used to identify hazards, risks, and environmental and health concerns. The clearinghouse, which will be made publicly available, could allow California to use other states' or countries' toxicological conclusions at face value without verifying the test results. The politicization of debates about some substances, often divorced from actual science and risk, will obviously introduce added uncertainty into judgments about using chemicals.

What Are the Consequences of Non-Compliance?

If a manufacturer fails to comply with any of the Priority Products rules, DTSC can notify retailers that the product cannot be sold in California and even recall the product. Manufacturers can dispute DTSC's findings first through an informal dispute resolution process and then through a formal petition process.

Although unclear exactly how the regulation would be enforced, DTSC may audit manufacturers for compliance and take actions that include injunctive relief and penalties. The draft regulations reference fines and penalties enforced under California's Health and Safety Code, which provide for civil penalties of up to $25,000 per violation.[8]

It is also uncertain if violations will result in criminal prosecution under the regulation. If criminal enforcement provisions from the California Health and Safety Code are included in the final regulations, a conviction could result in fines of $250,000 and up to nine years in jail.[9] Furthermore, under the California Corporate Criminal Liability Act:[10]

  • Corporations and their managers are criminally liable when they fail to warn their employees and report to a regulatory agency the existence of "serious concealed dangers of which the corporation and its managers have actual knowledge.…"
  • "Serious concealed danger" is the normal or foreseeable use of a product or practice that creates a substantial probability of death, great bodily harm, or serious exposure to an individual to whom the danger is not readily apparent
  • Three years in prison and fines of $25,000 can be imposed on individuals, and fines of up to $1,000,000 can be imposed on corporations.

Of course, due process must be afforded to all litigants. Notice will be fundamental, but California has notice provisions already laid out in the draft regulation.

DTSC would of course have the right to enforce the regulation against all retailers and manufacturers in California; however, the regulations could also apply to sellers outside of the state who ship products into California. For example, under California's well-known Proposition 65, courts have upheld broad jurisdictional claims over out-of-state manufacturers, indicating that the minimum contacts jurisdictional requirement is met when shipping into the state.[11]

What Non-state Sponsored Litigation May Arise Under the Green Chemistry Initiative?

It is also unclear how the courts will define the spectrum of injuries allowed for prosecution under the law. If broadly interpreted, the injuries could include harm to virtually any organ system, apply to acute and chronic diseases, and even include latent diseases or fear of getting a disease. This also raises questions of causation. What will be the mechanism for assessing causation? Will there be a toxicological assessment? A dose-response or temporal assessment? Or maybe one of the common plaintiff-advocated alternatives to causation, such as "totality of the evidence" or "genetic susceptibility"?

Furthermore, a purchase of a consumer product may qualify as an "injury," as buying a Priority Product could meet the criteria for an injury, opening up the potential of class actions lawsuits and making companies vulnerable to attacks by consumers.

This also leads to questions of how far the regulations will reach. Workplace exposure to Chemicals of Concern could lead to worker safety claims. There are also issues of how manufacturers will need to dispose of chemicals that are newly designated as Chemicals of Concern. Companies may be responsible for communicating potential risks of Chemicals of Concern to their employees, as well as protecting them from the risks. The use of a Chemical of Concern in a facility could also potentially adversely impact an employer's defense of a wrongful termination claim by providing the terminated (plaintiff) employee "whistleblower" status.

Moreover, citizen groups are likely to file suit under § 17200, California's Unfair Competition Law, as often seen in conjunction with Proposition 65.[12] The Unfair Competition Law is frequently used by environmental advocates as a way to enforce environmental laws against state businesses. Section 17200 allows anyone to sue a business in violation of any state law on behalf of the public. Notably, § 17200 requires no personal injury to the plaintiff bringing the claim.

Companies will also need to assess and to protect themselves from potential exposure of trade secrets. The regulation is inherently contradictory on this subject. Although there is a provision allowing companies to assert a confidential claim for trade secret protections, DTSC has the discretion to review these claims and independently determine if the information is properly designated as a trade secret. If DTSC decides the information is not confidential, it could become available to the public.

How Should Manufacturers Prepare for the Final Rule?

Manufacturers need to affirmatively address how this regulation will affect them from all aspects, including litigation. It is critical that manufacturers understand all chemicals used in their entire production process and how they may be impacted. Products with Chemicals of Concern may need to be reformulated or the state could ban them from sale. It is undeniable that California will have certain regulatory power. The prudent manufacturer will take the time to assess the impact the finalized regulations will have on potential litigation and start preparing to mitigate its potential adverse consequences.

For more information on Green Chemistry and other California requirements, contact Leslie T. Krasny, krasny@khlaw.com or Diana G. Graham, graham@khlaw.com. For more information on Green Chemistry and product safety, contact Sheila A. Millar, millar@khlaw.com, J.C. Walker, walker@khlaw.com, or Alisa A. Karlsons, karlsons@khlaw.com.

[1] Official website of the Green Chemistry Initiative is located at: http://www.dtsc.ca.gov/pollutionprevention/greenchemistryinitiative/index.cfm.

[4] For more information on California's recently released draft regulations, see http://www.khlaw.com/showpublication.aspx?Show=3794.

[5] The DTSC held two informal public workshops and accepted public comments through July 15. The DTSC may revise the draft regulations based on comments received.

[6] Cal. Health & Safety Code § 25251.

[8] Cal. Health & Safety Code § 25189.2.

[9] Cal. Health & Safety Code §§ 25180-25196.

[10] Cal. Penal Code § 387.

[11] California's Safe Drinking Water and Toxic Enforcement Act of 1986, commonly referred to as Proposition 65, requires the Governor to annually publish a list of chemicals known to cause cancer or reproductive toxicity. The Act also requires businesses to clearly label products that contain any listed chemicals.

[12] Cal. Bus. & Prof. Code § 17200.