Court Allows Pre-Enforcement Review Of "No Significant Risk" Exemption To Proposition 65 Warning Requirement
August 04, 2004
In an important decision that signals potential relief for businesses faced with high-stakes disputes over Proposition 65 compliance, the Third District Court of Appeal has held that a business may seek a judicial determination granting an exemption from warning requirements without waiting for a government or private enforcement action. Baxter Healthcare Corp. v. Denton, 2004 Cal. App. LEXIS 1054 (July 1, 2004). The Court of Appeal also affirmed the Superior Court’s conclusion that Baxter Healthcare (“Baxter”) had established, by a preponderance of the evidence, that it was entitled to a “no significant risk” exemption from Proposition 65 warning requirements where the biological mechanism by which the chemical causes liver cancer in laboratory animals does not exist in humans.
Background on Proposition 65
In 1986, California’s voters enacted California’s Safe Drinking Water and Toxic Enforcement Act, commonly known as Proposition 65. The statute requires businesses with 10 or more employees to provide a clear and reasonable warning of exposure to any chemical that is on a comprehensive list of chemicals “known to the state of California” to cause cancer or reproductive toxicity unless a specified statutory exemption applies. A list of chemicals, which is updated on an annual basis, must include not only those chemicals that are known to cause cancer in humans, but also those that are known to cause cancer in experimental animals. There is “broad scientific acceptance” of the inference that carcinogenity in animals means carcinogenity in humans.
Under certain circumstances, exposures to listed chemicals are exempted from the Proposition 65 warning requirements. One such exemption is if the entity responsible for the exposure “can show that the exposure poses no significant risk assuming lifetime exposures at the level in question for substances known to the state to cause cancer.” The burden of showing that an exposure meets these criteria is on the defendant.
Actions for alleged violations of Proposition 65 may be brought by government enforcement agencies or by “private attorneys general” following notice to the businesses and to the government. Most Proposition 65 litigation is brought by private attorneys, environmental groups and consumer groups. Courts are authorized by statute to impose injunctive relief, order civil penalties of up to $2,500 per day for each violation, and award attorneys’ fees.
Pre-Enforcement Determination of Exemption Where Actual Controversy Exists
Baxter manufactures, among other medical devices, intravenous (“IV”) bags and tubing that contain a chemical plasticizer commonly known as DEHP. The California Office of Environmental Health Hazard Assessment (“OEHHA”), the agency charged with administration of Proposition 65, listed DEHP as a “chemical known to the state” to cause cancer based on laboratory studies of liver cancer in rats and mice. Baxter presented evidence to OEHHA that DEHP in IV tubing and bags presented no significant risk because, among other things, the biological mechanism that produces liver cancer in rats and mice is not present in humans. Baxter petitioned OEHHA to adopt regulations to this effect, which would result in an exemption from Proposition 65 warning requirements that otherwise apply to products containing DEHP. OEHHA declined to do so.
Faced with the choice of either placing a Proposition 65 warning on IV tubing and bags or running the risk of an enforcement action for distributing such products without a warning, Baxter filed a petition for a writ of mandate and a complaint against OEHHA in Sacramento County Superior Court seeking a determination that DEHP posed no significant risk to humans. Although such “pre-enforcement” review is unusual, Baxter successfully argued that an actual controversy existed, and that it was not just seeking an advisory opinion. After nine days of testimony and the submission of thousands of pages of documents, the Superior Court denied the mandamus petition but entered judgment for Baxter, finding that DEHP poses no significant risk of cancer to humans and, therefore, the IV products were exempt from the warning requirements of Proposition 65.
The Third District Court of Appeal affirmed the judgment. The Court of Appeal rejected OEHHA’s argument that the “no significant exposure” exemption can be raised only defensively in a Proposition 65 enforcement action, noting that an “irreconcilable controversy” existed between Baxter and OEHHA, and that declaratory relief was necessary to prevent Baxter from having to make a “Hobson’s choice” between providing a stigmatizing warning with its products, or risk an enforcement action seeking penalties and injunctions for alleged non-compliance.
Significantly, the Court of Appeal rejected OEHHA’s claim that the Superior Court had improperly failed to defer to the agency’s decision to list DEHP as a Proposition 65 chemical. The Court of Appeal explained that the Superior Court’s ruling did not exempt other products containing DEHP from Proposition 65 warnings, because Baxter only sought a declaration that exposure to DEHP from IV tubing and bags poses no significant risk of cancer in humans, and because OEHHA failed to provide any authority showing that any other manufacturer could invoke collateral estoppel or res judicata based on this ruling.
“No Significant Risk” Exemption Proven by a Preponderance of the Evidence
OEHHA also argued on appeal that the Superior Court’s judgment should be reversed because Baxter failed to prove, even by a preponderance of the evidence, that DEHP does not cause cancer in humans, and that the Superior Court erred in failing to require proof by clear and convincing evidence. The Court of Appeal rejected both arguments. First, the Court of Appeal noted that there was substantial evidence to support the Superior Court’s conclusion that DEHP does not pose a significant risk of cancer in humans. The court observed:
In essence, OEHHA has attempted to escape its own burden on appeal by pointing to evidence in its favor, some of which is speculative, and claiming Baxter failed to disprove it. But in order to show there is no substantial evidence to support the Superior Court’s finding that DEHP poses no significant risk of cancer in humans, OEHHA must do more than rely on its own evidence indicating there is a possibility that cancer might occur in other organs in rodents, posit that it therefore might occur in humans, and argue that Baxter has to prove otherwise.
Interestingly, the Court of Appeal also referenced a recent determination by the International Agency for Research on Cancer, recognized by relevant regulations as the authoritative body on the identification of chemicals causing cancer, that the biological mechanism by which DEHP increases liver cancer in rats does not operate in humans.
Finally, noting that Proposition 65 is not an “entirely one-sided public protection statute,” the Court of Appeal held that proof by a preponderance of the evidence was the appropriate burden for establishing no significant risk. Imposing a higher standard of proof would be to “tip the statutory balancing of interests even further in favor of the public than the statutes do themselves,” the Court of Appeal observed. Had the drafters of the Act intended that result, they would have written a higher standard into the Act.
The Significance of Baxter
The Baxter court acknowledged the reality facing many companies today: products may contain listed chemicals while still posing no significant risk under Propositions 65. Yet, unless a company places a “stigmatizing” Proposition 65 warning on those products, it runs the risk of becoming the subject of an enforcement action seeking penalties and injunctions for alleged non-compliance, and the attendant costs of litigation.
Baxter provides a means for obtaining a court determination whether a warning is required where a business is unable to convince OEHHA that the product poses no significant risk. It will be especially important in cases where there is solid scientific evidence showing no significant risk, and where the viability of the product in the marketplace would be jeopardized if warnings were required. Although the Court of Appeal properly limited its holding, the teachings of Baxter are likely to have broader implications for future administrative proceedings with OEHHA, as well as court actions for relief when an “irreconcilable controversy” results.
The Environmental Law Department and Product Law Group of Farella Braun + Martel LLP are among the largest and most experienced in the nation, with more than thirty attorneys specializing in environmental and product-related compliance counseling, regulatory representation and litigation, including counseling and representation in actions involving Proposition 65. Please contact any of our environmental or product law specialists, for more information.