Personal Injury & Torts
Jun. 12, 2004
AG Alleges Mishandling Of Prop. 65 Settlements
SAN FRANCISCO - Attorney General Bill Lockyer, launching the most serious set of allegations ever against plaintiffs active in Proposition 65 cases, filed lawsuits Thursday questioning how three organizations handled approximately $1.8 million they obtained in settlements.
In what appeared to be the most serious case, Lockyer called for the outright dissolution of California Community Health Advocates, a Rocklin group that he accused of misappropriating money for personal mortgages, credit card payments, liquor store bills and even to pay a pet cemetery. Many of the payments benefited officers or directors of the group, the lawsuit alleged.
Two of the cases involved Southern California organizations, one registered as a for-profit corporation, that allegedly used settlement money for purposes other than those spelled out in the agreements and committed record-keeping violations. Both those lawsuits were filed in Los Angeles Superior Court.
Lockyer's move came against a background of scandal involving another law that, like Proposition 65, is largely privately enforced - Business & Professions Code section 17200.
"Proposition 65's goal of warning consumers about exposure to substances that cause cancer or reproductive harm cannot be fully achieved without enforcement by private parties," Lockyer said in a written statement released Thursday. "But abuses ultimately undermine the effectiveness of private enforcement. They cannot be tolerated, and that is why we have brought these actions."
The $1.8 million represents money the organizations won in settlements, aside from attorney fees and penalties. Generally, the settlements called for the money to be spent on future enforcement actions under Proposition 65..
Lockyer asked the courts to force the groups to pay restitution and civil penalties.
The lawsuits appeared to culminate an investigation launched in 2003, when Lockyer's office sent administrative subpoenas to organizations specializing in litigation under the antitoxic law. That investigation largely centered on the use of settlement money earmarked for purposes other than attorney fees or penalties.
In a case filed against the Consumer Advocacy Group in Inglewood, Lockyer announced a simultaneous settlement. The organization agreed to improve its corporate practices, and its directors will return $47,600 of allegedly misspent funds to the organization so the money can be doled out under the scrutiny of the attorney general.
The spending Lockyer criticized included contributions of $15,000 each to the United Way and the American Red Cross. CAGs attorney Reuben Yeroushalmi said the group made the donations following the Sept. 11, 2001, terrorist attacks.
The group agreed to pay $25,000 in civil penalties and $10,000 to reimburse Lockyer's costs.
Yeroushalmi of Los Angeles' Yeroushalmi & Associates suggested that plaintiff organizations were being unfairly singled out. He said he does not believe his organization's actions merited a lawsuit.
"I hope they also go against defense attorneys who do unsavory practices," he said.
Attorneys for the other organizations could not be reached for comment Thursday.
Lockyer alleged violations of a number of state statutes, including the Unfair Competition Law and the Corporations Code. Allegations against California Community Health Advocates included fraud, illegal conversion, breach of fiduciary duty and self-dealing. Lockyer asked the court to dissolve the group, which he noted has been inactive for more than a year.
Lockyer's suit said the group collected more than $914,000 in 22 lawsuits between January 2000 and July 2002, including nearly $540,000 in restitution earmarked for such purposes as "environmental activities" and Proposition 65 enforcement. But much of the money went to other purposes, including approximately $134,000 in checks to or cash withdrawals by the group's president, Lorell Long, or to an alias, EML Associates.
The suit said the group's officers should not be allowed to serve as officers or directors of any other nonprofit organization for five years.
The lawsuit noted one group, Consumer Cause Inc., "indiscriminately" used Proposition 65 settlement funds to pay its attorney, Morse Mehrban, and his wife, the organization's secretary. The lawsuit alleged that not all the work they did was related to the law, despite language in many of the settlements earmarking the money for the "future enforcement of Proposition 65."
Lockyer asked the courts to force the groups to pay restitution and civil penalties.
Proposition 65, approved by voters in 1986, requires warnings on products that expose consumers to chemicals that can cause cancer or birth defects. It prohibits the introduction of those substances into drinking water supplies.
The law is unusual in that it is enforced only through civil litigation. Although it provides for penalties of as much as $2,500 a day, settlements frequently include only a small amount for fines, which must be shared with the state or local agencies. Much larger sums typically go for attorney fees and other payments, including grants to third parties or "restitution."
Lockyer has advocated other measures to clean up the Proposition 65 field, including a 2001 law that requires all settlements to be reported to his office. He has issued guidelines encouraging plaintiffs to give settlement money only to "accountable" groups.
Such overhauls were born out of criticisms that some plaintiffs were misusing the law, giving the statute a black eye.
James Wheaton, an Oakland attorney active in the California League for Environmental Enforcement Now, an organization of Proposition 65 plaintiffs that backed the reforms, hadn't seen the lawsuits Thursday.
But he called Lockyer's move "good news, because it shows there is an active cop on the beat."
Wheaton is president of the Environmental Law Foundation, which initiates litigation under Proposition 65. He sought to distance the new allegations from Proposition 65 itself.
"Our understanding of the allegations is that many of them have nothing to do with Proposition 65," he said. "The allegations are simply mismanagement of nonprofit funds."
The cases are: People v. California Community Health Advocates, CV17220, filed in Placer Superior Court, and the two Los Angeles lawsuits, People v. Consumer Advocacy Group, BC316911 and People v. Consumer Cause, BC316912.
For the Record
In a story published Friday, ?AG Alleges Mishandling of Prop. 65 Settlements,? the Daily Journal misreported the terms of the 2001 reforms of that law. That legislation required proposed settlements to be submitted to the court for approval and to Lockyer?s office for prior review. Legislation requiring the results of litigation, including judgments and settlements, to be reported to the attorney general was approved in 1999.
The Daily Journal regrets the error.
Dennis Pfaff
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