Sugar beverage ruling may provide defense in Proposition 65 cases

A recent decision by the 9th U.S. Circuit Court of Appeals reversed the denial of a preliminary injunction blocking the enforcement of San Francisco's sugar-sweetened beverages ordinance. American Beverage Ass'n v. City and County of San Francisco, 2017 DJDAR 9215 (Sept. 19, 2017). The court said the ordinance requiring warnings about purported health effects of sugar-sweetened beverages in advertising and product packaging appeared to improperly compel disclosure of false, misleading and controversial information in violation of the plaintiffs' First Amendment rights. The 9th Circuit was especially concerned that the soft drink industry businesses were forced to make controversial disclosures of purported "facts" regarding the propensity of the sweetened beverages to cause obesity and tooth-decay when the accuracy of those facts was subject to scientific dispute.

State regulation that compels disclosure of factual and non-controversial information is permissible and receives only rational basis scrutiny whereas compelled disclosure, based on opinion and conjecture, is subject to strict scrutiny. New York State Restaurant Ass'n v. New York City Bd. of Health, 556 F.3d 114 (2009) (upholding requirement for restaurant menus to list caloric content).

Decisions limiting regulation of commercial speech may provide a constitutional defense to failure to warn enforcement actions brought under California's Proposition 65, the Safe Drinking Water and Toxic Enforcement Act of 1986. This is particularly relevant in light of new regulations issued by the California Environmental Protection Agency's Office of Environmental Health Hazard Assessment (OEHHA) that will become mandatory on Aug. 30, 2018, for businesses seeking "safe harbor" protection from Prop. 65 enforcement actions.

American Beverage may also bolster the success of preemptive declaratory relief actions seeking a determination that a particular product does not require disclosure of warning information under Prop. 65. The only published California decision to address potential First Amendment restrictions on Prop. 65 compulsory warnings concluded in an action for declaratory relief that written warning requirements, at a minimum, "implicate[]" "First Amendment freedom of speech." Baxter Healthcare Corp. v. Denton, 120 Cal. App. 4th 333, 363 n.5 (2004).

OEHHA's safe harbor regulations define when the content and placement of consumer warnings for a business's products or premises meet Prop.65's "clear and reasonable" standard and therefore would provide a defense to an enforcement action against the business. In order to comply with the revised regulations, a business must affirmatively represent that its product or business premises can expose consumers to at least one specifically identified chemical known to the state of California to cause cancer or reproductive toxicity.

OEHHA maintains lists of chemicals "known" to cause cancer and reproductive toxicity and its scientific advisory panel has adopted maximum exposure levels for only some of the listed chemicals below which a warning is not required to be given. Under the regulations, an exposure is deemed to pose "no significant risk" of causing cancer only when a 70-year lifetime daily exposure to the listed chemical would cause not more than one excess case of cancer in 100,000 individuals.

Exposure to a chemical listed as causing birth defects or reproductive harm is deemed to not require a Prop. 65 Warning only when the highest daily dose level not associated with adverse reproductive or development effects is then divided by 1,000.Consequently, warnings are required even when an exposure may be at a level hundreds of times lower than has ever been shown to potentially cause harm.

In issuing Prop. 65 regulations, OEHHA is not required to consider whether a listed chemical present in a product or business premises would in reality expose a consumer to the chemical at all, let alone expose the consumer to a meaningful increased risk of cancer or reproductive harm. Prop. 65 does not require and the State does not appear to have tested particular products to determine whether a listed chemical bound into the molecular composition of the product would, in fact, likely expose actual consumers to a chemical that could potentially cause cancer or reproductive harm.

The revised regulations replace 1988 regulations that required a more generic statement that the product "contains a chemical known to the State of California to cause cancer" [and/or "birth defects or other reproductive harm]" without identifying a specific chemical.

OEHHA has stressed that the revised safe harbor regulations are merely "voluntary" and that warnings need only satisfy basic Prop. 65 requirements. A warning is not literally required if a product contains listed chemicals below threshold notification level for reproductive harm, or does not present a significant risk as to potential cancer causing effects.

Businesses, in reality, have no practical alternative for avoiding the threat of oppressive litigation other than literal compliance with the safe harbor regulations. As explained in Baxter Healthcare, a business is confronted with a Hobson's choice in deciding whether to comply with the disclosure requirements because the alternative is to face a potential Prop. 65 enforcement action.

First Amendment protections are triggered when threatened enforcement of a state law burdening commercial free speech would subject a party to having to defend expensive and protracted litigation. Nike, Inc.v. Kasky, 539 U.S. 654 (2003) (Breyer, J., dissenting).

There are severe consequences for failure to comply with the safe harbor regulations because Prop 65 has stacked the deck against the defendant business in an enforcement action. The California attorney general, local prosecutors or "any person in the public interest" (acting as a private attorney general) may bring an enforcement action against any business that, "knowingly and intentionally exposes any individual to a chemical known to the state to cause cancer or reproductive toxicity without first giving clear and reasonable warning." The defendant may be found liable for civil penalties of up to $2,500 per day per violation as well as for the plaintiff's attorney fees.

The government or private citizen plaintiff is not required to prove that the alleged exposure actually increases the consumer's risk of cancer or reproductive harm. Rather, to avoid liability, the defendant business has the burden to prove that an exposure of 1,000 times less than the actual level of potential harm would not cause reproductive harm or that the alleged exposure creates "no significant risk" of causing one excess case of cancer in one out of 100,000 individuals over a lifetime daily exposure of 70 years.

An affirmative defense based on the First Amendment prohibition against compelling a business to make misleading and controversial disclosures concerning its products could level the playing field in Prop. 65 enforcement actions. To maintain the defense, the defendant business should only be required to establish that the compelled Prop. 65 warnings are misleading and of dubious scientific validity as applied to the defendant's product.