Proposal would allow passing Prop 65 obligations down chain of distribution

California's Proposition 65 requires manufacturers and others in the chain of distribution to warn California consumers before "knowingly" exposing them to any of almost 900 chemicals "known to the State of California to cause cancer, birth defects and other reproductive harm."

Under current regulations, a manufacturer (and others in the distribution chain who "know" an exposure can occur) can place the required warning on the product or its packaging, or it can pass the obligation to warn "downstream" to retailers by notifying the retailer directly that a warning is required and providing the retailer with the materials necessary to transmit the warning to consumers.

Current regulations, however, do not establish a mechanism by which a manufacturer or an intermediate distributor can transfer the obligation to warn down through the ordinary distribution chain when the manufacturer or distributor may not know who the ultimate retailer might be. A manufacturer or distributor that cannot transfer its obligation to provide a warning arguably remains responsible if the ultimate consumer fails to receive a proper Prop. 65 warning. Without a clear procedure for transferring responsibility through the distribution chain, manufacturers and distributors remain subject to claims of dubious merit by private enforcers that often lead to expensive settlements based solely on the nuisance value of the claim.

This problem is particularly acute for manufacturers and distributors of bulk products that may be repackaged and relabeled as they pass through the chain of commerce, but it also affects manufacturers that would prefer not to incorporate Prop. 65's California-specific requirements into its labeling of products sold in the other 49 states. Even manufacturers and distributors operating entirely outside of California may be obliged to provide a warning if (at least according to some on the enforcement side) it is "reasonably foreseeable" the product might end up being sold in California. With 11 percent of the nation's commerce occurring here in California, it is the rare manufacturer or distributor that can say one of its products cannot possibly end up being sold to a California consumer.

Proposal: Notice from Manufacturer to Distributor will transfer Warning Responsibility

California's Office of Environmental Health Hazard Assessment originally determined that the responsibility to warn the consumer could best be allocated within the distribution chain by contracts between manufacturers and distributors. The lack of an approved regulatory procedure left manufacturers and distributors with contract-based indemnity claims between themselves but no easily established defense to the primary enforcement action itself.

OEHHA has now realized that transferring responsibility by requiring that the manufacturer or distributor notify the retailer directly often is not feasible, since manufacturers and intermediate distributors frequently do not know the identity of the ultimate retailer. To remedy this, OEHHA has proposed modifying the procedures in Section 25600.2 of its Title 27 regulations to allow the warning obligation to be transferred to others "downstream" through the retail distribution chain.

OEHHA's proposal will allow the manufacturer and intermediate distributors to pass the warning obligation down the chain of distribution, thereby establishing a straightforward, document-based defense should the warning not be conveyed to the consumer. OEHHA's proposed amendments would allow a manufacturer to notify either the retailer or the distributor to whom the manufacturer supplies the product that a Prop. 65 warning must be given when the product is sold to a California consumer. The distributor may do the same, and so on down the distribution chain to the retailer.

To pass responsibility downstream, the notice must identify the specific product(s) for which the warning is required and also include the "materials necessary to transmit the warning." These materials could be labels or labeling, hang tags, shelf signs or some other method of insuring the consumer receives the appropriate Prop. 65 warning. The notice should also include the appropriate warning language for products sold on the internet.

The notice and warning materials must be provided to an "authorized agent" that has been designated by the downstream recipient to receive these notices. If no "authorized agent" has been designated, notice, including the warning materials, may be sent to the legal agent for service of process for the downstream party.

For the notice to effectively transfer responsibility, the manufacturer or distributor is required to receive a written or electronic confirmation that the downstream party received the notice. The notice, and the confirmation of its receipt, must be renewed annually. If these steps are taken, the manufacturer and intermediate distributors will have the documentary evidence necessary to establish a solid defense to claims they failed to take reasonable steps to insure the warning was properly transmitted to the consumer.

Responsibility need not be "Accepted" to be Transferred Downstream

Notably, the proposed amendments do not require the downstream party to affirmatively accept responsibility for providing the warning. The manufacturer and others in the distribution chain may unilaterally pass the warning obligation downstream by mailing the notice and the warning materials "return-receipt requested" to the designated agent or to the agent for service of process for the next downstream participant in the chain of distribution. For products that will be sold on the internet (for which a Prop. 65 warning must be given prior to the sale, rather than simply placing it on the packaging), a notice sent by e-mail to the appropriate person downstream with an automatic "delivery receipt" that will confirm the e-mail was received likely will be sufficient.

Unless OEHHA makes further revisions to its proposed amendments, a distributor's objection will not prevent the transfer of responsibility downstream. The distributor can absolve itself of potential responsibility to provide the warning only by using these same procedures to pass responsibility further down the distribution chain. The retailer, of course, has no such option and will bear the ultimate responsibility for warning the consumer if it receives notice and the required warning materials from its upstream supplier.

New Standard for "Actual Knowledge" by Retailer

The proposed regulations will also revise the standard for determining when a retailer has "actual knowledge" of potential exposure to a Prop. 65 chemical. A retailer with "actual knowledge" has an obligation to provide a warning if there is no other party in the distribution chain in California that is subject to Proposition 65 (e.g., if a manufacturer or distributor does not have an agent for service of process or a place of business in California or employs fewer than 10 people).

Currently, the information comprising "actual knowledge" must be known to the "authorized agent" of the retailer. The amended regulations will add that the retailer will be deemed to have "actual knowledge" if the information triggering the requirement to warn is known to "a person whose knowledge can be imputed to the retail seller." This addition is intended to incorporate existing law regarding management-level employees whose knowledge may be imputed to the company as a whole.

The retailer will continue to have a five-day grace period if it learns of information triggering a Prop. 65 warning requirement from a 60-day notice it receives from a private enforcer.

The public comment period closed on Jan. 11, 2019, and OEHHA has not yet announced when it will consider formal adoption of the amendments. Until these proposed amendments are adopted, however, the entire chain of distribution -- from manufacturer to distributor to supplier -- may be at risk of claims asserting they failed to insure that California consumers know that using a product can expose them to "chemicals known to the State of California to cause cancer, birth defects or other reproductive harm."