Ann Grimaldi is a San Francisco-based lawyer with her own practice who has worked with dietary supplement companies for a number of years. Grimaldi spoke with NutraIngredients-USA about what the landscape currently looks like for these type of actions. Markets as a matter of course tend to settle down as they age, with mature markets showing low levels of growth and a decreasing variability over time. If the amount of Prop 65 actions filed every year is viewed through this lens, it could be said to be a market that is still in its infancy.
“What I have observed over the past five years or so is a very much increased pace of private enforcement of Prop 65 with respect to dietary supplement companies. It has increased both in the number of 60-day notices that are issued and there has been increased aggression in terms of monetary demands,” Grimaldi said.
Prop 65 was passed in 1986 and was intended to provide consumers in California with information about more than 800 chemicals linked to cancer or reproductive toxicity that might be contained in the products and services they use (including those they ingest). Products (or services, including even rental cars and hotel rooms) that contain such chemicals must provide a clear warning to consumers.
Critics of the law have pointed to trigger levels for certain substances, such as some heavy metals, that are set below federal limits. And there are serious questions about how to prove that a product falls below even those more stringent levels in a cost effective manner. Prop 65 provides a private right of enforcement, which Grimaldi said has created a thriving cottage industry in California, with law firms specializing in sending demand letters to companies that do not have warning labels in place, even if they might be in technical compliance with the law. Because of the nature of the industry’s products, dietary supplement companies are in a special category of risk, Grimaldi said.
“Dietary supplement companies are an easy target. Because many of the products they make are from plant based ingredients, you are going to have levels of heavy metals that are naturally occurring. Prop 65 does allow you to subtract out those naturally occurring levels (referred to as ‘safe harbor’ levels), but in practice it is very difficult to put together that kind of defense,” Grimaldi said.
This facet of how the enforcement of the law has played out in practice has led some to call Prop 65 “legalized blackmail.” Grimaldi said the picture is grim: Along with the increased pace of private enforcement, monetary demands are approaching levels that could pose an existential threat for some companies.
“When you start negotiating with a private enforcer they want sales information in terms of the number of units sold in California. I have no idea what they do with information; all I know is I give them a number and they come back with a dollar demand. A company with smaller sales will typically get a lower demand than will a company that sells a lot of units,” she said.
“I haven’t done a calculation on the median settlement, but I have done an average, which can overreact to outliers. Nevertheless, the average settlement over the last year was $90,115, and that doesn’t even include your own attorney’s fees,” Grimaldi said.
Warning provides protection
So what’s a company to do? The first course of action, if a company believes it is in the right, is to try to convince a private enforcer that they have no case. This still will cost a significant amount in attorney’s fees. The second is to swallow hard and put a warning on your label, even if you think one might not be technically required. The third is to defend the suit in court.
“What I tell my clients is the only way to completely immunize yourself is to put the safe harbor warning on your label. This is very difficult from a company mission standpoint if you are promoting something you think will improve someone’s health. Who wants to put a cancer warning or a warning about birth defects on their products?” Grimaldi said.
“There are potential defenses but when you think about the cost of doing that, there have not been very many companies with the stomach for that,” she said.
Grimaldi said that what is particularly vexing to her is that the attorneys on the other side whom she deals with are solely focused on getting settlements on demands. There is little if any sense of public mission in their practices and little pretense of trying to protect consumers from harmful exposures.
“Prop 65 is about protecting the public interest. There should be an elevated sense of ethics, but there’s a difference between what should be and what is. You could do a toxicological analysis and show that there is virtually no exposure to the consumer taking place with the use of a given product. But the enforcement community I deal with doesn’t seem to care about that. The way the law has been enforced doesn’t really allow for a meaningful scientific discussion,” she said.
Grimaldi said that as matters stand companies doing business in California are forced into making a decision between the harm to their brands that putting a warning label on them might do, and the loss of sales as a result, ranked against the potential legal costs of paying out demands to make private enforcers go away.
“It’s the proverbial rock and a hard place,” she said.
Risk posted by online sales, counterfeits
A significant area of risk can arise from online sales. Grimaldi said its conceivable that private enforcers could take companies to task over products sold in California that lack Prop 65 warnings even if the parent company did not authorize those sales. A growing number of suits have been based on online sales, Grimaldi said, both because it is a growing segment of the market and because it is simpler for enforcers to get their hands on the goods.
“Online sales presents a real challenge in that manufacturers don’t always know how their products are getting sold downstream. They are often surprised to see that someone is selling their products on Amazon,” she said.
Another potential area of risk could come from the sale of counterfeit products, which has been a growing problem in the dietary supplement industry, especially in the sports nutrition arena. Another source in the legal community told NutraIngredients-USA that a client brought a counterfeit product in to his office that so perfectly matched the original label that the only way to tell one from the other was to put the two side by side to see how some of the colors were very slightly different.
“In the case of a counterfeit product I would push a little bit harder with the plaintiff in negotiations to see if they would simply drop the claim,” she said.
Prop 65 has been a boon to a certain category of lawyers but hasn’t done much for consumers, in Grimaldi’s view. Many consumers in California misunderstand what the law really does.
“I don’t think it has protected consumers the way it was intended to. I like to tell people that Prop 65 is not a green chemistry law. It’s a warning statute. While some people might point to the fact that certain chemicals have been removed from products, those chemicals have been replaced with other chemicals that are not vetted under the law,” she said.