Biotech, Medical Device Companies Encounter Prop. 65

While wrapping up final details of the merger, the smaller firm's legal department received notification that a citizen enforcement group was accusing the company of violating the Safe Drinking Water and Toxic Enforcement Act of 1986 (commonly known as Proposition 65).

Being in the midst of a merger, this company was especially vulnerable. Prop. 65 violations can result in large fines, attorneys' fees and negative publicity. Also, any liability may be passed on to the acquiring company. Though the vast majority of Prop. 65 cases involve heavy industry and chemical corporations, this story is a reminder that this legislation can affect virtually any company.

Increasingly, California's growing biotechnology and medical device companies are affected.

Understanding Prop. 65
Passed in the California general election of 1986, Prop. 65 bans discharges of hazardous chemicals into potential sources of drinking water ("the discharge requirement") and requires that all reproductive toxins and carcinogens be subject to a reasonable warning of their known danger ("the warning requirement"). It also requires that the state maintain a list of substances that are known to the state to cause cancer or reproductive toxicity. This list, which currently includes about 580 substances, is updated annually. To oversee additions to the list the Office of Environment Health Hazard Assessment created two independent committees, the Developmental and Reproductive Toxicant Identification Committee and the Carcinogen Identification Committee.

Any "citizen" can bring a Prop. 65 suit against a company with ten employees or more. The complainant must file a 60-day notice with the following: the company; the state Attorney General's office; the district attorney of every county in which an alleged violation has occurred; and the city attorneys in each city where the population exceeds 750,000 and an alleged violation has occurred. After a notice is served, the Attorney General's office or any of the district attorneys may decide to take the case.

If any of these attorneys' offices files suit against the company, the complainant may not file a Prop. 65 suit. Otherwise, the complainant is free to handle the suit, or while the Attorney General pursues a Prop. 65 case, the complainant may file a separate Unfair Business Practices suit and litigate this case on its own. The Attorney General or the defendant may request a stay of the private plaintiff's litigation if they believe it is interfering with the Prop. 65 lawsuit.

When a company receives a 60-day notice, there are steps that can be followed to resolve the situation effectively. These were presented at a recent seminar cosponsored by Brobeck, Phleger & Harrison and BIOCOM San Diego. As Mary Walker of Brobeck pointed out in the workshop, first it is important to be sure that the notice meets requirements. If the notice is in order, the company should review its defenses and seek to open a dialogue with the complainant while working to comply with Prop. 65 standards. This keeps any penalty from continuing to accrue and demonstrates a cooperative attitude.

According to Walker, "The Attorney General's office may be a key player in a Prop. 65 case, whether they are intervening or a private plaintiff is handling the suit." After a settlement the company can seek a "no further action" ruling from the Attorney General, indicating that office will seek no further action - a deterrent to any private suits on the same issues.

It is rare for a Prop. 65 case to see the inside of a courtroom, as most reach a settlement before litigation is necessary. Attorneys' fees and other costs could be significantly greater than penalties against a company. Businesses are also highly motivated to settle out of court in order to avoid unfavorable exposure.

Citizen Groups Challenge Businesses
Citizen groups are now beginning to focus on particular kinds of Prop. 65 cases. As a group gains knowledge about a type of toxic chemical, it has the necessary information to initiate action under Prop. 65. Many then pursue claims against all companies believed to be in violation for using this type of chemical. It is also likely that these groups will be filing more cases as they investigate more products and their contents become known. One recent decision by the Ninth Circuit Court of Appeals made clear that the medical device industry lacks a general FDA preemption.

The Working Group on Carcinogens and Immune Suppressing Chemicals (CISC) recently has taken an active role in the enforcement of Prop. 65. Director Jane Williams has stated the group's intent to focus on endocrine disruptors because of their long-term effects at low exposure levels and their effects on infants and fetuses.

CISC is also responsible for a current Prop. 65 claim filed against the medical device industry for use of diethylhexylphthalate (DEHP). One aspect of the case involves the difficult issue of conveying a warning to patients who are unconscious or comatose and are subject to medication or medical devices that may contain listed hazardous chemicals. A possible outcome of this case may be a ruling that manufacturers of such products may warn a learned intermediary (such as the hospital or physician) of possible dangers.

New Developments Under Prop. 65
Paying close attention to Prop. 65 is especially important now because significant changes in the standards are underway. First, the agencies in charge of developing Prop. 65 rules have adjusted the required procedures. Cal/EPA and the Office of Environmental Health Hazard Assessment have promulgated rules on the requirements for 60-day notices, including an official summary of Prop. 65, the name of the violator and approximate time period of the violation, a description of the category of product alleged to be in violation and enough information for the alleged violator to take corrective action.

The agencies are also adding a new system for prioritizing chemicals so that those that pose the greatest health risk receive the most immediate attention from the Carcinogen Identification Committee. The Committee relies more on existing scientific evidence and the work of others to evaluate chemicals for inclusion on the list rather than depending on its own studies. These changes may increase the rate at which chemicals are added to the list.

Experts suggest that further changes could be made in the coming years. For instance, it is possible that product warnings will need to be more specific than the generic label, "This product contains chemicals known to the State of California to cause cancer and/or reproductive toxicity." Also, the Endocrine Disruptor Screening and Testing Advisory Committee is preparing to report back to Congress on its study of screening and testing protocols for the identification of endocrine disruptors. This will likely result in the addition of many new Prop. 65 chemicals, including many of the inert ingredients found in pesticides.

SOME CHEMICALS AFFECTED BY PROP. 65

For a complete listing of substances affected by Prop. 65, visit the OEHHA listing.

For more information and additional substitutes, visit the Toxics Use Reduction Institute site.