Navigating Civil Regulatory Issues: CK&E Presentation Highlights Key Regulations for Beauty Companies Doing Business in California

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Conkle, Kremer & Engel attorneys were featured speakers at the Beauty Industry West presentation “Navigating in Challenging Regulatory Waters:  Updates on California and Federal Compliance.”  About 150 entrepreneurs, consultants, executives and beauty industry professionals attended the event at the Crowne Plaza Hotel LAX in Los Angeles on October 15, 2013, which included a valuable networking session and a post-presentation Q&A.

CK&E’s presentation about legal regulatory issues for personal care product companies doing business in California included an overview of the California Organic Products Act (COPA), Proposition 65 (California’s Safe Drinking Water and Toxic Enforcement Act) and California’s Green Chemistry Initiative including the new Safer Consumer Products Regulations.  Conkle, Kremer & Engel’s materials from the BIW event, including the “Navigating Civil Regulatory Issues” presentation and its “Resource Guide for Regulatory Compliance,” are available for download on CK&E’s Regulatory Compliance web page.

Co-presenter Donald Frey, an industry veteran, regulatory expert and product development and innovation consultant, presented on key regulatory issues from the business perspective, including how to effectively deal with regulators. Mr. Frey has generously agreed to share his presentation, available for download here.

Among the questions and answers covered after the presentation were the addition of titanium dioxide (airborne, unbound particles of respirable size) to the Proposition 65 list of chemicals, responsible entities for purposes of compliance with the Safer Consumer Products Regulations, and the determination of organic ingredients under the National Organic Program standards.

Conkle, Kremer & Engel attorneys are frequent speakers at events of interest to the beauty industry due to their expertise in representing manufacturers, distributors, suppliers, retailers and salons in all aspects of their business, including the challenges of regulatory compliance.

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A Proposition 65 Reform Bill Becomes Law: California Health & Safety Code Section 25249.7 Amended by AB 227

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On October 5, 2013, Governor Brown signed into law a bill that makes immediate changes to Proposition 65.  The amendments, which passed the California Legislature last month, impose a number of restrictions on private enforcers seeking to enforce Prop 65 against businesses that allegedly fail to provide a warning as required by Prop 65.  The bill that became law is Assembly Bill 227 (AB 227), introduced by Assemblymember Mike Gatto (Forty-Third District of California) in February 2013, and discussed in our March 13, 2013 blog post.

However, as AB 227 was enacted, only limited types of businesses are likely to benefit.  The amendments are very narrow, covering only certain exposures to alcohol or food-related chemicals, vehicle exhaust and tobacco smoke.  Thus, the only businesses that are likely to benefit from the amendments are bars, restaurants, parking garages, and those who own or operate premises where smoking is permitted.

In general, the amendments establish a new “safe harbor”:  AB 227 prohibits a Prop 65 lawsuit from being filed by a private enforcer over an alleged failure to provide a warning concerning one of the specified exposures, if the business takes specified action within 14 days of receipt of the notice of violation.   The targeted business can escape a Prop 65 action if, within 14 days, the business:  (1) actually corrects the alleged violation; (2) agrees to pay a civil penalty of $500 per facility or premises within 30 days; and (3) submits a “Proof of Compliance” notifying the private enforcer that the violation has been corrected.  If the business takes the so-called “safe harbor” action in response to the notice of violation alleging failure to warn about exposure to alcohol or food-related chemicals, vehicle exhaust or tobacco smoke, the private enforcer is precluded from filing a lawsuit or collect additional civil penalties or attorneys’ fees from the business.

These types of piecemeal amendments to Prop 65 may increase public demand and political pressure for additional reform.  In May 2013, Governor Brown proposed sweeping, substantive reform to Prop 65, intended to end decades of “frivolous ‘shake-down’ lawsuits” by Prop 65 bounty hunters and their lawyers.  But by September 2013, those efforts stalled as stakeholders involved in the reform effort were unable to reach the consensus needed to generate the two-thirds majority approval that is required for any amendment of Prop 65 in the Legislature.

Conkle, Kremer & Engel constantly tracks the latest developments in Prop 65 in order to provide expert guidance and counseling to clients.  This latest amendment is a demonstration that businesses who receive a Prop 65 warning should immediately seek qualified legal counsel to help them avoid liability and unnecessary payments to Prop 65 claimants and their lawyers.  In fact, businesses are well advised to consult qualified legal counsel to review their compliance with Prop 65 before an immediate response becomes necessary.

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Closing the Door to Class Actions for False Advertising Claims

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Advertising claims are often the subject of lawsuits in California. Ads, slogans, packaging or even product images are claimed to be “false or misleading.” Plaintiffs make claims under a variety of consumer protection laws, such as California’s Unfair Competition Law (UCL), Business and Professions Code section 17200; False Advertising Law (FAL), Business and Professions Code section 17500; and the Consumer Legal Remedies Act (CLRA), Civil Code section 1750.

But an individual who wants to sue has a problem, because a single person who claims to have been misled into purchasing a product will usually only have purchased one product and therefore has just a few dollars (or sometimes only pennies) of “out of pocket” money damages. It’s usually not realistic for a lawsuit to be pursued for just a few dollars. As a result, plaintiffs’ lawyers sometimes try to make a “class action” claim to join together many people who can each claim a few dollars of damages, which can add up to a great deal of money. In a class action, the plaintiff can assert that similar injuries happened under similar circumstances to a large number of people, and the plaintiff should be allowed to make a claim for all of the damages to that group of people. Further, the lawyers for the class action can make claims for attorneys’ fees that are much larger than they would otherwise be permitted for representing an individual claimant.

To proceed with a class action lawsuit, the plaintiff must show the court that the proposed “class” meets the rules for “certification.” That is a big hurdle in many cases, because it requires that the plaintiff show that all of the proposed class members have similar claims and issues. A recent ruling from the United States District Court, Central District of California shows how hard it can be to prove that there are such common claims and issues. In Mara Chow v. Neutrogena Corp., Case No. CV 12-04624, the plaintiff claimed that Neutrogena had made false and misleading labels and advertising for its “anti-aging” skincare products, including that the products are “clinically proven,” can cause a person to look younger, and can prevent and repair signs of aging within one week. The plaintiff tried to show that she had a proper class action because all of the class members had similar claims. But District Judge Manuel L. Real refused to certify a class.

Judge Real found that too many individual questions existed as to whether the Neutrogena product had worked as advertised for each individual class member. In other words, each member would have to individually show whether the claims were false as to that member. Further, some of the claims required that each class member would have to show that she “relied” on the false advertising when she purchased the Neutrogena product, which also could only be proved individually and not on a class-wide basis. But the news wasn’t all bad for plaintiff – the individual plaintiff was allowed to continue asserting her own individual claim for a few dollars in damages. No one will be surprised when the case is dismissed, because it isn’t worth pursuing.

CK&E’s lawyers have experience handling all aspects of claims of false or misleading advertising under the UCL, FAL and CLRA. CK&E’s lawyers are particularly well-versed in developing methods to reduce the risk of such lawsuits before they are filed. If a claim does arise, it often comes first to a business in the form of a demand letter, and CK&E attorneys are skilled at responding to such demand letters in ways that eliminate or minimize the claim and can lead to a quick and cost-effective resolution.

Update:  The plaintiff filed a petition for permission to appeal the District Court’s Order denying class certification.  On April 23, 2013, the Ninth Circuit Court of Appeals denied the petition for permission to appeal.  The lawsuit was subsequently settled and dismissed with prejudice on June 10, 2013.

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Keeping "Competition" in California’s Unfair Competition Law

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California’s Unfair Competition Law (UCL) provides broad protections to both consumers and businesses, prohibiting any form of conduct that can be found to be an “unlawful, unfair or fraudulent business act or practice.”  (California Business & Professions Code § 17200)  The UCL is particularly powerful because it can reach conduct that is not specifically illegal under any other law, and can also provide a remedy for any acts or omissions that are prohibited under other state or federal laws even if those laws do not allow private citizens to sue when they are violated.  A recent example is the case of Law Offices of Mathew Higbee v. Expungement Assistance Services, in which a lawyer used the UCL to sue a credit repair service that was not licensed to practice law. The lawyer alleged that he too was in the credit repair business and, as a result of the defendant’s violations of California’s attorney licensing requirements,  the competing lawyer was required to lower his prices and spend more money on advertising, lost clients and revenue, and the value of his law firm had diminished. Ordinarily, the statutes requiring a license to practice law cannot be enforced by private citizens. But here, the UCL was held to “borrow” the statutory violation to show an “unlawful business act or practice” that gave the plaintiff a claim.

Those already familiar with UCL know that it was modified by Proposition 64 in 2004, tightening the standing requirements so that an action could only be brought by a “person who has suffered injury in fact and has lost money or property” as a result of the alleged unfair competition. (B&PC section 17204)  Some courts had struggled with this new requirement, at times suggesting that the plaintiff would have to show that the defendant had directly taken money from the plaintiff as a result of the unfair competition.  Such a requirement would effectively eliminate “competition” out of the Unfair Competition Law:  It is rare that a business competitor could show that it gave money or property directly to a competitor as a result of unfair competition – and if it did happen, the plaintiff would probably have a breach of contract or fraud claim and probably would not need to use the UCL.

But over time it has become clear that Prop 64 did not not eliminate unfair competition claims between competitors.  In the Law Offices of Mathew Higbee case, the Court of Appeal in Orange County held that the UCL does not require that the parties have had direct dealings with each other in order to succeed “in alleging at least an identifiable trifle of injury as necessary for standing under UCL.”  The Court surveyed the law before and after Prop 64, and found the cases supportive of a rule that permitted business competitors to make unfair competition claims.  The standing requirement does not require in every instance that the parties have had direct dealings with each other. The Court emphasized that, provided that the “identifiable trifle of injury” resulting from the acts of unfair competition can be shown, “the UCL does not leave the court hamstrung, unable to even consider an action seeking injunctive relief just because the defendant engages in its purportedly unlawful activity via the Internet and has not had any direct business dealings with the plaintiff.”

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