Proposition 37: California's Newest Challenge For Food Product Companies

California's Proposition 37 takes aim at products containing genetically modified ingredients and would preclude manufacturers from marketing their products as natural. Learn what's at stake.

By Rebecca Cross, BraunHagey & Borden LLP

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Doing business in California is notoriously challenging for consumer product companies and retailers, particularly regarding product labeling.  Last year alone, private enforcement of California's Proposition 65 resulted in $15.9 million in settlements.  The playing field is set to get even worse.  In November 2012, a new right-to-know product labeling law, Proposition 37, is on California's ballot – this time taking aim at products containing genetically modified ingredients.  Under the law, any food containing more than 0.5% of any genetically modified ingredient would require a warning label.  Products with those ingredients also would be precluded from marketing themselves as "natural," thus opening another wave of California label litigation against unsuspecting manufacturers, distributors and retailers, both large and small.

The Prop 65 Shakedown

California has a long history of adopting unique consumer protection laws, resulting in part from its vigorous ballot initiative process.  Many readers are familiar with Proposition 65, passed by California voters in 1986 by a 2-to-1 margin.  The law was designed to allow consumers to make informed decisions about the products they purchase.  However, it is widely criticized as providing little benefit to consumers and instead diverting money to wealthy class action law firms and "non-profit" institutions.

Prop 65 requires companies to warn California consumers if the company's products contain a chemical "known to the state of California" to cause cancer or reproductive harm.  A state agency maintains an ever-growing list of these chemicals, some of which occur naturally as a result of heating a food, such as acrylamide in French fries or potato chips.

What makes Prop 65 particularly problematic is how it is enforced.  California courts have described bringing a Prop 65 litigation as "absurdly easy."  A private individual can file suit "on behalf of" the general public, without showing reliance or damages.  To state a cause of action, a plaintiff only has to demonstrate that a product sold in California without a Prop 65 warning contains one of the chemicals on the state list, then the burden shifts to the company to show that exposure is below safe harbor levels. Plaintiffs can recover a percentage of civil penalties, along with attorneys' fees and costs.  Defendants almost always settle these cases because it is the cheapest option. 

These incentives have created an industry of plaintiffs' lawyers who seek out violations to enforce and file dozens of repetitious, cut-and-paste lawsuits.  According to Attorney General records, Prop 65 has generated more than 16,000 lawsuits and nearly $500 million in settlements—a majority of which has gone directly to plaintiffs' lawyers.  For instance, of the $15.9 million in settlements last year, more than $11.8 million went to plaintiffs' lawyers for their "fees and costs."

From The Makers Of Prop 65, Comes Prop 37

James Wheaton, President of the Environmental Law Foundation, who helped draft Prop 65 and, along with the associations he represents, has collected more than $8 million in legal fees from it, is the official proponent of Proposition 37.  The measure qualified for California's November ballot with nearly 1 million signatures.

Prop 37 (the California Right to Know Genetically Engineered Food Act) would require labeling of genetically engineered foods sold at retail. Specifically, it would require raw foods, like fruits and vegetables, to be labeled "Genetically Engineered" on the front of package or store shelf, and would require processed foods, such as canned, frozen or cooked products, to be labeled, "Partially Produced with Genetic engineering" or "May Be Partially Produced with Genetic Engineering."  The law would tolerate only 0.5% genetically engineered content without a label.

The law's impact would be dramatic.  According to the U.S. Department of Agriculture, in 2011, 94% of soybean crops and 88% of corn crops were genetically engineered.  By-products of these crops, such as high fructose corn syrup or soy lecithin, are found in the majority of packaged foods.

The entire supply chain would be liable for compliance:  retailers would be responsible for obtaining sworn statements of compliance from sellers or obtaining independent certification, and manufacturers and farmers would be responsible for maintaining these records – creating, at the very least, record-keeping challenges at every level.

Additionally, the law would prohibit genetically engineered and processed foods from being labeled as "natural," "naturally made," "naturally grown," "all natural," or with "any words of similar import that would have any tendency to mislead any consumer."  "Processed foods" is broadly defined as "any food other than a raw agricultural commodity" – including any food subjected to "canning, smoking, pressing, cooking, freezing, dehydration, fermentation, or milling."

The prohibition of "natural" labeling for processed foods may be the result of shoddy drafting.  After the California Legislative Analyst's Office prepared ballot materials pointing out that the initiative could be interpreted this way, Wheaton petitioned a state court to remove this analysis from the ballot label.  He argued that the analysis inaccurately described the initiative and could confuse voters, but the court ruled to allow it.

Prop 37's enforcement provisions are nearly identical to—but even more liberal than—Prop. 65's.  The law would be enforceable through the same mechanisms: private, civil lawsuits "in the public interest," without any showing of damages, and with recovery for attorneys' fees and costs.  Unlike Prop 65, however, Prop 37 would permit litigation without any advance notice or opportunity to cure.

Rejected By Regulators And Legislatures

Both the FDA and the USDA oppose special labeling of genetically engineered food.  The FDA's current and long-standing position is that genetically modified foods are "substantially equivalent" to naturally grown foods and therefore should not be subject to any additional regulations.  The USDA has gone so far as to claim that letting consumers know whether or not food contains genetically modified ingredients would be "false, misleading, and deceptive."

Similar legislation has failed in more than a dozen states, including California itself.  In Connecticut, for example, the state Department of Agriculture adamantly opposed the legislation, saying it would put Connecticut at a competitive disadvantage with other states that do not regulate labeling. Similar legislation is also pending at the federal level, but is thought to have little chance of passing.

So far, opponents of Prop 37 have spent $13 million putting together a media campaign to fight the measure.  The list of financial backers includes Monsanto, DuPont, PepsiCo, Coca-Cola, Kellogg, Nestle, General Mills, Conagra, Del Monte, Ocean Spray, Sara Lee, and Campbell Soup Company, who no doubt have a lot at stake.

Nevertheless, consumers overwhelmingly support mandatory labeling.  And in California, the fate of this initiative rests in the hands of voters.  According to recent polling in California, it has an almost 3-1 ratio of support.   If Prop 37 passes, it will become effective beginning on July 1, 2014.

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