Monday, July 10, 2006
Court Invalidates Proposition 65 Settlements Between Consumer Rights Group and Major California Hotels
By TINA BAY, Staff Writer
Settlements purporting to release various major California hotel chains from Proposition 65 liability should not have been approved, this district’s Court of Appeal ruled Friday.
Div. Eight unanimously reversed five separate consent judgments negotiated between Consumer Defense Group and numerous hotels in an environmental health lawsuit.
Beginning in 1998, the Los Angeles-based Consumer Advocacy Group, similar to but predating CDG, served hundreds of hotels throughout California with notices alleging they were exposing the public to secondhand smoke in violation of the Safe Drinking Water and Toxic Enforcement Act of 1986, better known as Proposition 65.
The statute requires businesses to give “clear and reasonable” warning to individuals when exposing them to chemicals causing cancer or reproductive toxicity.
Many of the Proposition 65 notices CAG served on the hotels were held invalid for deficiency, precluding lawsuits against those hotels, but the group successfully gained standing to sue a number of major hotel chains, including Wyndham International, Hilton Hotels Corporation, La Quinta Corporation, Doubletree Hotels, and Embassy Suites.
While CAG’s litigation was pending, CDG independently brought identical actions against the same hotels targeted by CAG. In 2002, CDG entered into settlement negotiations with the hotels that resulted in five stipulated consent judgments, each covering different types of hazardous exposure.
Because CAG was a non-party, it was excluded from the settlement negotiations.
But the consent judgments, which required the hotels to post the requisite warnings concerning secondhand smoke and toxic and carcinogenic chemicals, all contained similar provisions purporting to dispose of CAG’s claims:
“[B]oth Plaintiff and Defendant recognize that this Consent Judgment is a full and final settlement of all such Noticed Chemicals claims that were raised or that could have been raised in the CAG Lawsuit, because the settlement of the CDG Lawsuit moots any and all claims in the CAG Lawsuit and/or operates as res judicata and/or collateral estopp[e]l to bar any and all such claims in the CAG Lawsuit.”
In addition to the consent judgments, CDG entered into a stipulated settlement with the California Hotel & Lodging Association that purported to “satisfy all requirements and obligations under Proposition 65 with respect to any and all actual environmental, occupational, and consumer product exposures…to the Noticed Chemicals.
Los Angeles Superior Court Judge Carl J. West noted that the CHLA deal might have been “too cozy,” but ultimately approved the settlement and entered it as the judgment. West also approved all of the consent judgments, finding they involved no collusion, contrary to the “conclusory and somewhat inflammatory statements” of CAG’s counsel.
CAG appealed the consent judgments, arguing that West erred in failing to consider the public interest in his evaluation. The hotel respondents countered that CAG lacked standing to sue because it was a non-party.
Denying the hotel respondents’ motion to dismiss CAG, the appellate panel ruled that provisions in the consent judgments purporting to settle CAG’s rights gave the group standing to appeal the judgments as an aggrieved party.
The justices then clarified that in approving a Proposition 65 consent judgment, trial courts must find that the proposed settlement is just and that it serves the public interest.
Writing for the panel, Presiding Justice Candace Cooper explained that CDG’s consent judgments failed the judicial test.
“Some of the provisions of each judgment are so contrary to the public interest that standing alone, they require the reversal of the judgment,” she said, pointing out, for instance, that the terms of release in the consent judgments covered not only all past but also all future Proposition 65-related actions the hotels would take.
Moreover, the justice said, the trial court did not even consider whether the settlements served the public interest, thereby failing the second prong of the judicial test.
“The trial court never acknowledged that it had a duty to find that the settlements were in the public interest and the provisions of the judgments in this case do not serve the public interest. The trial court never identified the specific benefit the public would reap from the consent judgments,” she wrote.
CAG’s lead attorney, Reuben Yeroushalmi, told the MetNews he felt vindicated by the panel’s decision.
“We really feel that we were wronged by the trial court. What happened was unfair and unjust, and I think the court of appeal agreed,” he said.
What “really” happened with the CDG settlements, Yeroushalmi opined, was that the hotels attempted to deal with zealous consumer groups by finding “friendly plaintiffs” and arriving at “cozy settlements.”
“This is a really important opinion because it addresses the collusive settlement and talks about how a settlement should be just and fair. These kinds of settlements are really detrimental to consumers and environmental concerns,” Yeroushalmi said.
Speaking on condition of anonymity, counsel for one of the hotel chains said Yeroushalmi’s emphasis on collusion was misplaced.
“I think lots of people can read this opinion and purport to take away a lot of different ideas, but if you look at precisely what the appellate court said, collusion wasn’t the basis for the court’s decision. I know Mr. Yeroushalmi would like to suggest that’s what the court was concerned about,” the attorney said, adding that according to his recollection, Cooper had stated during oral argument that she was not making a finding of any collusion.
The defense attorney also suggested the “public interest” test that Cooper articulated was unclear.
“This panel believes that every time a settlement agreement is approved by the trial court and goes up to the appellate court, and possibly involves members of the public who weren’t represented, then the court must find it was in the ‘public interest,’ ” he said. “It’ll be interesting to see what trial courts think that means.”
The case is Consumer Advocacy Group, Inc. v. Kintetsu Enterprises of America, 06 S.O.S 3512.
Copyright 2006, Metropolitan News Company