A window of opportunity

Thanks to more than two years of hard work by NRCA, its affiliate California associations, roofing contractors and others, a solution to the Proposition 65 dilemma facing California roofing contractors now is within reach. As reported in "Proposition 65 and asphalt roofing work," August 2003 issue, page 28, the California roofing industry has been targeted for enforcement under the California Safe Drinking Water and Toxic Enforcement Act of 1986, better known as Proposition 65, for failing to warn workers and others about chemical exposures arising from the use of asphalt products.

Proposition 65's controversial "bounty hunter" provisions permit—and, indeed, encourage—private citizens and groups to enforce the law and recover "bounties" in the form of civil penalties, as well as attorneys' fees and other litigation costs. In December 2001 and March 2002, a "public-interest" organization called the Consumer Advocacy Group (CAG) served notices alleging violations of Proposition 65 against more than 200 roofing contractors. In February 2003, lawsuits featuring the same allegations were filed by CAG and the California Office of the Attorney General naming as defendants five California roofing contractors and thousands of "John Doe" California roofing contractors who use asphalt and/or coal-tar products.

Although NRCA does not agree roofing contractors have violated Proposition 65, the attorney general's decision to bring its own enforcement action indicates there at least is a serious legal issue requiring resolution. Therefore, NRCA, with the support of its California affiliate association partners, has negotiated settlements of these two parallel lawsuits. It is expected that, by the time this article is published, the settlements will have been entered as consent judgments in Alameda County Superior Court and become enforceable judicial decrees.

More than 100 contractors already have agreed to join the settlements as named defendants in the lawsuits or opt in after judgments are entered by the court. The settlements are worth a careful examination by every other roofing contractor headquartered in California who has 10 or more employees (contractors with fewer than 10 employees are not covered by Proposition 65). For most contractors, joining the settlements could be a cost-effective way to acquire what might be considered valuable "insurance" against Proposition 65 enforcement liability based on asphalt and virtually any other material used in roofing work.

The settlements

The Proposition 65 settlements achieve four primary objectives NRCA established when it decided to assume the lead role in the effort to develop an acceptable resolution to the dilemma presented by the bounty hunter notices against the roofing industry.

First, the settlements offer an industrywide solution for the thousands of California roofing contractors who remain vulnerable to bounty hunter actions under Proposition 65. The settlements establish an opt-in mechanism that allows roofing contractors who are not already parties to the litigation as named defendants to join and benefit from all the benefits of the consent judgments. The opt-in opportunity, however, expires 240 days after the entry of judgment by the court, or roughly at the end of 2004.

Second, keeping the costs to an acceptable minimum was an obvious objective during the negotiations. The costs of opting in are a small fraction of historical norms for settling lawsuits under Proposition 65. NRCA believes many California roofing contractors will be able to opt in at a total cost of less than $3,000 if they act within 180 days of the entry of judgment, or roughly before November 2004. For comparison, $30,000 frequently is mentioned as a benchmark figure for individual company settlements under Proposition 65.

Third, NRCA sought not only to resolve the asphalt-related claims raised in the original CAG notices but also to provide broad-based protection against future liability under Proposition 65 on other grounds. For contractors who decide to join, the settlements establish legal protection against liability on the basis of the specific claims made in the original CAG notices, and they also all but eliminate the risk of future enforcement liability under Proposition 65 based on asphalt and virtually any other material used in roofing operations.

Fourth, it was important to find a solution consistent with existing industry product quality and health and safety practices. Therefore, for contractors who work with hot asphalt and/or coal tar, the settlements require equipment and work practices that reflect current industry recommendations and that NRCA believes already are in use by most contractors. For other contractors, the settlements simply require adherence to existing California hazard communication and other health and safety requirements.

The benefits of opting in

Contractors who opt in to the settlements will obtain a legally binding assurance they will be free from liability on the basis of the claims made in the CAG notices. If those contractors implement the compliance program established by the settlements, they also will be almost fully insulated from future Proposition 65 enforcement liabilities based on chemical exposures allegedly arising from asphalt products and virtually any other material used in roofing work.

Because of the broad legal protections established by the settlements, the settlements are worth serious consideration by all California roofing contractors, including those who don't use hot asphalt or coal tar. The bounty hunters have, in effect, targeted the entire California roofing industry. The CAG notices specifically mention asphalt shingles, emulsions and adhesives and are written broadly enough to include any asphalt-containing product, including felts, coatings, sealants, cements, flashings, mastics, caulks and other products. Because of the widespread use of asphalt-containing products in roofing work, virtually any contractor with 10 employees or more (employed during any time of the year) falls within the scope of the notices and is subject to a bounty hunter lawsuit. Consequently, even if a contractor's use of asphalt only is occasional or incidental, participation in the settlements may be a relatively inexpensive insurance policy against future Proposition 65 liability because of the broad scope of the legal protections afforded by the settlements.

Opting in to the settlements basically will require two things of contractors. First, contractors who join will have to post specified warning signs (in locker rooms or at time clocks, not at job sites); incorporate Proposition 65 warnings into their existing hazard communication programs; and instruct employees about compliance measures. NRCA has developed a comprehensive model Proposition 65 compliance program for implementing the settlements and will make it available to contractors who opt in.

Second, contractors who join will have to make payments for civil penalties, monetary relief, attorneys' fees and costs, and court processing fees as set forth in the settlements. Settlement costs depend on company size (number of employees) and how quickly contractors decide to join (contractors who opt in early pay less). For many contractors, NRCA believes the total cost can be as low as $2,900 if they opt in before the end of November. For most other contractors who join the settlements early, settlement costs will be about $4,200.

The risks of not opting in

Contractors who already have received a notice or those who get one in the future almost certainly will be sued if they have not opted in to the settlements. Contractors who are sued will confront the "Hobson's choice" Proposition 65 creates for any small business that is targeted by bounty hunters—settle on unfavorable terms or bear the heavy costs and uncertainties of litigation.

The lawyer for the bounty hunters has made clear contractors who choose to settle individual lawsuits can expect to pay considerably more than those who opt in to the industrywide settlements negotiated by NRCA. How much more remains to be seen, but as previously mentioned, settlements in individual Proposition 65 bounty hunter cases against small businesses typically fall in the neighborhood of about $30,000 and sometimes reach $50,000.

For contractors who choose to litigate, the costs of contesting a bounty hunter lawsuit easily might run into hundreds of thousands of dollars if the case goes through discovery, preliminary procedural and substantive motions, a trial with expert witnesses and appeals. And a contractor might not win even if he has the stronger case on merits because Proposition 65 places the burden of proving safety on the defendant.

Contractors who decline to opt in to the industrywide settlements will avoid Proposition 65's Hobson's choice only if the bounty hunters never find them and sue them. To be sure, some contractors will escape the bounty hunters' dragnet, but the unfortunate reality is roofing contractors are not all that difficult to find. This was illustrated in February when CAG issued 445 new notices to roofing contractors. Although some of these new notices were sent to contractors who already had received notices, the February notices are an unmistakable indication bounty hunters likely will continue to "broaden their net."

And there is no statute of limitations on private enforcement actions under Proposition 65. Contractors who do not opt in will face the prospect of a bounty hunter enforcement action as long as they stay in business.

Contractors with 10 employees or more who decide not to opt in to the settlements—and gamble that the bounty hunters never will find them—would be well-advised to take one easy step to limit their potential liability under Proposition 65. Such contractors should post warning signs with the specified language and locations provided in the industrywide settlements. Posting the warning signs will provide broad protection from prospective liability for failure to warn employees after the time the signs are posted.

It is important to understand, however, this step will not insulate contractors from past liability—CAG notices assert violations for a period of four years preceding the date of the notices and seek substantial penalties for these past violations. Contractors who adopt this approach are, in essence, gambling that the bounty hunters will not find them within the four-year period during which they remain vulnerable to lawsuits for past violations.

Nevertheless, for contractors who do not opt in, posting the warning signs is a safer course from a Proposition 65 liability standpoint than doing nothing.

Making a decision

The industrywide settlements negotiated by NRCA offer an opportunity for many California roofing contractors to substantially reduce their existing exposure to potentially substantial liabilities under Proposition 65. But the decision to opt in to the settlements should not be made without a thorough evaluation of how the settlements apply to each contractor's unique circumstances.

To obtain an information package about the Proposition 65 settlements, contact Tom Shanahan, NRCA's associate executive director of education and risk management, at (847) 299-9070, Ext. 7538, or tshanahan@nrca.net.

Art Sampson is special counsel to NRCA for environmental, health and safety regulatory matters. Sampson is licensed to practice law in Washington, D.C., and maintains his office in Fairfax, Va.