Weintraub Shareholder Lee N. Smith will be speaking on Prop 65 at the NW Food Processors Expo and Conference on January 14, at 10:00.
More information can be found at their web site.
Weintraub Shareholder Lee N. Smith will be speaking on Prop 65 at the NW Food Processors Expo and Conference on January 14, at 10:00.
More information can be found at their web site.
As we discussed in our prior blog the new ASTM standard E1527-13 had been promulgated and that industry was critical of EPA for accepting both standards, despite the fact that E1527-13 was expressly drafted to resolve continuing issues with E1527-05. On December 30, 2013, however, EPA published a final rule finding that ASTM E1527-13, released on November 6, 2013 meets the requirements for “all appropriate inquiries” (AAI) under CERCLA and the AAI regulations. Although EPA did not eliminate reference to the prior standard the final rule notes that the new standard contains improvements over the previous version. The final rule EPA recommends that parties use ASTM E1527-13 and states that it intends to issue a proposed rule to remove ASTM E1527-05 as an option to meet AAI.
The FDA has released a proposed rule “(Focused Mitigation Strategies to Protect Food Against Intentional Adulteration”) that requires domestic and foreign facilities to address potentially vulnerable processes in their operations to prevent acts on the food supply intended to cause what they term, ” large scale public harm,” (terrorism). The rule requires that large businesses have a written food defense plan that addresses vulnerabilities in a food operation. The rule proposes tiered compliance to allow smaller businesses a longer period to comply with the requirements. Comments on the draft rule are due by March 31, 2014.
Section 418 of the Federal Food, Drug and Cosmetic Act as amended by the Food Safety Modernization Act (“FSMA”), addresses intentional adulteration in the context of facilities that manufacture, process, pack, or hold food (facilities that are required to register under the Act); Section 419 of the Act addresses intentional adulteration in the context of fruits and vegetables that are raw agricultural commodities. Finally Section 420 of the Act addresses intentional adulteration with respect to high risk foods and exempts farms except those that produce milk ( this is one of the areas that FDA is seeking comment).
The FDA in their proposed rules identify four key activities that are most vulnerable:
The comment period on the proposed FDA Food Safety Modernization Act (FSMA) rules on produce safety and preventive controls for human food, originally published in January 2013, was recently closed after being extended several times due to the volume of comments that they received. The rules consist of new far reaching controls imposed on producers including farmers that are unprecedented, including proposed controls on fertilizers and water quality. Farmers were particularly concerned about the attempt to apply a broad rule to a large segment of the industry. Many sectors of the community including for instance certain types of nut growers, believe that given the nature of their product and/or their existing processes they should be exempted from the additional regulation. The FDA which is on a court ordered schedule to promulgate these rules in final, on December 19, 2013, announced that it will revise certain key FSMA proposed rules affecting small and large farmers including ”water quality standards and testing, standards for using raw manure and compost, certain provisions affecting mixed-use facilities, and procedures for withdrawing the qualified exemption for certain farms.” The FDA plans to revise the rules, seek additional comment to allow the public to comment on the revised rules. The plan is to have the revised rules out by the Summer of 2014 and only take comments on those sections that are revised.
WHY YOU NEED TO ENGAGE IN DUE DILIGENCE PRE-ACQUISITION
Prior to purchasing or leasing property, it is necessary in most instances to engage in at least a screening environmental review. The purpose of a pre-transaction investigation is two-fold: first, to determine whether there are issues that must be dealt with in the relevant agreement (or post-agreement) that should be resolved as part of the deal making process, and second, in order to satisfy a number of statutory defenses that are available under federal law and some state statutes. Due diligence may be required for a lease in an industrial area and/or where there is existing contamination and a base-line is desired.
The 2002 Brownfields Amendments to CERCLA required the EPA to promulgate regulations establishing standards and practices for conducting inquiry into the previous ownership and uses of a property necessary to qualify for certain landowner liability protections. The “All Appropriate Inquiry” rule (“AAI”) was developed by EPA pursuant to the statute and applies to parties that seek to assert protection from CERCLA liability as an innocent landowner, a bona fide prospective purchaser, or a contiguous property owner. It also may impact secured creditors.
WHY YOU NEED TO BE AWARE OF THE ASTM STANDARD
The federally recognized objective standard for environmental review, AAI is mirrored in the ASTM E1527-05 [Note: ASTM Standards are only available on a fee basis; hyperlinks are to the ASTM web page]
The ASTM standard is drafted by ASTM International (formerly American Society for Testing and Materials), an international standards organization that develops and publishes voluntary consensus technical standards. AAI in turn refers to the process of evaluating a property’s environmental conditions and assessing potential liability for contamination per EPA regulations and the statutory provisions. Of particular significance is that new ASTM E1527-013 was recently (11/6/2013) released that will makes changes/improvements to the existing Standard, and make the requirements more stringent. In many situations it is the attorney’s job to work with a consultant to eliminate (literally and/or through the transaction) the Recognized Environmental Conditions (“RECs”) described below and to assure that the reports meet the relevant standard which may include ASTM and AAI.
The Department of Toxic Substances Control has released a revised version of its Preliminary Endangerment Assessment (PEA) Guidance Manual. The manual is used to perform an initial evaluation of contaminated property. This is the most recent version since 1999. This version was intended to include information required by the All Appropriate Inquiry (“AAI”) standard included in the CERCLA statute, reflected in EPA generated regulations, and mirrored in ASTM Standards that are by regulation, equivalent to AAI. Because the documents are clearly intended for different uses it appears that the PEA can be used to satisfy certain of the information requirements built into the AAI. The new PEA can be found here. A discussion of the ASTM standard follows.
The Bankruptcy Appellate Panel for the Ninth Circuit (“BAP”) just published an opinion clarifying the effect of the automatic stay on property abandoned by a bankruptcy trustee back to the corporate debtor. The case arose in the Central District of California, In re Gasprom, Inc., 2013 DJDAR 14399. The corporation, Gasprom, Inc., filed a Chapter 11 petition in February, 2012, but the case was converted to a Chapter 7 within about a month. In June 2012, the Chapter 7 Trustee filed a notice of intent to abandon the only significant asset, a non-operational gas station. The holder of the first deed of trust (“Fateh”), supported the proposed abandonment and alleged that the obligation secured by the Deed of Trust exceeded $1 million. Fateh further asserted that if the court authorized the abandonment, it would effectively terminate the automatic stay which would enable Fateh to proceed with the pending foreclosure sale against the gas station. The Debtor opposed the abandonment and requested a continuance of the hearing, but the court denied the Debtor’s requests.
The court signed and entered the Trustee’s abandonment order which was silent regarding the automatic stay. Later that same day, Fateh’s affiliate and successor in interest under the Deed of Trust proceeded with the foreclosure on the gas station. Just over two weeks later the case was closed.
In September 2012 the Debtor moved to reopen its bankruptcy case so that it could set aside the foreclosure sale and commence contempt proceedings against Fateh and others for violation of the automatic stay. On December 4, 2012, the bankruptcy court issued an order reopening the case. The bankruptcy court stated that upon entry of the abandonment order, the automatic stay no longer enjoined Fateh’s foreclosure. Alternatively, the court ruled that it was prepared to annul the automatic stay to the extent necessary to “validate the foreclosure” and it would sua sponte grant relief from the stay retroactively and nunc pro tunc. In a separate written order the court denied the anticipated motion to set aside the foreclosure and denied the anticipated motion for contempt and sanctions.
As of October 1, 2013, the California Green Chemistry Law and its regulations are officially part of the landscape . The California legislature passed the Green Chemistry Law in 2008, which authorizes and requires the California Department of Toxic Substances Control (the “DTSC”) to adopt regulations to establish a process to identify and prioritize chemicals in consumer products and evaluate chemicals of concern in consumer products and their potential alternatives.
From a list of “Candidate Chemicals” the DTSC will identify particular “Chemicals of Concern” and “Priority Products” for which an analysis of alternative chemicals must be accomplished to determine how to limit exposures or the adverse level of environmental impacts. The list of chemicals was released on September 26, 2103 , and can be found here. As a point of interest it appears that at least 50% of chemicals that are already on the Proposition 65 list.
Now that the list has been established, DTSC will evaluate and identify products that contain candidate chemicals for the development of the first “Priority Products List.” In evaluating products, DTSC will consider the potential for exposure to the candidate chemical in the product, the potential for that exposure to contribute to or cause adverse health or environmental impacts, and the potential adverse effects from the disposal of the products. No later than 180 days after the effective date of the regulations (April 1, 2014), DTSC must post the Priority Products List for public review and comment. This list shall not contain more than five priority products. The first priority products under consideration reportedly are: toluene in nail polish, carpet adhesive with formaldehyde, and mercury in fluorescent light bulbs, according to the DTSC
The DTSC is then to identify and require implementation of regulatory responses for Priority Products; if the manufacturer retains the Product and the chemical of concern. There are also listing and delisting provisions for Candidate Chemicals.The Department of Toxic Substances Control has developed the list of about 1,200 toxic chemicals by summarizing and filtering other sources. The next step, which culminated in the list of about 200 products that contain chemicals of greatest concern — that pose the most danger to health and/or the environment.. If no other ingredient is feasible, the DTSC has the ability to apply one of several regulatory responses that would reduce risk or phase out the chemical.
Sixty days after a product has been included on the Priority Products List, the entity responsible for the distribution of product (“Responsible Entity, RE”) must notify DTSC, and submit a Preliminary Alternatives Analysis Report (“Preliminary Report” (or “Alternatives Analysis”). The report is to be submitted no later than 180 days after the product’s listing.
If the Preliminary Report is accepted, the RE has 12 months to submit a Final Alternatives Analysis Report (“Final Report”). The report is reviewed by the DTSC to see if the conclusions in the report are supported by the date and that the chemical was properly reviewed. DTSC is to consider the following factors; alternatives that avoid or reduce adverse impacts through redesign of the product or the process; the degree the proposed report can addresses the potential adverse impacts; the ability of the ultimate user to understand information or directions provided with the Responsible Entity; and the cost of the alternatives.
The DTSC then determines whether additional actions are required to protect health and/or the environment. DTSC can require a number of alternative actions including the provision of additional information, restrictions on use, requiring additional safety provisions. An analysis can be avoided if the product is longer distributed in California, if the chemicals of concern have been removed from the product without the use of any replacement chemicals; the chemicals have been removed from the project or the substitute chemical is already being used by another manufacturer in the same product. Consumer product manufacturers have the primary responsibility to comply with these regulations, if however a manufacturer is not in compliance, the duty falls on the importer upon notice of noncompliance of the manufacturer from DTSC. If both manufacturer and importer fail to comply, the responsibility then falls on the assembler or retailer once DTSC posts a notice on its website. To avoid criminal and civil penalties of up to $25,000 per violation, businesses in all levels of the supply chain need to prepare for compliance with the Green Chemistry regulations.
What should manufacturers and distributors be doing?
Although it is unlikely that a Company will be immediately effected, it should be checking the list with their supply chain vendors and suppliers to assure that they are aware of these requirements. The regulations have short timelines, and these timelines will be critical as Priority Product Lists are published. Having those discussions now may help companies in the supply chain understand how the regulations may affect their businesses indirectly. Additionally suppler contracts should be revised to include warranties and representation regarding compliance.
The attempt by the Brown Administration to revise Proposition 65 for the most part was unsuccessful, at least for this year. Attorneys for Weintraub Tobin assisted the California League of Food Processors with respect to the legislation. What started out as an attempt to provide relief from the overuse of the statute by plaintiffs’ attorneys, became a battle to hold off attempts on their part to further their own goals for more specific labeling with respect to chemical and the chemicals specific effects.
The Administration is still hopeful that changes in the regulations rather than the statute that address similar concerns can be made. Industry in turn hopes their views on these issues will be addressed as well. A hearing was held in July to discuss these changes.
The good news for some is that a separate piece of legislation limiting Prop 65 lawsuits against some small businesses has passed in the legislature, and is on its way to the Governor–AB 227 (Gatto). The original legislation would have allowed all targets of Prop. 65 private party lawsuits to have 14 days to cure the problem and thereby avoid an ensuing lawsuit. The bill was subsequently amended to narrow its application only to exposure to alcohol, environmental tobacco smoke and engine exhaust. Under the bill businesses who fall within these parameters can avoid subsequent litigation by paying a small fine and posting the proper notice. The explanation(see below) and text of the legislation can be found here.
As part of its ongoing effort to monitor food safety, the U.S. Food and Drug Administration (“FDA”) posted the results of testing for the presence of arsenic in rice and rice products.
The FDA found that although levels varied depending on the product, overall the levels of detectable arsenic is too low in the rice and rice product samples to cause any immediate or short-term adverse health effects. According to their posting the FDA has been monitoring arsenic levels in rice for more than 20 years and has seen no evidence of change in levels of total arsenic in rice.
“The FDA’s advice for consumers, including pregnant women, infants and children, is to eat a well-balanced diet for good nutrition and to minimize potential adverse consequences from consuming an excess of any one food. This advice is consistent with the guidance of the American Academy of Pediatrics, which has long stated that parents should feed their infants and toddlers a variety of foods as part of a well-balanced diet.” The testing included a variety of products including beer, cereals and rice itself .
Among the rice grain categories, the average levels of inorganic arsenic ranged from 2.6 to 7.2 micrograms of inorganic arsenic per serving, with instant rice at the low end of the range and brown rice at the high end. Among the rice product categories, of which there was a wide variety, the average levels of inorganic arsenic ranged from 0.1 to 6.6 micrograms of inorganic arsenic per serving, with infant formula at the low end of the range and rice pasta at the high end. Per the report a serving, based on Reference Amount Customarily Consumed (RACC) per 21CFR 101.12 for each product category; 45 grams appears to be the referenced serving size for rice, and amounts to about 1/4 cup, dry.
With respect to Prop 65, the NSRL (No Significant Risk Level) under Prop 65 is 10 mcg/day, which implies that the Prop 65 level could be exceeded if more than one serving was consumed per day. However, Prop 65 allows, with a cancer causing chemical, to look at the general population’s average consumption; thus rice, at the highest arsenic level, actually derives an exposure level of 1.44 micrograms a day, well below the 10 mcg NSRL.