Tag: California

Politics Trumps Economics? Trump’s Revocation of California’s Waiver Under the Clean Air Act

Today President Trump announced on Twitter that the U.S. was revoking California’s waiver under the Clean Air Act (CAA) which allowed it to impose stricter tailpipe emission standards than the federal ones. California’s Governor Newsom and Attorney General Becerra immediately announced that the state would file suit to challenge the revocation.

While the revocation has been characterized as an immediate rollback, the federal corporate average fuel economy (CAFE) standards[1] established under the previous administration, which are consistent with California’s, remain in place. Last year the Trump administration proposed to rollback those standards, freezing the efficiency and emission rules in 2021 and canceling further increases in stringency set through 2028. The final rule has not yet been issued. It is rumored that it will not be, as the administrative record supporting it has many problems and most acknowledge that it faces significant legal hurdles.

A little historical context is helpful. California began regulating tailpipe emissions in the 1960’s under then-Governor Reagan to combat air pollution. When the CAA was signed by President Nixon in 1970 it included a provision, Section 209, that allows California to establish stricter standards by obtaining a waiver of the normal federal preemption rules from U.S. Environmental Protection Agency (EPA). Once granted, other states then can adopt California’s standards. Thirteen states and the District of Columbia have adopted California’s current standards.

For 30 years, under both Republican and Democratic administrations, Section 209 waivers to combat air pollution were routinely granted. In April 2007, the U.S. Supreme Court decided Massachusetts v. EPA, 549 U.S. 497 (2007), ruling that greenhouse gases (GHGs) are pollutants under the CAA. In December 2007, the Bush administration denied California’s request for a waiver to impose tailpipe emission standards aimed at reducing GHGs. California promptly sued in January 2008, joined by 11 other states. That case was pending before the U.S. Supreme Court when President Obama took office. In 2009, the parties settled the case before the Court issued its decision, and in 2010 the U.S. and California reached an agreement that aligned the state and federal standards. Those standards were subsequently expanded and a new waiver was granted in January 2013. It is that waiver that is now being revoked.

While litigation is inherently uncertain, it appears that California has a good case for challenging the revocation. Not only is the revocation unprecedented, there is no provision in the CAA providing for it. Section 209 only establishes the criteria for granting a waiver; it’s silent as to revocation. In 2013, the U.S. determined that the criteria for the waiver had been met, and both the states and the industry have acted in reliance on that determination for more than 6 years. The U.S. has also asserted that the federal Energy Policy and Conservation Act (EPCA) preempts California’s standards. However, in Massachusetts v. EPA, the Supreme Court ruled that EPCA does not displace EPA’s authority to regulate GHGs, and courts subsequently have extended that rationale to hold that EPCA does not preempt states’ regulation of GHGs under the waiver.

Just as it was in the late aughts, the automobile industry has been put in an extremely difficult position by this dispute. California has the 5th largest economy in the world, and when one adds in the 13 other states that have adopted its standards – states like New York and Pennsylvania – that equates to a large segment of the auto market. Having to produce vehicles to meet two different sets of emission standards would be extremely costly. The industry desperately needs regulatory certainty. Reflecting this, in June, 17 automakers sent a letter to President Trump calling for one national standard that included California, and in July, four automakers reached an agreement of sorts with California on emission standards.

Instead of the regulatory certainty that is needed for the economy to operate efficiently, it appears that this dispute will move into a phase of protracted litigation and years of regulatory uncertainty. The dispute may be good politics for those that want to motivate their base on each side, both Republicans in Washington D.C. and Democrats in Sacramento, but it is pretty clearly bad economics.

[1]   CAFE is, essentially, the average fuel efficiency of an automaker’s fleet of vehicles.

Copyright © 2019, Sheppard Mullin Richter & Hampton LLP.

For more on the Clean Air Act, see the National Law Review Environmental, Energy & Resources law page.

Continued Efforts to Bolster Wireless Infrastructure as California Officials Brace for Wildfire Season

California has been plagued by devastating wildfires over the past two summers, with the 2018 Camp Fire the deadliest and most destructive on record. Now that summer has officially started in 2019, officials are bracing for a possible string of new fires, with Governor Gavin Newsom telling officials to “prepare for the worst” in a recent meeting with emergency managers. In a discussion of what to expect for future California wildfire seasons, Chris Field, the Perry L. McCarty Director of the Stanford Woods Institute for the Environment, stated:

The combination of climate change, increasing development in the wildland-urban interface, and fuel accumulation from decades of fire suppression dramatically increases the risk of fires that are large and catastrophic. Former California Governor Jerry Brown described the situation as a “new abnormal.” We need to recognize that, in California, we face the real risk that every fire season will be among the most destructive, or even the most destructive, on record.

Federal, state, and local officials, utilities, and residents, among many others, are now grappling with how to best prepare for this “new abnormal.” Efforts range from the U.S. Forest Service and the California Department of Forestry and Fire Protection’s fast-tracked forest management projects to Governor Newsom’s June 2019 proposal to create a $21 billion fund to compensate future wildfire victims. One big piece of the puzzle is strengthening wireless infrastructure to ensure that residents are connected to loved ones and vital services in the event of a disaster, particularly as the number of households without landlines continues to grow.

Senate Bill 670

As discussed in this blog previously, cellular service has a number of vulnerabilities that can cause it to falter during an emergency. During wildfires, one of the key risks for wireless infrastructure is physical damage and burning of underground and pole-mounted fiber lines. Gaps in cellular service can prevent residents from being able to reach 911 or receive crucial emergency notifications. This disruption of service is particularly dangerous in the face of a rapidly moving wildfire. Legislation aiming to address part of the problem is currently winding its waythrough the California legislature: Senate Bill 670, authored by State Senator Mike McGuire (D-Healdsburg).

The proposed legislation would require telecommunications companies to report outages impacting customers’ ability to access 911 or receive emergency notifications to the California Office of Emergency Services (Cal OES) within 60 minutes of discovering the outage. Cal OES would then forward this information to local first responders so that they can identify any residents cut off from service. In 2018, certain Butte County residents received no official warning of the coming Camp Fire due to damaged cellular towers, with Sonoma County residents facing similar problems in 2017. The gap in communications was compounded by ineffectual use of wireless alert systems at the local level. Senator McGuire also authored Senate Bill 833, establishing statewide emergency alert protocols and regulations, which former Governor Jerry Brown signed in September 2018.

Concerns Regarding Power Supplies for Wireless Infrastructure

In May 2019, the Public Advocates Office (formerly the Office of Ratepayer Advocates), an independent organization within the California Public Utilities Commission (CPUC) that advocates on behalf of utility ratepayers, filed a legal motion urging the agency to act immediately to ensure that communication systems work during emergencies. As stated in a press release accompanying the motion:

[T]he Public Advocates Office seeks to better protect Californians during emergency situations by asserting that communication providers need to (1) ensure that calls and data be transmitted, without delay, during times of emergencies, (2) install backup generators or battery power at wireless facilities in high fire threat areas to reduce outages, (3) develop plans for alternative methods needed to support 9-1-1 call centers; (4) and take steps to improve their emergency alert and warning systems.

The Wireless Infrastructure Association has responded, pointing to regulatory hurdles inhibiting the expansion of cell sites to accommodate additional power sources and network redundancy. It has asked the Federal Communications Commission (FCC) to collaborate with local governments to prioritize and streamline the approval process.

FCC’s Examination of Disaster Response and Recovery

Meanwhile, the FCC, on June 13, 2019, held the first meeting for the recently re-chartered Broadband Deployment Advisory Committee (BDAC), which will examine, in part, ways to boost wireless infrastructure during disasters and other emergencies. The committee will study how to accelerate the deployment of high-speed broadband access, focused on the following three areas:

  • Disaster Response and Recovery Working Group. Measures to improve resiliency of broadband infrastructure before a disaster occurs, and strategies that can be used during and after the response to a disaster to minimize broadband network downtime.
  • Increasing Broadband Investment in Low-Income Communities Working Group. New ways to encourage the deployment of high-speed broadband infrastructure and services to low-income communities.
  • Broadband Infrastructure Deployment Job Skills and Training Opportunities Working Group. Ways to make more widely available and improve job skills training and development opportunities for the broadband infrastructure deployment workforce.

Working in tandem with the BDAC, the FCC, in November 2018, launched a re-examination of the Wireless Resiliency Cooperative Framework, a voluntary commitment by mobile carriers focused on restoring communications during disasters and other emergencies, originally approved in 2016. The move was a response to major disruptions in wireless service following Hurricane Michael in the Florida Panhandle, but it is intended as a broader examination of wireless services in the event of a disaster.

 

© 2010-2019 Allen Matkins Leck Gamble Mallory & Natsis LLP
For more on mobile & wireless infrastructure, please see the Communications, Media & Internet page on the National Law Review.

California Redefines “Beer” to Align with Federal Definition

On July 9, 2019, California Governor Gavin Newsom signed into law Assembly Bill (AB) 205, which redefines beer under California’s Alcohol Beverage Control Act.  AB 205 allows for beer to be produced with honey, fruit, fruit juice, fruit concentrate, herbs, spices, and other food materials. Under the prior California law, “beer” was defined as “any alcoholic beverage obtained by the fermentation of any infusion or decoction of barley, malt, hops, or any other similar product, or any combination thereof in water.” Prior to AB 205, use of fruit in the fermentation process required a wine license.

Notably, federal law already permits the use of these additional ingredients.  As per 26 U.S.C. § 5052(a), federal law defines beer as “beer, ale, porter, stout, and other similar fermented beverages (including sake or similar products) of any name or description containing one-half of 1 percent or more of alcohol by volume, brewed or produced from malt, wholly or in part, or from any substitute therefor.” Federal regulations at 27 CFR 25.15 identify the materials that may be used in the production of beer: “Beer must be brewed from malt or from substitutes for malt. Only rice, grain of any kind, bran, glucose, sugar, and molasses are substitutes for malt. In addition, you may also use the following materials may be used as adjuncts in fermenting beer: honey, fruit, fruit juice, fruit concentrate, herbs, spices, and other food materials.”

Thus, the passage of AB 205 is a seemingly long-overdue update and will likely have little effect on the market as California’s legal system has likely deferred to the federal definition.  Indeed, California Craft Brewers Association Executive Director Tom McCormick described AB 205 as a “clean-up bill” that aligns California with federal law. Nonetheless, Assemblyman Tom Daly (D-Anaheim), who introduced the bill, stated that “[t]his measure modifies the definition of beer in a way that will allow California breweries to expand their market, satisfying the consumer’s desire for more varied and unique styles of beer.”

 

© 2019 Keller and Heckman LLP
Article by Food and Drug Law at Keller and Heckman LLP.
For more on alcohol regulation, please see the National Law Review page on Biotech, Food & Drug law.

UPDATE: NCAA Flexes Its Muscle in Response to California Fair Pay To Play Act

NCAA President Mark Emmert has predicted that it would become “impossible” for the NCAA to consider California colleges eligible to participate in national championship competitions should California pass the Fair Pay To Play Act (SB 206) and allow college athletes to maintain their amateur status while accepting pay for marketing their name, image and likeness (as discussed in our recent blog posts on March 4, 2019, and May 23, 2019).

Emmert stated this in a letter to Senator Nancy Skinner, the sponsor of the proposed legislation, and the Chairpersons of two California State Assembly Committees (the Arts Entertainment, Sports, Tourism and Internet Committee and the Higher Education Committee).

Emmert has requested the two committees postpone consideration of the proposed legislation while the NCAA convenes an investigatory working group of school presidents and athletics administrators who will be reviewing the current prohibition on NCAA athletes earning income from the use of their names, images, and likenesses. The working group, led by Big East Commissioner Val Ackerman and Ohio State University Athletic Director Gene Smith, is authorized to propose specific recommendations to potentially reform and modify current NCAA Bylaws.

In his letter, Emmert recognized the California legislature’s efforts in developing the bill, but noted, “when contrasted with current NCAA rules,

the bill threatens to alter materially the principles of intercollegiate athletics and create local differences that would make it impossible to host fair national championships.”

Emmert continued, “… it likely would have a negative impact on the exact students athletes it intends to assist.”

The timing of President Emmert’s request presents a dilemma for the California state legislature as the Ackerman and Smith-led NCAA group is not scheduled to update the NCAA Board of Governors until August and will not issue a final report until late-October, more than a month after the end of the current California legislative session considering SB 206.

SB 206 was just approved by the Committee on Arts without any formal opposition. The bill is now headed to the 12-member Committee on Higher Education, which must express its approval before July 11 and before the 61 Democratic members of the full 80-member California assembly will have an opportunity to consider the bill.

In its current form, the legislation would prohibit a California postsecondary educational institution, athletic association, conference, or any other organization with authority over intercollegiate athletics, from preventing student-athletes from earning compensation in connection with the use of the student-athlete’s name, image, or likeness. This would result in colleges, such as perennial sports powers like UCLA, USC, the University of California, and Stanford from being unable to stop their male and female student-athletes from signing endorsement deals or licensing contracts under the NCAA prohibition, circumventing the power and authority of the NCAA.

Senator Skinner responded to Emmert’s letter, saying, “It’s definitely a threat to colleges.”

She continued, “And this is what I think is so ironic: They are colleges. The NCAA is an association of colleges, and yet they’re threatening California colleges and saying that they would not allow them to participate in championships if my bill passes.”

Skinner reminded the public that if her bill were signed into law, it would not go into effect for another three years. She said the NCAA would have ample time to assess its own rules regarding student-athlete compensation. “Both the colleges and the NCAA have plenty of time to do the right thing,” she said.

Jackson Lewis P.C. © 2019
For more on NCAA and other sports news see the National Law Review page on Entertainment, Art & Sports.

Delaware, Consent, And The Adequacy Of Email Notice

Since the turn of this century, Delaware has allowed corporations to give notices to stockholders by electronic transmission.  8 Del. Code § 232(a).  However, the statute is conditioned upon the stockholder’s consent.  California has a similar consent requirement in Corporations Code § 20.  Delaware is now proposing to amend Section 232 to permit a corporation to give notice by electronic mail unless the stockholder has objected.  See Senate Bill No. 88.  The bill would also define “electronic mail” for the first time.

As I was pondering these changes, I came across the following observations about the adequacy of email notifications penned by the estimable and eminently quotable Justice William W. Bedsworth of the California Court of Appeal:

“Email has many things to recommend it; reliability is not one of them. Between the ease of mistaken address on the sender’s end and the arcane vagaries of spam filters on the recipient’s end, email is ill-suited for a communication on which a million dollar lawsuit may hinge.  A busy calendar, an overfull in-box, a careless autocorrect, even a clumsy keystroke resulting in a ‘delete’ command can result in a speedy communication being merely a failed one.”

Lasalle v. Vogel, 2019 Cal. App. LEXIS 533 (footnote omitted).  Justice Bedsworth’s comments were directed to the adequacy of email notice before taking a default judgment and not the Delaware bill.  Nonetheless, his concerns about the adequacy of email are entirely opposite to stockholder notice.

 

© 2010-2019 Allen Matkins Leck Gamble Mallory & Natsis LLP
Read more about Corporate Law on the National Law Review Corporate & Business Law page.

The California Consumer Privacy Act Series Part 1: Applicability

California’s new privacy law, the California Consumer Privacy Act (the “CCPA”), goes into effect on January 1, 2020.  It is the most expansive state privacy law in U.S. history, imposing GDPR-like transparency and individual rights requirements on companies.  The law will impact nearly every entity that handles “personal information” regarding California residents, including (at least for now) employees.  An overview of the CCPA’s applicability is set forth below.

Who will the CCPA impact?

Most of the CCPA’s obligations apply directly to a “business,” which is an entity that:

  1. Handles “personal information” about California residents;
  2. Determines the purposes and means of processing that “personal information”; and
  3. Does business in California, and meets one of the following threshold requirements:

(a) Has annual gross revenues in excess of $25 million;

(b) Annually handles “personal information” regarding at least 50,000 consumers, households, or devices; or

(c) Derives 50% or more of its annual revenue from selling “personal information.”

However, “service providers” that handle “personal information” on behalf of a business and other third parties that receive “personal information” will also be impacted.  As currently written, however, the CCPA does not apply to non-profit organizations.

The CCPA’s three threshold requirements seem relatively straightforward, yet upon examination raise additional questions that will need to be clarified down the road.  For example:

  • Does the 50,000 devices threshold cover devices of California residents only, or apply more broadly?
  • Is the $25 million annual revenue trigger applicable only to revenue derived from California or globally?
  • What timeframe do businesses who suddenly find themselves within the CCPA’s ambit have to bring themselves into compliance with its provisions?

What is “personal information” as defined in the CCPA?

The CCPA defines “personal information” broadly in terms of (a) types of individuals and (b) types of data elements.  First, the term “consumer” refers to, and the CCPA applies to data about, any California resident, which ostensibly includes website visitors, B2B contacts and (at least for now) employees.  It is not limited to B2C customers that actually purchase goods or services.  Second, the data elements that constitute “personal information” term include non-sensitive items that historically have been less regulated in the U.S., such as Internet browsing histories, IP addresses, product preferences, purchasing histories, and inferences drawn from any other types of personal information described in the statute, including:

  • Identifiers such as name, address, phone number, email address;
  • Characteristics of protected classifications under California and federal law;
  • Commercial information such as property records, products purchased, and other consuming history;
  • Biometric information;
  • Internet or other electronic network activity;
  • Geolocation data;
  • Olfactory, audio, and visual information; and
  • Professional or educational information.

Does the CCPA have any exemptions?

The CCPA will apply to a broad number of businesses, covering nearly all commercial entities that do business in California, regardless of whether the business has a physical location or employees in the State.  However, there are some nuanced exemptions.

As a general matter, the exemptions are based on the types of information that a business collects, and not on the industry of the business collecting the information.  These include information that is collected and used wholly outside of California, subject to other state and federal laws, or sold to or from consumer reporting agencies.  Specifically, the excluded categories of “personal information” include:

      1. Activity “wholly outside” California

The CCPA does not apply to conduct that takes place “wholly outside” of California, although it is unclear how such an exemption will apply in practice.  The statute provides that this exemption applies if:

  • The business collects information while the consumer is outside of California;
  • No part of the sale of the consumer’s “personal information” occurs in California; and
  • No “personal information” collected while the consumer is in California is sold.

Determining when a consumer is outside of California when his or her “personal information” is collected will be challenging for businesses.  For example, given that an IP address is expressly included as “personal information” under the law, is a business supposed to do a reverse-lookup to determine whether an individual’s IP address originates in California?

      1. Data subject to other U.S. laws

While the CCPA exempts certain types of information subject to other laws, importantly it does not exempt entities subject to those laws altogether.  Entities subject to these laws are also not exempt from the CCPA’s statutory damages (i.e., no injury necessary) provisions relating to data breaches.  Likewise, some types of information (clarified below) are not exempt from the data breach liability provision.  At a glance, these exemptions appear helpful; however, they may end up making operationalizing the law even more difficult for certain entities.  For example:

  • Protected Health Information (“PHI”) and “Medical Information.” The CCPA exempts all PHI collected by “covered entities” and “business associates” subject to HIPAA and “medical information” subject to California’s analogous law, the Confidentiality of Medical Information Act (“CMIA”).  It also exempts any patient information to the extent a “covered entity” or “provider of health care,” respectively, maintains the patient information in the same manner as PHI or “medical information.”  However, many of these entities and their “business associates” collect information beyond what is considered PHI, such as employment records, technical data about website visitors, B2B information, and types of research data.  This data may not be eligible for the CCPA exemption.
  • Clinical Trial Information. The CCPA exempts information collected as part of a clinical trial subject to the Federal Policy for the Protection of Human Subjects, also known as the Common Rule.
  • Financial Information. Information processed pursuant to the Gramm-Leach-Bliley Act (“GLBA”) or the California Financial Information Privacy Act (“CalFIPA”) is exempt from the CCPA.  Much like the health-related exemption, this rule does not exempt entities subject to these laws altogether from its requirements to the extent an entity is processing information not expressly subject to GLBA/CalFIPA.  This particular exemption does not apply to the data breach liability provision.
  • Consumer Reporting Information. The CCPA exempts information sold to and from consumer reporting agencies if that information is reported in, or used to generate, a consumer report and use of that information is limited by the Fair Credit Reporting Act.
  • Driver Information. The CCPA also exempts information processed pursuant to the Driver’s Privacy Protection Act of 1994 (“DPPA”).  Importantly, entities subject to this law are not altogether exempt and this exemption does not apply to the data breach liability provision.

Moreover, the differences in definitions of relevant terms (e.g., “personal information” under the CCPA versus “nonpublic personal information” under GLBA) are important to consider when assessing relevant obligations and could result in institutions being only partially exempt from CCPA compliance.

 

© Copyright 2019 Squire Patton Boggs (US) LLP
This post was written by India K. Scarver and Elliot Golding    of Squire Patton Boggs.         

California Estate Tax: Gone Today, Here Tomorrow?

California has no estate tax, but that could change in the near future. California State Senator Scott Wiener recently introduced a bill which would impose gift, estate, and generation-skipping transfer tax on transfers during life and at death after December 31, 2020.

California law requires that any law imposing transfer taxes must be approved by the voters. This means that, if the California Legislature approves the California bill, it will be put before the voters at the November 2020 election.

For a time, California imposed a “pick up tax,” which was equal to the credit for state death taxes allowable under federal law; however, federal tax legislation phased this credit out completely in 2005, effectively phasing out any California estate tax. California has not in recent memory, if ever, had a statewide gift or generation-skipping transfer tax.

Under the proposed California bill, like the federal regime, all California transfer taxes will be imposed at a 40% rate. The good news is that the taxpayer will be granted a credit for all transfer taxes paid to the federal government, so there will be no double taxation. The bad news is that, unlike the federal regime where the basic exclusion amount for each type of transfer is $11,400,000 and is adjusted for inflation, the basic exclusion amount for each type of transfer in California will be $3,500,000 and will not be adjusted for inflation. With the federal exclusion rates rising every year, advanced estate planning techniques to minimize such taxes have become something that fewer and fewer people have had to worry about. If the California bill passes, any person who has assets valued in excess of $3,500,000 could be subject to a 40% California transfer tax during life or at death. Moreover, with a full credit for federal transfer taxes, only estates between $3,500,000 and $11,400,000 will be subject to the California tax. Thus, a California resident with an estate of $100,000,000 would pay the same California estate tax as someone with an estate of $11,400,000.

As drafted, the California bill appears to have no marital deduction; however, this is most likely an oversight and should be corrected in future revisions of the California bill. The goal of the California bill is to impose transfer taxes on wealthy Californians equal to what they would have paid prior to the implementation of the increased exemption rates at the end of 2017.  As the marital deduction existed when exemption rates were lower, eliminating the marital deduction at the first death would not be aligned with the purpose of the California bill.

All transfer taxes, interest, and penalties generated by the California bill would fund the proposed Children’s Wealth and Opportunity Building Fund, a separate fund in the State Treasury, which will fund programs to help address socio-economic inequality.

 

© 2019 Mitchell Silberberg & Knupp LLP
This post was written by Joyce Feuille of Mitchell Silberberg & Knupp LLP.
Read more news on the California Estate Tax on our Estate Planning page.

Product Liability in the Internet of Things

When California enacted SB 327 last year, it became the first state to regulate Internet of Things (IoT) devices, which refer to physical devices that are connected to the internet. Beginning next January, the new law will require manufacturers of IoT devices sold in California to implement reasonable security features that protect the software, data, and information contained within them. While the law regulates only the minimum security standards for IoT devices, its definition of a “connected device” (i.e., an IoT device) may impact product liability claims because “connected devices” are physical objects and not technology. SB 327’s definition suggests that manufacturers of the software in IoT devices may not be held strictly liable for software defects, because the law aligns with and reinforces the view of most courts that software is not a product, but a service.

A broad concept, the IoT comprises billions of devices worldwide. It includes everything from cell phones and tablets to smart speakers that respond to voice commands, smart refrigerators that help keep track of the food inside them, and even smart collars that track a dog’s fitness levels. There are wearable health monitors that send a patient’s real-time medical information directly to a health care professional, and smart pills that help keep track of the time when a patient last took one. If a product can be connected to the internet, it can become an IoT device.

Among other things, SB 327 requires manufacturers of “connected devices” to equip them with “reasonable security features.” The law defines a “connected device” to include only “physical objects,” which is significant because IoT devices combine a physical object with technology that changes the nature of the device. For example, a regular lamp is not part of the IoT. But when a manufacturer installs technology that connects the lamp to the internet and allows it to be turned on or off or dimmed by a tablet or smart phone, then the lamp becomes an IoT device. As written, SB 327 may exclude manufacturers of the intangible technology – such as software – from its requirements.

Combining a physical object and an intangible technology also creates a novel issue when it comes to strict product liability principles, which typically hold that a product manufacturer may be strictly liable for a product’s defect. The first task in a strict product liability case is to identify the product. In the context of a device that has no internet connectivity, the answer is straightforward. If a ladder is defective and causes an injury, the ladder’s manufacturer may be held strictly liable because a ladder is the product. But when it comes to IoT devices, the line may be blurred. Almost always, the software part of the IoT device is “manufactured” by a separate entity from the entity that manufactures the physical object. If the IoT device proves to be defective, the question becomes which entity may be held strictly liable.

A real-world example illustrates the issue. Medical professionals today are beginning to use implantable cardiac devices that transmit data directly from the device to the health care provider, which allow the medical professional to directly monitor the patient and device (For more information on these medical devices and other issues that surround them, see our previous blog post here). The benefits of this technology are obvious. It allows for real-time observation by medical professionals, which makes patients safer and reduces the need for long visits to the doctor’s office. But internet-based monitoring also may come with some risks that the statute attempts to address. For example, as the device is connected to the internet, it may be vulnerable to unauthorized access. Additionally, a software defect could potentially misread data, corrupt information, or even cause the device to malfunction.

If the defect is in the physical object of the device, then the entity that manufactured the device may risk being held strictly liable. But if the defect is in the software, the answer is less apparent because courts have not clearly indicated whether software is a product for purposes of strict product liability. Most observers expect courts to treat software in IoT devices as a service rather than a product, because for UCC purposes courts typically treat custom-made software (like that in IoT devices) as a service rather than a good. SB 327 aligns with this view and provides additional fuel for the argument that software is not a product.

The California Legislature may have placed the burden on an IoT device’s physical manufacturer to ensure safety when it comes to data stored inside the device. But physical device manufacturers may yet argue that the software was a component product when it comes to strict liability issues. Time will tell how courts will address that argument.

 

© 2019 Schiff Hardin LLP
This post was written by Gregory Dickinson and Jeffrey Skinner of Schiff Hardin LLP.

State Water Board Unveils Aggressive Plan to Issue Investigative Orders for PFAS

Environmental & Natural Resources

  • Within the month, the State Board will issue orders requiring investigation of potential PFAS contamination, a widely used class of chemicals, at more than a thousand California facilities.
  • Phase I targets airports and landfills.
  • Phases II & III, to be implemented later this year, will include refineries, bulk terminals, fire training facilities, wildfire areas, manufacturers, wastewater plants, and domestic wells.

On March 6, the California State Water Resources Control Board announced it will soon issue orders to owners and operators of more than a thousand facilities in California requiring environmental investigation and sampling for per- and polyfluoroalkyl substances, known by the acronym PFAS. As “Item 10” in a four-hour meeting providing updates on state and federal programs addressing PFAS, Darrin Polhemus, Deputy Director of the State Board’s Division of Drinking Water (DDW), and Shahla Farahnak, Assistant Deputy Director of the Division of Water Quality (DWQ), unveiled an aggressive “Phased Investigation Plan.”

ABOUT PFAS

PFAS are a class of chemicals widely used for decades in many consumer products for their grease- and stain-resistant properties, including nonstick products, carpeting, furniture, and makeup. PFAS were also commonly essential ingredients of firefighting foams used at airports and other locations where large quantities of flammable fuels were present. PFAS compounds are potentially toxic at extremely low levels. In the last several years, public scrutiny of PFAS has accelerated as their environmental prevalence has become better understood. Testing performed in connection with the U. S. Environmental Protection Agency’s (USEPA’s) third “Unregulated Contaminant Monitoring Rule” (UCMR3) identified 133 PFAS detections in California drinking water systems, and follow-up testing resulted in nearly 300 more detections.

PHASE I ORDERS IMMINENT

In Phase I of its investigation plan, the State Board will issue orders to 31 airports it believes to have used PFAS-containing aqueous firefighting foam, and 252 landfills it believes to have accepted materials that contain PFAS. The State Board will also issue investigative orders to operators of 578 drinking water wells within a two-mile radius of one of the airports, and 353 drinking water wells within a one-mile radius of the landfills. It will also issue orders for 389 drinking water sources within a mile radius of PFAS impacts identified in the UCMR3 testing.

State Board staff have already drafted the Phase I orders and expect to issue them by the end of this month, if not sooner.

PHASES II & III EXPECTED SUMMER/FALL 2019

The State Board is still formulating the next phases, but staff said “high priority” targets in Phase II will be refineries, bulk terminals, and non-airport fire training areas. Phase II would also include manufacturers of PFAS, if any. (Presently, the Board does not believe there are any in California, but it intends to verify that understanding as part of the investigation.) In the second phase, the State Board will also test storm water in areas of the massive 2017 and 2018 California wildfires to evaluate whether burning of consumer products in those fires resulted in PFAS releases to the environment.

Phase III will focus on so-called “secondary manufacturers” – those that use PFAS in their products or processes. Board staff specifically mentioned plating facilities as potential targets. The third phase will also include wastewater treatment and pre-treatment plants, and domestic wells.

State Board staff expects to implement Phases II and III in the summer and fall of this year.

TIMELINE AND STRATEGIC CONSIDERATIONS FOR RESPONDING TO ORDERS

If you get an order, you will need to be prepared to respond quickly. Targeted source facilities will receive an order issued by the State Board under the authority of California Water Code section 13267. These orders will require businesses to respond to a questionnaire regarding the historical use of PFAS-containing products within 30 days, and to submit work plans for conducting testing within 60 days. After the work plans are accepted, businesses will have 90 days to perform the testing and submit the results.

Source: Presentation at State Water Resources Control Board Meeting, March 6, 2019, Water Boards PFAS Phased Investigation Approach
https://www.waterboards.ca.gov/pfas/docs/7_investigation_plan.pdf

Regulated entities should use great care in responding to these orders. Failure to comply may be punished by fines ranging from $5,000 to $25,000 per day per violation. Under the statute, the burden, including costs, of the ordered reporting must “bear a reasonable relationship to the need for the report and the benefits to be obtained from the reports” and responding parties may take steps to protect their trade secrets from public disclosure as a result of required reporting. Moreover, appropriate execution of the required testing is critical. Because PFAS are so widely used in consumer products, there are myriad opportunities for cross-contamination that could result in false positives if exacting sampling protocols are not utilized.

Targeted water system operators will receive an order from DDW under California Health & Safety Code section 116400. Those orders will require periodic PFAS analyses, likely on a quarterly basis, unless DDW determines that a different schedule is reasonable.

FEDERAL PFAS ACTION PLAN AND NEXT STEPS IN CALIFORNIA

California’s Phased Investigation Plan comes on the heels of the February 14 release of the USEPA’s PFAS Action Plan, identifying short- and long-term actions USEPA plans to take over the coming years. USEPA said it will set federally enforceable Maximum Contaminant Levels (MCLs) for perfluorooctanoic acid (PFOA) and perfluorooctanesulfonic acid (PFOS) – two members of the PFAS family, designate those chemicals as hazardous substances under the Superfund law, require monitoring for additional PFAS in the next UCMR, and develop interim cleanup standards for PFAS in groundwater. The Action Plan would give the federal government greater enforcement authority over PFAS and has come under fire from a number of consumer advocacy and political organizations.

The State Board, somewhat uncharacteristically, has not been on the forefront of PFAS regulation. In 2016, the USEPA published a Health Advisory Level of 70 parts per trillion (ppt) in drinking water for combined PFOA and PFOS. Then, in November 2017, New Jersey announced that it would be the first state to establish a legally enforceable MCL for PFOA, setting it at 14 ppt, the most stringent standard in the country.

California has been more measured in its response. As Allen Matkins previously reported, in November 2017, the state added PFOA and PFOS to the Proposition 65 list of chemicals “known to the state” to cause reproductive toxicity, and in July of last year DDW set “notification levels” of 13 ppt for PFOS and 14 ppt for PFOA, and a “response level” of 70 ppt for combined PFOA and PFOS. Yet, to date, there is no enforceable drinking water or cleanup standard for PFAS in California, and Deputy Director Polhemus’ comments at the March 6 meeting made clear that none is imminent. The State Board and others are struggling with how best to address the whole class of thousands of PFAS chemicals without undertaking the massive regulatory effort required to set MCLs for each individual chemical in the family. Given this challenge, DDW has not requested a Public Health Goal (PHG) for any PFAS chemicals, and Deputy Director Polhemus said any such PHG is still at least a couple of years off, with potential MCLs at least a few years behind that.

The release of DDW’s Phased Investigation Plan, however, is the first major step in California’s systematic approach to investigating the release of PFAS to the environment, and signals an imminent new regulatory regime.

More information on the State Board’s March 6, 2019 meeting is available here.

© 2010-2019 Allen Matkins Leck Gamble Mallory & Natsis LLP
This post was written by Kamran Javandel and Vaneeta Chintamaneni of Allen Matkins.

Cleaning Product Manufacturers Gear Up for Compliance with State Ingredient Disclosure Laws

Over the next year, California and New York will begin phasing in requirements for manufacturers of cleaning products – including household cleaners, as well as and clothes and dish detergents – to make extensive ingredient disclosures. This will eventually require disclosures on both product labels and manufacturer websites. Both laws involve complex questions regarding which ingredients must be disclosed, whether certain chemical identities may be withheld to protect confidential business information (CBI), and what else must be publicly disclosed (e.g., certain manufacturer studies). Manufacturers of in-scope products should gear up for compliance now.

Scope of Cleaning Products Covered

The California Cleaning Products Right to Know Act applies to general cleaning products (e.g., soaps and detergents for fabric, dishes, counters, and appliances); polish or floor maintenance products; certain air care products (e.g., indoor air fresheners); certain automotive products (e.g., cleaning, polishing, or waxing products for the exterior or interior of automobiles). The law does not apply to food; drugs; cosmetics (including personal care items such as shampoo, hand soap, and toothpaste); or industrial products specifically manufactured for, and exclusively used in, certain industries.

The New York law applies to products “containing a surfactant as a wetting or dirt emulsifying agent and used primarily for domestic or commercial cleaning purposes, including but not limited to the cleansing of fabrics, dishes, food utensils, and household and commercial premises.” The definition contains exclusions for food; drugs; cosmetics; and pesticides.

California Disclosure Requirements

The California law will impose separate disclosure requirements applicable to product labels (effective January 1, 2021) and manufacturer websites (effective January 1, 2020).

Label Requirements

The product labeling requirements go into effect on January 1, 2021. Determining whether the chemical identity of an ingredient needs to be disclosed on the label can be a complicated process necessitating answers to the following questions.

  • Is the ingredient on a designated list? The law requires disclosure of certain ingredients that appear on one or more lists maintained by environmental agencies worldwide, including California’s Proposition 65 list; the European Union list of Substances of Very High Concern (SVHCs); chemicals for which neurotoxicity is indicated by EPA’s Integrated Risk Information System; chemicals with certain EU classification (carcinogens, mutagens, or reproductive toxicants); chemicals identified as persistent, bioaccumulative, and toxic under the Canadian Environmental Protection Act; etc.
  • Has the ingredient been intentionally added to the product? The law defines “intentionally added ingredient” as: “a chemical that a manufacturer has intentionally added to a designated product and that has a functional or technical effect in the designated product, including, but not limited to, the components of intentionally added fragrance ingredients and colorants and intentional breakdown products of an added chemical that also have a functional or technical effect in the designated product.”
  • Is the ingredient a listed fragrance allergen? The law requires disclosure of certain fragrance allergens included on Annex III of the EU Cosmetics Regulation No. 1226/2009, as required by be labeled by the EU Detergents Regulation No. 648/2004.
  • Is the ingredient eligible for CBI protection? The law provides certain disclosure protections for ingredients that appear on the Toxic Substances Control Act Confidential Inventory or for which the manufacturer or its supplier claim protection under the Uniform Trade Secrets Act. CBI claims are not available for certain ingredients, including intentionally added ingredients that appear on a designated list.

The law also requires that a product label include the manufacturer’s phone number and website. If the list does not disclose all intentionally added ingredients in the product, the label must contain a statement similar to “For more ingredient information, visit [manufacturer’s website].”

Website Requirements

The website disclosure requirements go into effect on January 1, 2020. These are broader than the product label requirements, i.e., there may be some ingredients that must be disclosed on a website but need not be disclosed on the product label. Generally, all intentionally added ingredients must be disclosed on the manufacturer’s website (with certain exceptions, e.g., for CBI ingredients), as must any of 34 substances listed in the law if they are present at or above 100 parts per million, whether intentionally or not. Manufacturers’ websites also must contain additional information, for example Chemical Abstract Service numbers, the purpose of certain ingredients (e.g., fragrance, color, etc.), certain regulatory information, and links to safety data sheets.

New York Disclosure Requirements

New York law has long empowered the Department of Environmental Conservation (DEC) to require manufacturers of household cleaning products to disclose certain information. N.Y. Envtl. Conserv. Law § 35-0103. Until recently, DEC’s disclosure requirements were largely limited to phosphorous-containing ingredients and to other ingredients above 5% concentration. In 2017, DEC proposed expanded disclosure requirements and solicited stakeholder input on the proposal. Future reporting requirements, to be phased in starting this year, will significantly expand the scope of disclosures manufacturers must make.

DEC originally announced the deadline for initial disclosures to be July 1, 2019. DEC recently announced, however, that it would not begin enforcing any violations until October 2, 2019, making the new de facto compliance deadline October 1, 2019. By that date, manufacturers of in-scope products should complete and submit DEC’s Certification Form, as well as make the required disclosures on its website. The Certification Form must be re-submitted at a minimum every two years thereafter, and additionally when a triggering event occurs (e.g., change in formulation).

The first round of disclosure will require the identification of all intentionally added ingredients other than fragrance ingredients, as well as all nonfunctional ingredients present above trace quantities. The law allows manufacturers to assert CBI claims to protect the identity of certain chemicals. Disclosure requirements for additional ingredients will be phased in on July 1, 2020 and January 1, 2023.

Manufacturers must also disclose additional information, including:

  • Whether ingredients are present on one or more lists of concern (e.g., certain substances regarded by the EU as SVHCs, etc.), regardless of whether the identity of the chemical is withheld due to a CBI claim;
  • Whether ingredients are nanoscale materials;
  • The function of ingredients (e.g., fragrance, color, etc.); and
  • Information regarding investigations and research the manufacturer has conducted or directed regarding environmental or health effects of ingredients.

Due to the complexity of the questions surrounding these disclosures, manufacturers would be wise to begin gathering the relevant information now.

 

© 2019 Beveridge & Diamond PC