Let’s say a product is made in China. But the product doesn’t meet American health and safety standards.
Can an American law reach across the Pacific and force the Chinese manufacturing company to comply with U.S. law?
Answer : yes.
In September, the Chanler Group, an environmental law firm, reached a settlement on behalf of its client, Peter Englander, with a Chinese manufacturer of products alleged to contain the reproductive toxin di(2-ethylhexyl)phthalate, commonly known as DEHP.
Englander alleged that the foreign company, Hangzhou GreatStar Tool Company, violated California’s Proposition 65 by manufacturing and selling hand tools and stools containing DEHP through major retailers such as Lowe’s and Orchard Supply Hardware, without providing California consumers with the requisite health hazard warning.
The settlement was approved on September 13, 2013.
“If a product is going to be sold in America, it has to meet American health and safety standards, both local and federal,” said Clifford Chanler, the founder of The Chanler Group. “This is true regardless of where the product is manufactured.”
As a result of the settlement, the overseas manufacturer has agreed that, no later than May 1, 2014, all of the products at issue, intended for sale to California consumers, shall be reformulated so as to virtually eliminate the presence of DEHP.
Should Hangzhou GreatStar Tool Company accelerate its reformulation schedule and certify that the products at issue are reformulated by March 15, 2014, Englander agreed to waive a portion of the $30,000 civil fine.
Seventy-five percent of the civil fine is paid to the State of California.
The case represented the first time California’s Proposition 65 law, or any American consumer protection statute, has been used as a basis for international prosecution, Chanler told Corporate Crime Reporter in an interview last week.
Chanler said he expects this to be the beginning of a new trend, where overseas manufacturers are held accountable for the products they provide for American consumers.
The Chanler Group represents citizen enforcers and whistleblowers to promote awareness of toxic chemicals found in our everyday environment and to enhance the health of the general public by advocating for the removal of chemicals known to cause cancer or reproductive harm from consumer products.
Last month, a similar lawsuit settled by Chanler Group requires DAP Inc., a large Chinese manufacturer, to reformulate consumer products to comply with Prop 65.
DAP Inc. manufactures millions of handle grips used on hand tools and tape measures that are sold throughout the United States by Target Stores.
Those products were found to include the reproductive toxicant di(2-ethylhexyl)phthalate (DEHP), which is regulated under Proposition 65. The manufacturer has now agreed to remove the hazardous chemical.
The agreements require the Chinese companies to reformulate every product at issue to eliminate DEHP and to pay civil penalties totaling as much as $65,000, 75 percent of which will go to the State of California to protect and enhance public health and the environment.
“A factory in China does not make products just for California,” Chanler said. “They make products for the entire United States and globally. So, if you get a commitment to take lead paint out of a children’s toy, then you are pretty sure that is going to impact in a positive way the children’s toys being sold in the other 49 states. And I would venture to guess it would also impact the toys sold to many other countries, although I have no statistics or other evidence to support that.”
“Recently, our clients have settled with three Chinese companies where they have agreed to reformulate the products to eliminate the known toxicants. That’s a direct commitment with a Chinese company that is enforceable through a special tribunal in Hong Kong.”
“I would venture to say now that we are settling with the very top of the pyramid that the impact of those cases will be more far reaching than some of our other cases that have been successfully concluded.”
“I don’t know for sure, but it might be one of the first, if not the first case, where an American citizen, or even an American government agency, has settled with a Chinese company where they are committing to change their practices — in this case reformulating their products to eliminate toxic ingredients.”
“I don’t think those cases got any traction with the media. There are many people who believe that Chinese based companies should be held accountable in our courts for goods and services they sell to the American public.”
Those were Prop 65 cases, right?
“Yes they were,” Chanler says.
What is the jurisdictional hook?
“There is no jurisdictional hook,” Chanler said. “We did bring enough pressure to bear upon them that they voluntarily came into the courts, voluntarily agreed to reformulate their products, pay money to the state of California and our client, and agreed to an enforcement mechanism — a special tribunal in Hong Kong. And we researched it for many months to make sure that they weren’t just going to come in, say they were going to do the right thing, and then when it came time to enforce an alleged violation, they would say — you can’t touch us.”
“My client sued Chinese companies,” Chanler said.
Even though there is no jurisdiction?
“Zero jurisdiction,” Chanler said. “But any company can voluntarily agree to jurisdiction.”
What was the pressure that was put on the companies?
“We provided them information regarding the toxic content of their products,” Chanler said. “We gave them the information that led to our issuing the notice to their companies. Our client served a 60 day notice letter, which is a prerequisite for filing a lawsuit. We served such a letter on their American sellers of the consumer products at issue.”
“These were companies like Lowe’s, Target, Costco — the big box retailers. And historically those large retailers have come to the bargaining table and resolved these right to know actions. And they commit not to sell any more of the products at issue, whether they are children’s products or adult products.”
When you say pressure was brought to bear, you mean pressure from these big box retailers?
“It could be,” Chanler said. “The pressure in part, and it could be in substantial part, came from large purchasers of the goods in the U.S., who are also large sellers of the goods to the American public. And they likely said — although I was not on those calls — get us out of this mess and talk directly to Chanler’s clients and see if you can resolve the case without our involvement.”
Chanler started his career as a corporate defense attorney. And then, in 1991, he opened his own firm to prosecute right to know and False Claims Act cases.
How did that happen?
“When I was at Brobeck, I tried to drum up some corporate business through a friend,” Chanler said. “He said — I will see what I can do. He said — I am part of an environmental group and can you make a donation to that group? At that point, I was a young attorney at a large firm completely broke. I had no money. I said — I could do pro bono work.”
“That person set up a meeting with an in house attorney at the large environmental group. We sat down. It happened to be when Prop 65 was just passed. And I said — that’s an interesting statute. I brought it to Brobeck Phleger. I was in good standing at that point. We had just had a good jury victory in federal court. And originally they said yes — you can take this case, which involved methylene chloride in paint stripper, which would have been one of the first cases brought under Prop 65. But then the executive committee said no, there was a conflict.”
“When Wilson Sonsini offered me a job, I said I’m happy to take it, thank you very much. Can I bring this type of case over with me? Originally they too said yes. I signed the retainer agreement under the Wilson name. And after we started the case, I was called into the executive suite. I was told it was anti-corporate and there was a conflict, although Wilson Sonsini didn’t have much of an environmental department at that point. So, I went to the environmental group and said — I’m really sorry I can’t take the case with this firm. It’s a great firm. But I’m willing to open up my own shop out of my apartment in Pacific Heights in San Francisco. If you are okay with that, I’ll take the leap. They said — you are three quarters crazy. You are a year and a half away from partnership at a significant firm. But if you do it, of course, we will give you the cases.”
“I started there. The first settlement for $30,000 afforded me enough money to buy a computer and hire an assistant. That was 1991.”
[For the complete transcript of the Interview with Cliff Chanler, see 27 Corporate Crime Reporter 47(12), December 9, 2013, print edition only.]