Last month, the Second Circuit heard oral argument in what had seemed like the most consequential consumer class-action appeal in that court in years: three consolidated cases involving “flushable” hygienic wipes.  Both sides of the class-action bar were at the edge of their seat waiting for the Second Circuit’s guidance on several controversial issues of class-action law, including the appropriate standard for reviewing damages models at the class-certification stage.  Earlier this week, however, the Second Circuit essentially punted, sending the cases back to the district court for “further factual development.”  This is a frustrating result, but reading between the lines, class-action defendants may have reasons for cautious optimism.

A quick primer on the cases:  various manufacturers sell pre-moistened hygienic wipes billed as “flushable.”  However, some studies have suggested that these wipes do not fully disintegrate in water, and thus, could theoretically clog plumbing systems and septic tanks.  By all accounts, the frequency of such clogs is vanishingly low, but the possibility is allegedly there.  Enter the lawsuits.  In courts around the country, plaintiffs—ranging from consumers to homeowners’ associations to cities—filed putative class actions against “flushable” wipe manufactures.  Some settled, but three consumer suits made their way to Judge Weinstein in the Eastern District of New York.  In March 2017, Judge Weinstein certified all three as class actions, for purposes of both damages and injunctive relief.  In so doing, however, he acknowledged that the question was “right on the knife’s edge” and mused that his decision may well be reversed by the Second Circuit.  Accordingly, he “recommended” interlocutory review.

The Second Circuit followed Judge Weinstein’s advice, and granted the manufacturer’s Rule 23(f) petitions for review.  This was a discretionary and relatively rare step by the appeals court, meant to aid resolution of “unsettled” and "important” legal issues.  Sumitomo Copper Litig. v. Credit Lyonnais Rouse, Ltd., 262 F.3d 134, 140 (2d Cir. 2001).  And indeed, the “flushable” appeals touched on fascinating and hotly debated issues in consumer class-action law.  They include:

• Damages Models: As we’ve discussed elsewhere, courts disagree over what showing a plaintiff must make with respect to his or her damages model to obtain class certification.  Some courts have found it enough for plaintiffs’ experts to promise that damages will eventually be capable of class-wide proof using a specified method or technique, without actually demonstrating that the technique can be suitably applied on the facts of the given case or that the necessary data to apply the technique are in fact available.  Other courts, stressing the “rigorous analysis” required by Rule 23, have demanded more than mere boilerplate about generally accepted techniques—including case-specific evidence of workability and effectiveness.  Judge Weinstein took the former approach, reasoning it was enough that the plaintiffs’ expert “identified the ‘statistical methodology’ he would [eventually] use” to calculate the alleged “price premium” associated with the challenged “flushable” claim—even though he hadn’t yet shown that the methodology could be successfully applied in the case at hand, let alone actually applied it.
• Statutory Damages:  New York’s consumer-protection laws permit an individual plaintiff to recover “statutory” damages of up to $500 upon proving a claim, even if his or her actual damages are much less.  Initially, Judge Weinstein found that the plaintiffs’ pursuit of statutory damages precluded a finding of “superiority” pursuant to Rule 23(b)(3).  He noted that New York’s Legislature had expressly opposed the combination of statutory damages and class actions, as this one-two punch threatens defendants with “annihilating punishment” that may be “grossly disproportionate to any actual harm caused by the [alleged] violations ….”  Later, however, Weinstein changed course and decided that he was forbidden from considering the excessiveness of aggregated statutory damages in the “superiority” calculus.  Instead, he concluded that the pursuit of statutory damages made class treatment more appropriate, because it obviated the need for individually tailored damages proceedings.  This is another issue on which courts have reached contradictory results.
• Injunctive Standing: Judge Weinstein held that the named plaintiffs had standing to seek injunctive relief on behalf of a class of consumers, even though they themselves were “unlikely to re-purchase the product” again in the future.  It was sufficient, in his view, that the plaintiffs were “trying to protect other consumers” who might unknowingly purchase the product and suffer deception.  However, as other courts have held, this reasoning appears to contradict the fundamental Article III requirement that a plaintiff show a personal threat of “actual and imminent” future injury to him or herself in order to seek injunctive relief.

After over an hour of oral argument last month, it looked like the Second Circuit might provide some much-needed guidance on these issues.  In particular, the argument focused on the sufficiency of the plaintiffs’ “damages model”—which was really just a promise by the plaintiff’s expert, the ubiquitous Colin Weir, that he would be able to employ a particular technique (hedonic regression) when the right time comes.  The manufacturers argued that, even if hedonic regression is an accepted technique, Weir had done nothing to demonstrate that it could be successfully employed on the facts of these cases.  Judge Livingston was pretty clearly unimpressed with Weir’s bare-bones declaration, while Judge Calabresi seemed more favorably inclined toward it.  The third member of the panel, Judge Lohier, was harder to read.  However, all three judges appeared concerned that Judge Weinstein had failed to definitively resolve live disputes between Weir and the manufacturers’ own damages expert. 

Earlier this week, the panel issued a 2.5-page unpublished summary order remanding all three cases to Judge Weinstein for “further development of the record.”  The panel “note[d]” its “specific concern with the Plaintiffs’ proof that they can establish the injury and causation elements of their claims at trial with common evidence.”  However, rather than decertifying the classes on that basis, the panel concluded that “[o]n the record presently before us, [we] cannot decide whether” Weir’s damages declaration satisfied Rule 23(b)(3)’s predominance requirement.  Unfortunately, the panel did not explain what it was about Weir’s declaration that caused them “concern” or what sort of “further development” it felt was needed.  Still less did the panel provide any generally applicable guidance about how fleshed-out a plaintiff’s damages model must be at the class-certification stage (let alone any guidance on the other issues mentioned above).

Given the rarity of Rule 23(f) interlocutory review and the importance of these issues, the anticlimactic result of this interlocutory appeal is a bit disappointing.  It’s also frustrating that, after almost five years of litigation, despite failing to convince the Second Circuit that their damages model was sufficient to meet their Rule 23 burden, the plaintiffs were essentially given a do-over.  Cf. Fed. R. Civ. P. 23(c)(1)(A) (noting that the class-certification question “must” be determined “[a]t an early practicable time after a person sues”).  We tend to agree with the position Judge Livingston took at oral argument: the plaintiffs had their shot, and they made a calculated decision to submit Weir’s bare-bones declaration.  If his declaration was insufficient to convince the Second Circuit, that should have been that.

But perhaps there is a light at the end of the tunnel.  At the end of their brief order, the panel authorized either party to return directly to the Second Circuit within 30 days of Judge Weinstein’s decision on remand.  The order also provided that “any reinstated appeal will be assigned to [the same] panel.”  We now know that at least one judge on that panel thinks that class-certification damages models should be subjected to a meaningful degree of scrutiny, and it appears that a second judge on that panel could be inclined to agree.  It may take another couple of years as a result of this week’s remand, but eventually, we may get a ruling stating as much.