Bluehippo Funding, LLC v. McGraw

• Decision Date: 25 February 2009
• Docket Number: Civil Action No. 2:07-0399.
• Court: U.S. District Court — Southern District of West Virginia
• Parties: BLUEHIPPO FUNDING, LLC, a Maryland limited liability corporation and BlueHippo Capital, L.L.C., a Nevada limited liability corporation, Plaintiffs v. Darrell V. McGRAW, Jr., in his official capacity as Attorney General of the State of West Virginia, and Virgil T. Helton, in his official capacity as Secretary of the Department of Revenue of the State of West Virginia, Defendants.

609 F.Supp.2d 576

BLUEHIPPO FUNDING, LLC, a Maryland limited liability corporation and BlueHippo Capital, L.L.C., a Nevada limited liability corporation, Plaintiffs v. Darrell V. McGRAW, Jr., in his official capacity as Attorney General of the State of West Virginia, and Virgil T. Helton, in his official capacity as Secretary of the Department of Revenue of the State of West Virginia, Defendants.

Civil Action No. 2:07-0399.

United States District Court, S.D. West Virginia, at Charleston.

February 25, 2009.

COPYRIGHT MATERIAL OMITTED

Charles Lee Eisen, Nicholas G. Terris, Kirkpatrick & Lockhart Preston Gates Ellis, Washington, DC, Kara L. Cunningham, Russell D. Jessee, Steptoe & Johnson, Charleston, WV, for Plaintiffs.

Charli Fulton, Jill L. Miles, Andrew M. Fenway Pollack, Barbara H. Allen, Katherine A. Schultz, Office of the Attorney General, Charleston, WV, for Defendants.

MEMORANDUM OPINION AND ORDER

JOHN T. COPENHAVER, JR., District Judge.

Pending are separate motions for summary judgment by (1) plaintiffs BlueHippo Funding, LLC ("BlueHippo Funding"), and BlueHippo Capital, L.L.C. ("BlueHippo Capital"), (2) defendant Secretary of the Department of Revenue Virgil T. Helton ("Secretary"), and (3) defendant Attorney General Darrell V. McGraw, Jr. ("Attorney General"), all filed May 8, 2008.¹

Discovery disputes remained pending before the magistrate judge and discovery continued after the filing of the aforementioned motions. On August 6, 2008, plaintiffs' counsel advised the court of the necessity of supplemental briefing based upon discovery taken after the dispositive motions were filed. On August 12, 2008, counsel were directed to confer and advise the court no later than August 27, 2008, concerning the necessity of (1) further briefing, and (2) a bench trial or, alternatively, the suitability of submitting the case based upon the parties' summary judgment briefing.

After receiving the parties' input, the court allowed the requested supplemental summary judgment briefing. The supplemental briefing concluded on October 23, 2008. The existing scheduling order was vacated pending "a ruling on the parties' summary judgment motions that might obviate the need for further proceedings." Bluehippo Funding, LLC v. McGraw, No. 2:07-0399, at 2 (S.D.W.Va. Sept.24, 2008)(stating further "All parties are in agreement that, if supplemental briefing is not permitted, the case is subject to final disposition based upon the existing summary judgment record. If supplemental briefing is allowed, defendants reserve the right to revise their position on whether a trial is necessary.").

I.

A. West Virginia Code Provisions Governing Telemarketers

The West Virginia Consumer Credit and Protection Act ("Act"), West Virginia Code section 46A-1-101 et seq., contains an article dealing with telemarketing ("Telemarketing Article"). The Telemarketing Article was added to the Act in 1998. 1998 W. Va. Acts Ch. 314. A "[t]elemarketer" is defined as "any person who initiates or receives telephone calls to or from a consumer in this state for the purpose of making a telemarketing solicitation as defined in section one hundred twelve of this article." W. Va.Code § 46A-6F-113(a).

A "[t]elemarketing solicitation" includes the following:

any communication between a telemarketer and a prospective purchaser for the purpose of selling or attempting to sell the purchaser any consumer goods or services, if it is intended by the telemarketer that an agreement to purchase the consumer goods or services will be made after . . . [t]he telemarketer communicates with a consumer by any means and invites or directs the consumer to respond by any means to the telemarketer's communications, and the telemarketer intends to enter into an agreement with the consumer for the purchase of consumer goods or services at some time during the course of one or more subsequent telephone communications with the consumer.

Id. § 46A-6F-112 (a)(2).

Telemarketers must register with the West Virginia Department of Tax and Revenue ("Department") and pay certain application fees at least 60 days before offering goods or services to consumers in West Virginia. Id. § 46A-6F-301(a) and (b). The application and annual renewal fees are set at $250, with a $50 discount available for web-based registrations and renewals. W. Va.C.S.R. § 119-301-2.2.1.2. Telemarketers must also post a continuing surety bond or similar specified security. Id. § 46A-6F-302(a). The bond or other security must be in an amount of $100,000 for each telemarketing location or a single bond for all locations of $500,000 and approved by the Department. Id. ("The bond shall provide that the telemarketer will pay all damages to the State or a private person resulting from any unlawful act or action by the telemarketer or its agent in connection with the conduct of telemarketing activities.").

A telemarketer would typically expect to pay between 1% to 3% of the face amount to obtain the necessary bond. (AG Mem. in Supp. at 20). Failure to comply with the registration or security requirements may result in the assessment of a civil penalty of up to $5,000. Id. § 46A-6303(a)(1) and (2).

The Attorney General asserts that he has initiated only three prosecutions under the Telemarketing Article. (AG's Mem. in Supp. at 6). Each of the three charged entities, Alyon Technologies, IGIA, Inc., and BlueHippo, along with certain corporate principals, were charged civilly with, inter alia, both unfair or deceptive acts or practices and failure to register and provide surety as telemarketers.²

B. BlueHippo's Business Activities

BlueHippo Funding is a Maryland citizen. (Compl. ¶ 5). BlueHippo Capital is a Nevada corporation, with its principal place of business in Maryland. (Id. ¶ 6).³ BlueHippo offers computers and other electronic products for sale to the public using print, radio, television, and the Internet. (Id. ¶ 9; Ex. 2, Pls.' Mot. Summ. J., Dep. of John Burcham⁴ at 102-03 ("Burcham Dep. at __")). For example, BlueHippo television ads might appear on syndicated shows broadcast nationwide like "Judge Judy" or "Wheel of Fortune." (Burcham Dep. at 104-05).

BlueHippo relies upon independent agencies to determine advertising placement on a national basis; without directing promotional efforts to West Virginia in particular. (See Burcham Dep. at 102-09). BlueHippo has no physical presence, employees, agents, representatives, or salespeople in West Virginia. (See Compl. ¶ 13). It has never initiated calls to West Virginia consumers. (Compl. ¶ 11). Interested consumers contact BlueHippo instead, based upon the telephone number appearing in its various advertisements or through its Internet website. (Id. ¶ 12; Burcham Dep. at 32-33). After the consumer's initial telephone call, BlueHippo will, on occasion, respond to customer service inquiries via phone, facsimile, or email. (Burcham Dep. at 34; Pls.' Mem. in Supp. at 4).

When a potential customer phones Blue-Hippo Funding he is routed to the Premier BPO call center in Pakistan.⁵ (Burcham II Dep. at 31-32). BlueHippo provides the Pakistani contractor with prepared scripts to follow. (Id. at 32, 36). BlueHippo supervises the Premier BPO call center, in part, by periodically reviewing recordings of some calls. (Id. at 37).

Once a potential customer places a call and enters into a sales transaction with BlueHippo, documents are apparently sent to the individual by BlueHippo Funding to formally establish the buyer-seller relationship. (Id. at 23). The individual is then expected to make a certain number of payments to BlueHippo in order to qualify for financing from BlueHippo Capital. (Id. at 25). Once the individual makes a predetermined number of timely payments, typically between 4 to 13, BlueHippo Funding alerts BlueHippo Capital that the individual is qualified to obtain financing for the purchase of the desired computer equipment, at which time BlueHippo Capital mails the individual a financing agreement.⁶ (Id. at 25). When the terms of the parties' agreement have been fulfilled, BlueHippo orders the consumer's requested merchandise from a supplier, who then ships the goods to the consumer. (Compl. ¶¶ 23, 25). BlueHippo maintains no inventory of its own. (Burcham Dep. at 69-70).

BlueHippo is currently defending several class actions filed against it in Maryland, California, Arkansas, and Oklahoma. (Id. at 127). Mr. Burcham testified that "some may be state actions and others are private causes of action." (Id. at 130).

C. The BlueHippo I Enforcement Action

Neither BlueHippo Funding nor Blue-Hippo Capital appear to have registered as telemarketers as required by the Telemarketing Article. (Burcham II Dep. at 101-02). Prior to March 12, 2007, the date when the Attorney General instituted BlueHippo I, the Consumer Protection Division had received 17 consumer complaints against BlueHippo. (AG's Mot. Summ. J., Ex. 5, Aff. of Daphanie Mullins, at 1).

An investigation of these complaints disclosed alleged BlueHippo practices involving West Virginia consumers, including the following: (1) BlueHippo does not disclose the total cost of the purchased goods and their financing, (2) any payments to BlueHippo are non-refundable until, inter alia, BlueHippo has obtained the consumer's approval of an electronic debiting arrangement, (3) the terms of the written agreements that the consumer is required to sign are not disclosed, (4) the right to cancel the transaction within seven days is not disclosed, (5) at least one of the computers billed as "the finest . . . on the market" was in actuality "below the industry standard" at the time, (6) it is not disclosed that if the consumer pays late even once, he will be required to advance at least 66% of the total cost of the computer before it will be shipped, (7) some computer models offered by BlueHippo were, during the same period of time as advertised for sale, readily available in retail stores for less than half the...