Fed. Trade Comm'n v. Rensin (In re Rensin)

• Decision Date: 13 December 2018
• Docket Number: ADV. PROC. NO. 17-01185-EPK,CASE NO. 17-11834-EPK
• Citation: 597 B.R. 177
• Parties: IN RE: Joseph K. RENSIN, Debtor. Federal Trade Commission, Plaintiff, v. Joseph K. Rensin, Defendant.
• Court: U.S. Bankruptcy Court — Southern District of Florida

597 B.R. 177

IN RE: Joseph K. RENSIN, Debtor.Federal Trade Commission, Plaintiff,

v.Joseph K. Rensin, Defendant.

CASE NO. 17-11834-EPK

ADV. PROC. NO. 17-01185-EPK

United States Bankruptcy Court, S.D. Florida, West Palm Beach Division.

Signed December 13, 2018

Filed December 14, 2018

Michael P. Mora, Federal Trade Commission, Washington, DC, for Plaintiff.

Ronald G. Neiwirth, Esq., Andrew R. Schindler, Gordon & Rees LLP, Miami, FL, for Defendant.

MEMORANDUM OPINION

Erik P. Kimball, Judge

In this adversary proceeding, the Federal Trade Commission asks this Court to determine that the debt represented by a $ 13,400,627.60 compensatory damages award entered by a federal district court is not subject to discharge in Joseph K. Rensin's bankruptcy case pursuant to 11 U.S.C. §§ 523(a)(2)(A) and/or (a)(6).

The Court conducted trial in this matter on August 9, 2018. On October 4, 2018, the plaintiff and the defendant filed post-trial briefs in the form of proposed findings of fact and conclusions of law. ECF Nos. 106 and 107. The Court has considered the evidence admitted at trial to the extent relied on by the parties in their post-trial briefs. See ECF No. 91 (limiting the Court's review of the evidence to those matters addressed by the parties in their briefs). The Court also considered the original pleadings, the arguments presented at trial and in the post-trial briefs, and two orders entered in the district court case that gave rise to the debt at issue in this adversary proceeding, which orders the Court took judicial notice of pursuant to a post-trial order. ECF No. 108. This Memorandum Opinion constitutes the Court's findings of fact and conclusions of law pursuant to Fed. R. Bankr. P. 7052.

FINDINGS OF FACT

The time period relevant to this action is April 9, 2008 through July 24, 2009. This is the period during which the plaintiff alleges Mr. Rensin took the actions that cause his debt to the plaintiff to be excepted from discharge.

Mr. Rensin founded BlueHippo Funding LLC and its subsidiary BlueHippo Capital LLC (together, "BlueHippo") in the early 2000s. At all relevant times, Mr. Rensin was the CEO and sole owner of BlueHippo.

BlueHippo marketed computers and related products to consumers who might otherwise have been unable to purchase such items. BlueHippo advertised through radio, television, and print. A potential customer would call BlueHippo. BlueHippo employed in-house telemarketers who relied on prepared sales scripts when communicating with customers. BlueHippo specifically targeted customers with poor credit histories, telling potential customers that all they needed to buy a computer was a checking account. Most of BlueHippo's customers suffered from poor credit.

BlueHippo sold products in two different ways. Some of BlueHippo's customers attempted to purchase a computer on credit. They were required to make 13 consecutive payments and meet other conditions, after which they would receive the computer and would continue to make payments until the purchase price was paid in full. Some of BlueHippo's customers attempted to purchase a computer on a layaway plan. These customers were required to make installment payments totaling the full purchase price before receiving the computer. Many of BlueHippo's credit customers failed to make all of the required payments and so did not qualify to obtain a computer on credit. If a customer attempting to purchase a computer on credit did not make the necessary 13 consecutive payments, that customer could continue to make payments under the layaway plan and could receive a computer after full payment. Even so, many customers on the layaway plan failed to make all the payments and, in the end, did not receive a computer.

Over time, BlueHippo had three refund policies. For a time prior to March 2006, BlueHippo did not offer refunds at all. From about March 2006 through the beginning of 2007, a customer could cancel an order and obtain a refund after paying a fee of $ 175. In early 2007, BlueHippo began offering store credit to customers who failed to make all required payments. Customers were told that if they canceled an order they could use their store credit "on over a thousand desktops, laptops, monitors, TV's and more at BlueHippo.com." The store credit refund policy was the primary focus of the litigation in this adversary proceeding.

In order to use a store credit, customers were required to send BlueHippo additional money to cover shipping, handling, and taxes for online purchases and were permitted to order only one item at a time from the online store. In other words, a customer could not use a store credit without sending additional funds to BlueHippo first, and even then the customer would need to order one store credit item at a time, potentially increasing shipping and handling costs. For purposes of this Memorandum Opinion, these conditions on use of the store credit are called the "extra terms." There is no credible evidence to support Mr. Rensin's unsupported suggestion that some customers were not in fact charged taxes, shipping, and handling when trying to use store credit.¹

BlueHippo did not disclose the extra terms in its advertisements, in the scripts used by BlueHippo's telemarketers, or in any other way, prior to receiving payments from customers. Customers did not learn of the extra terms until they attempted to use a store credit.

BlueHippo received orders from 55,892 customers for which the customers obtained no merchandise, either from their original purchase attempt or via application of a store credit. BlueHippo's revenues for these 55,892 customers aggregate $ 14,062.627.51. While Mr. Rensin attempts to argue that the actual damages were much smaller and are attributable to just a tiny portion of the customers included in the 55,892 pointed to by the district court, both the district court's orders liquidating the plaintiff's claim (see below) and the parties' stipulation of facts in this case negate that argument. See ECF No. 66 ¶ 27.

In February 2008, the plaintiff filed an action in a federal district court alleging, among other things, that BlueHippo had failed to disclose to its customers, prior to initial payment, that their payments were not refundable. Although BlueHippo's store credit refund policy had been instituted about a year prior to the plaintiff's action in the district court, that suit did not focus on the store credit refund policy. The plaintiff's allegations in the 2008 district court action were aimed at BlueHippo's failure to inform potential customers, prior to receiving payment, that payments would not be refundable under any circumstances. The 2008 district court action resulted in a consent order, entered April 10, 2008 (the "Consent Order"). Among other things, the Consent Order prohibited BlueHippo and its officers and agents from "[m]aking any representation regarding any refund, cancellation, exchange or repurchase policy without disclosing clearly and conspicuously, prior to receiving any payment from customers all material terms and conditions of any refund, cancellation, exchange or repurchase policy." BlueHippo was required to pay $ 3.5 to $ 5 million in the 18 months following entry of the Consent Order, depending on total claims. To provide the plaintiff with a method to monitor compliance with the Consent Order, BlueHippo was required to respond to written requests for information from the plaintiff within five days. Mr. Rensin was not explicitly covered by the Consent Order.

In 2009, the plaintiff investigated BlueHippo's compliance with the Consent Order by requesting information as permitted by the Consent Order. When BlueHippo did not timely provide the requested information, the plaintiff sought and obtained from the district court an order holding BlueHippo in contempt of the Consent Order and requiring BlueHippo to tender the requested information.

During this time, BlueHippo was involved in litigation with a number of parties, including the plaintiff, state attorneys general, individuals, and classes of plaintiffs. The litigation and settlement costs were a substantial drain on BlueHippo. Indeed, for a time in 2009 BlueHippo was unable to ship computers to customers because of its litigation related expenses. This is important as it places in context the deceit implemented by Mr. Rensin and his company to obtain funds from unknowing customers with the intent of never providing those customers anything in return.

In a response to a written request to BlueHippo consistent with the Consent Order, the plaintiff learned of the extra terms of the store credit refund policy and the fact that BlueHippo was not advising customers of the extra terms prior to accepting funds. In November 2009, the plaintiff pursued an action in the district court against BlueHippo and Mr. Rensin, seeking damages for their alleged contempt of the Consent Order. On July 27, 2010, the district court entered an order holding both BlueHippo and Mr. Rensin in contempt of the Consent Order because they had failed to disclose the extra terms of the store credit refund policy to customers prior to receiving payment. The district court's initial award was appealed to the Second Circuit Court of Appeals. On remand, the district court entered judgment against BlueHippo and Mr. Rensin, jointly and severally, in the amount of $ 13,400,627.60. It is this debt that the plaintiff seeks to have excepted from discharge in this adversary proceeding. The judgment amount represents the $ 14,062,627.51 BlueHippo received from customers making 55,892 orders where the customers neither received a computer nor received anything via store credit, less $ 126,999.91 that BlueHippo paid in refunds, and less $ 535,000 in settlements paid to the states of Pennsylvania, Texas, and Wisconsin.

When the district court entered judgment for contempt, the district court did not find that Mr. Rensin was personally liable to the plaintiff based on Mr. Rensin's own...