597 B.R. 177
Bankr. S.D. Florida2018Background
- Joseph K. Rensin was founder, CEO, sole owner and active operator of BlueHippo, which sold computers to credit‑impaired consumers via telemarketing and an online store.
- BlueHippo instituted a store‑credit "refund" policy that required customers to prepay shipping, handling, and taxes and to buy one item at a time (the “extra terms”); those terms were not disclosed prior to customers’ payments.
- 55,892 orders resulted in customers paying but receiving no merchandise or usable store‑credit; aggregate receipts for those orders (adjusted for refunds and settlements) yielded a district‑court contempt judgment of $13,400,627.60 against BlueHippo and Rensin (jointly).
- The FTC obtained a consent order in 2008 requiring disclosure of refund/return terms; later enforcement litigation found BlueHippo and Rensin in contempt for withholding the extra terms and resulted in the compensatory judgment.
- In this bankruptcy adversary, the FTC sought a ruling that the district‑court contempt judgment is nondischargeable under 11 U.S.C. §§ 523(a)(2)(A) (fraud) and 523(a)(6) (willful and malicious injury); the bankruptcy court tried factual issues of Rensin’s personal knowledge and involvement.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the debt is nondischargeable under §523(a)(2)(A) (fraud/false pretenses) | BlueHippo (and Rensin) knowingly misrepresented/concealed material refund terms, customers relied, and suffered losses; liability and damages fixed by the district court | Rensin denied knowledge/participation in the extra terms and contested scope of damages | Held: debt nondischargeable under §523(a)(2)(A); court found Rensin knew, authorized, and participated in the fraudulent scheme and customers’ reliance and damages were proven |
| Whether the debt is nondischargeable under §523(a)(6) (willful and malicious injury) | Rensin’s intentional implementation and concealment of the extra terms was substantially certain to cause financial harm to customers; conduct was wrongful and without just cause | Rensin contended lack of intent/knowledge and sought to avoid §523(a)(6) liability | Held: debt nondischargeable under §523(a)(6); court applied a subjective "substantial certainty" standard and found Rensin knew harm was substantially certain and acted maliciously |
| Whether collateral estoppel precludes relitigation of facts underlying damages | FTC relied on district‑court findings (and Second Circuit) that the extra terms were material and damages calculation | Rensin sought to re‑argue damages and minimize his personal knowledge | Held: district‑court determinations have collateral estoppel effect on key facts (including materiality and damages calculation), though Rensin’s personal knowledge was tried here and found against him |
| Whether Rensin is personally liable (basis for personal nondischargeability) | Rensin was liable under Rule 65(d)(2) and also personally involved in, and consented to, liability; his supervisory and operational control supports personal responsibility | Rensin argued he lacked personal knowledge or that counsel/advisors were responsible | Held: court found Rensin personally knew of and directed the scheme; his contrary testimony was not credible and was rejected |
Key Cases Cited
- SEC v. Bilzerian, 153 F.3d 1278 (11th Cir.) (elements of fraud relevant to §523(a)(2)(A))
- Kawaauhau v. Geiger, 523 U.S. 57 (1998) ("willful" in §523(a)(6) requires deliberate or intentional injury)
- Hope v. Walker (In re Walker), 48 F.3d 1161 (11th Cir.) ("willful" injury includes intentional act substantially certain to cause injury)
- Markowitz v. Campbell (In re Markowitz), 190 F.3d 455 (6th Cir.) (substantial‑certainty standard applied to §523(a)(6))
- FTC v. BlueHippo Funding, LLC, 762 F.3d 238 (2d Cir.) (extra terms were material to consumers’ purchase decisions)
- Ormsby v. First Am. Title Co. of Nev. (In re Ormsby), 591 F.3d 1199 (9th Cir.) (debtor charged with knowledge of natural consequences of actions)