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Rensin v. Federal Trade Commission

United States District Court, S.D. Florida

July 25, 2019

JOSEPH K. RENSIN, Appellant,



         This matter is before the Court upon the appeal by Appellant Joseph K. Rensin of the Bankruptcy Court's final judgment in favor of the Appellee. The Court has carefully considered the appeal, the briefs, and the record on appeal, and is otherwise fully advised in the premises.

         I. BACKGROUND

         Appellant is the founder of a company known as “BlueHippo.” ER-123.[1] BlueHippo was a company focused on marketing computers to consumers with poor credit. ER-101-06. In 2008, the Federal Trade Commission (“FTC”), the Appellee, sued BlueHippo because of alleged deceptive practices. ER-162-78. BlueHippo did not contest the charges and instead agreed to a consent order that required it to cease unlawful practices. ER-001-96. Under the consent order, BlueHippo and its officers (including Appellant) were required to disclose to consumers “all material terms and conditions of any refund, cancellation, exchange, or repurchase policy.” ER-120.

         BlueHippo's refund policy is at the core of this appeal. BlueHippo required customers to make a certain number of monthly payments before the customer could receive a computer. If the customer cancelled the payment plan or missed a payment, the customer would not receive a computer, but could instead spend the money they had previously paid as a credit on BlueHippo's online store. See ER-120. What the customer was not informed of was that any purchase from the online store would require the customer to pay additional money for shipping, handling, and taxes. Id. Additionally, the customer could only purchase one item at a time, which had the effect of maximizing shipping costs (these terms are subsequently referred to as the “Extra Terms”). See Id. The Extra Terms were effective insofar as approximately 55, 000 consumers paid over fourteen million dollars to BlueHippo and never received any merchandise in return (including merchandise from the online store via credit). ER-138.

         After Appellant entered into the consent order with the FTC, customers were not notified of the Extra Terms. This led to the FTC initiating contempt proceedings in the Southern District of New York. ER-119. The district court found that the consent order had been violated by BlueHippo and also found that Appellant was liable for that violation. ER-104-08. The district court entered a judgment against Appellant and Appellant filed for bankruptcy protection. In the bankruptcy proceeding, the FTC sought to have Appellant's debt declared non-dischargeable. After a trial, the Bankruptcy Court granted that relief. The dischargeability of Appellant's debt is the issue on appeal to this Court.


         Under Federal Rule of Bankruptcy Procedure 8013, a district court reviews the factual findings of a bankruptcy court for clear error. As for conclusions of law and application of law to the facts of a case, a district court conducts a de novo review. In re Feingold, 730 F.3d 1268, 1272 n.2 (11th Cir. 2013).


         The Bankruptcy Court found that Appellant's debt was a non-dischargeable debt. Appellant's arguments that this decision was in error are best divided into two groups: (1) the Bankruptcy Court erred by imposing derivative liability on Appellant and (2) the Bankruptcy Court's factual findings have no supporting evidence. Each argument is addressed in turn.

         (1) The Derivative or Non-Derivative Nature of Appellant's Liability

         Appellant's first argument is that the Bankruptcy Court erred when it determined that Appellant's debt was non-dischargeable because of the bad acts of BlueHippo and the bad acts of other workers at BlueHippo-that Appellant's liability was non-dischargeable because of Appellant's status as the CEO of BlueHippo. Appellant's position is belied by the text of the Bankruptcy Court's decision. The Bankruptcy Court did not find Appellant to be derivatively liable; the Bankruptcy Court found Appellant to be directly liable because of his own actions.

         The Bankruptcy Court's decision on the dischargeablility of Appellant's debt rested on two provisions of the Bankruptcy Code: 11 U.S.C. section 523(a)(2)(A) and section (a)(6). These two provisions were enacted to ensure that the Code's protections are reserved for “honest but unfortunate debtor[s]” and are not abused to shelter wrongdoing. See Cohen v. de la Cruz, 523 U.S. 213, 217 (1998); St. Laurent v. Ambrose, 991 F.2d 672, 680 (11th Cir. 1993) (“The general policy that exceptions to discharge are to be construed strictly against the creditor and liberally in favor of the debtor likewise applies to honest debtors only.”). For these sections to render a debt non-dischargeable a bankruptcy court must find, inter alia, that the debtor made false representations (with an intent to deceive) and that the debtor's conduct was willful. E.g., In re Bilzerian, 153 F.3d 1278, 1281 (11th Cir. 1998); In re Walker, 48 F.3d 1161, 1165 (11th Cir. 1995). Debtors rarely admit to having bad intent or knowledge of falsity; thus, in applying the foregoing sections, the Bankruptcy Court “may look to the totality of the circumstances, including the recklessness of a debtor's behavior, to infer . . . intent to deceive.” In re Miller, 39 F.3d 301, 305 (11th Cir. 1994).

         Here, the issue before the Bankruptcy Court was the Extra Terms pertaining to the store credit refund policy. The Bankruptcy Court found that Appellant directly and personally participated in the creation of the Extra Terms, that he knew of those terms from their inception, and that he knew those terms were not being communicated to customers. ER-230-32, 236. The Bankruptcy Court's finding of Appellant's direct, personal involvement was clear: the Bankruptcy Court found that Appellant “was at the helm of and guided Blue Hippo in its every action in connection with [the] fraud.” ER-236. Similarly, the Bankruptcy ...

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