United States District Court, S.D. Florida
JOSEPH K. RENSIN, Appellant,
FEDERAL TRADE COMMISSION, Appellee.
ORDER AFFIRMING BANKRUPTCY COURT DECISION
L. ROSENBERG UNITED STATES DISTRICT JUDGE.
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.
is the founder of a company known as “BlueHippo.”
ER-123. 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.
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.
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.
STANDARD OF REVIEW
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).
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.
The Derivative or Non-Derivative Nature of 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.
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).
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 ...