FTC v. BlueHippo Funding, LLC, No. 1:08-cv-01819 (S.D.N.Y. Nov. 6, 2015)
BlueHippo stipulated to a final judgment and permanent injunction against certain sales practices. The FTC moved for a contempt finding based on the practices described below, which was granted in part and denied in part; the Second Circuit vacated the damages portion of the order (the denial) and remanded for consideration of whether a presumption of consumer reliance applied to the facts of the case. The court here held that it did.
The facts: BlueHippo was an installment credit company that marketed computers and other electronic products to “credit-challenged” consumers who’d make an initial down payment followed by thirteen additional payments. Consumers who successfully made that series of payments would get a computer and would be enrolled in BlueHippo’s financing plan to pay the remaining balance.
BlueHippo’s challenged store credit and refund policy was to refuse a refund after seven days of the first payment, instead offering store credits. But BlueHippo didn’t tell consumers at the time of their initial payment that store credits could not be applied to any applicable shipping and handling fees or taxes. The FTC alleged that BlueHippo had violated the part of the consent order enjoining it from making representations about its “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.” The FTC sought $14 million in damages, which represented the losses of the 55,892 customers that had made at least one payment in the relevant time period, but had received neither a computer nor store merchandise.
Previously, the court awarded $610,000 in damages, representing the losses of the 677 consumers who had made all of the requisite installment payments to qualify for BlueHippo’s financing plan but had received neither a computer nor store credit. But it held the FTC failed to show damages for the others. The Second Circuit, in vacating, emphasized that information about the shipping and handling fees and taxes, “if it had been revealed to consumers before they purchased computers from BlueHippo, in all likelihood would have influenced their purchasing decisions.”
Recognizing the “inherent difficulty of demonstrating individual harm,” the Second Circuit wrote that “[p]ermitting a presumption of reliance in FTC claims for contempt damages would thus further the Commission’s statutory purpose to protect consumers.” The presumption is triggered by “showing that (1) the defendant made material misrepresentations or omissions that were of a kind usually relied upon by reasonable prudent persons; (2) the misrepresentations or omissions were widely disseminated; and (3) consumers actually purchased the defendants’ products.” If the presumption is satisfied, then the FTC starts with the defendant’s gross receipts and the defendant can prove offsets.
At this point, defendants argued only that the FDC didn’t meet its burden of showing misrepresentations or omissions of the kind usually relied upon by reasonable prudent persons. The FTC didn’t show that BlueHippo actually charged shipping, handling, or taxes to a significant number of consumers, so there was nothing “usual” about the omissions. But “the injury to the consumer (and thus BlueHippo’s violation) occurs at the moment the consumer makes his or her initial payment.” Consumers were led to believe that they were making essentially risk-free payments: they’d either get a computer or they’d be able to apply their payments to purchases from the online store. But in fact consumers would have to make additional payments in the form of shipping, handling, or taxes if they sought to utilize the online store option. “Even if few or no consumers actually paid shipping, handling or taxes … , that says nothing about whether those fees, when eventually disclosed, deterred cash-strapped consumers from making online purchases at all. Indeed, the FTC introduced evidence of exactly that occurring.” Thus, the FTC was entitled to a presumption of reliance and damages starting with defendants’ gross receipts.