Updating a prior post, on May 2, 2016, the Federal Trade Commission (FTC) announced its receipt of a $13.4 million judgment against the CEO of BlueHippo, after the Second Circuit overturned the district court’s determination that BlueHippo’s damages were limited to $600,000 in 2014.

BlueHippo marketed computers and electronics to consumers regardless of their credit history, using an installment payment method. If a consumer missed an installment payment, BlueHippo represented that consumers could convert installments already paid to credits, with which they could buy other products from BlueHippo’s online store. The catch is that allegedly, consumers’ use of the credits was significantly restricted and the credits could not be used to cover shipping and other similar fees.

As a result, the FTC charged BlueHippo with deception under Section 5 of the FTC Act, and the parties entered into a consent order to resolve the charge.

The FTC later alleged that BlueHippo violated the consent order by misrepresenting its consumer financing of the computers, its failure to disclose its store credit policy, and its conditioning sales upon mandatory pre-authorized electronic funds transfer from consumers. The FTC sought $14 million in damages, based upon the gross receipts of BlueHippo’s 55,892 customers.

The Second Circuit upheld the FTC’s $14 million claim in 2014, holding that the “FTC is entitled to a presumption of consumer reliance upon 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.”

The Second Circuit remanded the matter to the trial court, and in April of 2016, the trial court found that BlueHippo and its CEO were in contempt of the court’s order, entering a judgment against the CEO for $13.4 million.

Why not the full $14 million? Certain amounts were deducted from the total. Ultimately, the parties agreed on the amount BlueHippo paid in cash refunds, and the court convinced the FTC to agree with the defendant’s computation of state settlement payments. The court also dismissed as “speculative” the defendant’s claim for discovery that there were some states in which no consumers were charged fees.

That last point is an important one. The FTC’s presumption of consumer harm not only resulted in the original $14 million court order, but also formed the basis of the $13.4 million contempt order as well as the denial of discovery on whether consumers were charged fees.