Federal Court Strikes BlueHippo's Arbitration Clause

Decision opens the door to class action suits against the company

By Joseph S. Enoch
ConsumerAffairs.Com

Federal Courts have dealt a blow to BlueHippo Funding by dismissing the company's attempt to force all of its customers to take their complaints to arbitration, opening the door to class-action lawsuits.

The company, based in Baltimore, sells computers and other electronic goods on a layaway program.

It was the center of a January 2007 investigation by ConsumerAffairs.Com and targets low-income individuals with bad or no credit and sells cheap computers for as much as five times the value and often never delivers any product, even after hundreds of dollars have already been paid, according to customer complaints.

"I heard about BlueHippo on the radio," Littia of Oakland, Calif. wrote to ConsumerAffairs.Com. "They said they have helped thousands of consumers, regardless of their credit, to get a computer of your own. All I had to do was send a $100 check to them and they would take $53.32 out of my account each month."

"It's been seven months and I have been calling them on why I have not gotten any more information from them." Littia continued. "They can take money from my account, but I can not get my money back, only store credit. I want my $500."

Littia is one of 291 consumers who, as of this writing, have filed similar complaints with ConsumerAffairs.Com.

Tuesday's decision by the 4th U.S. Circuit Court of Appeals in Richmond, Va. does little to aid consumers in the short term, but in the long run, it could "put BlueHippo out of business," said David Marshall, the attorney who filed class-action lawsuits against BlueHippo in Maryland and California.

BlueHippo secures its orders when customers call to inquire. After a few weeks of payments, the company delivers a contract to customers which states that they cannot enter a class-action lawsuit, but rather, must use a third-party arbitrator to settle any claims. Marshall said the arbitrator BlueHippo uses rarely settles in favor of consumers.

Many consumers never sign or return that contract, Marshall said. Despite that, BlueHippo has tried to force all dissatisfied customers into arbitration. Tuesday's decision held up that only customers who signed the contract could be forced into arbitration rather than enter a class-action.

Although the Maryland class-action lawsuit was unsuccessful, Marshall said with the federal court's decision, it bolsters his case in California where class-action waivers are not recognized.

California comprises about 15 percent of BlueHippo's customer base, Marshall said - potentially enough to put the company out of business if the class-action is successful.

The company could appeal the court's decision but did not respond to a request for comment from ConsumerAffairs.Com.

The company is also under investigation by the attorneys general in West Virgina, Florida and Illinois and settled with the Maryland attorney general in May.

As a result of that settlement, Maryland consumers who received nothing or overpaid for their BlueHippo products, will receive reimbursements starting in early 2008, attorney general spokeswoman Raquel Guillory, said.