The real estate tech company argues in a petition for dismissal that its independent directors did not personally profit from the alleged wrongdoing.
Zillow is moving to dismiss a lawsuit from a group of shareholders that alleged Zillow senior staff and its board of directors failed to protect the company properly while allowing it to violate federal U.S. anti-kickback law through its agent-lender co-marketing program and made misleading statements about the program’s compliance.
“We believe the claims in the suit to be without merit and are hopeful for a favorable decision from the court on our motion to dismiss this suit,” a spokesperson for Zillow told Inman.
In arguing for the suit’s dismissal, Zillow contests that the derivative lawsuit, which followed on the heels of another suit filed months earlier, should be dismissed, “because plaintiffs have not come close to adequately pleading that a demand for suit on Zillow’s Board would have been futile.”
Zillow argues that the plaintiffs failed to adequately plead that any of the outside directors in question – ones not employed by Zillow – face a substantial likelihood of liability.
“The complaint does not make any particularized allegations that the outside directors personally profited from the alleged wrongdoing or were dominated by the Zillow officers who supposedly planned and carried out the alleged fraud,” the complaint also argues. “Plaintiffs allege only that the directors shared outside business relationships with one another.”
The co-marketing program in question, launched in June 2013, allows the real estate agent customers of Zillow Premier Agent, who pay for advertising on Zillow Group’s apps and websites, to invite lenders to share marketing costs.
Participating lenders pay Zillow Group to appear as “Premier Lenders” in advertising alongside a particular agent who invited them. When Zillow users provide agents with their contact information, that information is also sent to co-marketing lenders, unless users choose to opt out.
Two shareholders originally filed class-action lawsuits against Zillow in August and September 2017 – which were both eventually consolidated – after the company divulged the Consumer Financial Protection Bureau had been investigating its co-marketing program for the previous two years for compliance with the Real Estate Settlement Procedures Act (RESPA). The shareholder cases were consolidated in January 2018. The CFPB investigation ended in June 2018 with no action.
The derivative lawsuit, based essentially the same allegations in the shareholder lawsuit, argues that Zillow’s senior officers and virtually its entire board of directors should be required to pay damages to Zillow itself, because of their alleged role in the claimed wrongdoing. The lawsuit also alleges that Zillow has suffered “significant damage” as a result of the claimed misconduct.
See the full petition for dismissal below: