Inman

Zillow beats back one lawsuit, but can’t shake another

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Real estate giant Zillow has beaten back an antitrust lawsuit regarding its Zestimates, but continues to fight another lawsuit stemming from its agent-lender co-marketing program.

The first was brought in 2018 by New Jersey-based company EJ MGT which owns 142 Hoover Drive, an 18,000 square-foot, seven-bedroom, 10-bathroom home in Cresskill, New Jersey. The company blamed the home’s failure to sell on buyers being turned off by the Zestimate on the property’s detail page on Zillow.com, which put the property’s value at less than half of the listing price: $3.7 million (Zestimate) vs. $7.8 million (list price).

Screenshot from EJ MGT complaint against Zillow. This was still the property’s Zestimate as of Jan. 17, 2018.

The suit alleged Zillow and parent company Zillow Group were restraining competition between real estate brokers by making deals with certain brokerages to hide Zestimates on the brokerages’ for-sale listings by putting the Zestimate under the Zestimate details section of the listing page and not directly under the list price. The suit, which alleged violations of state and federal antitrust laws, was tossed once before, but the plaintiff submitted an amended complaint.

On March 3, Judge John Michael Vasquez dismissed the suit again, granting Zillow’s motion to dismiss the case. Vasquez found that the plaintiff had failed to establish that it was due to Zillow’s Zestimate agreements with certain brokerages that the plaintiff was unable to sell the property.

“Here, Plaintiffs alleged causal connection between its injury and Defendants’ conduct appears to concern the value of the Property’s Zestimate rather than the location of the Property’s Zestimate, and certainly does not appear to concern the location of Zestimates on the co-conspirators’ property listings,” Vasquez wrote.

“At best, it is speculative and conjectural to infer that Plaintiff would not have encountered the same inability to sell the Property had Defendants not entered into Zestimate Agreements with other brokers,” he added.

Moreover, the plaintiff did not claim to have suffered any of the antitrust injuries the complaint claimed the Zestimate agreements caused, according to Vasquez.

Therefore, Vasquez concluded EJ MGT lacked standing to pursue the case. But he has given the plaintiff 30 days to file a second amended complaint. If the plaintiff does not, the case will be dismissed permanently. An attorney for EJ MGT did not respond to an emailed request for comment.

In an emailed statement, Zillow spokesperson Lindsey Lombardi told Inman,“We are pleased the court dismissed the case and again found the claims in this lawsuit to be completely without merit.”

In a separate case, the court rejected Zillow’s bid to toss 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 a federal anti-kickback law through its agent-lender co-marketing program and made misleading statements about the program’s compliance.

The case is related to class-action securities fraud suits brought by shareholders against Zillow in August and September 2017 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.

A company’s board of directors has the authority to bring lawsuits on the company’s behalf and therefore shareholders are first required to make a demand on the board to initiate such litigation — unless the shareholders can show such a demand would be “futile” because the majority of directors would not be impartial in responding to a demand.

Rich Barton

At the time when this shareholder derivative suit was filed, Rich Barton, Erik Blachford, Lloyd Frink, Jay Hoag, Gregory Maffei, Spencer Rascoff, Gordon Stephenson and April Underwood were the eight directors on Zillow’s board. Zillow admitted that three of these directors — Barton, Frink and Rascoff — were not independent because they were employed by Zillow, or in Rascoff’s case, had been in the previous year.

Lloyd Frink

But Zillow had argued that the shareholders had failed to adequately plead that any of the outside directors in question — ones not employed by Zillow — were not independent. Federal judge John Coughenour disagreed. He wrote that the plaintiffs had raised “a reasonable doubt as to Blachford and Maffei’s disinterestedness.”

Zillow CEO Spencer Rascoff. Credit: Zillow Group

The plaintiffs had pointed out that Blachford and Maffei had been on Zillow’s audit committee and therefore allegedly knew that Zillow’s co-marketing program potentially violated federal law before they signed statements to shareholders about Zillow’s legal and regulatory compliance — statements the court has previously found could plausibly be considered false and misleading.

Erik Blachford

“Thus, Plaintiffs have alleged facts sufficient to support an inference that Blachford and Maffei could face a substantial likelihood of liability,” which could impact their impartiality, according to Coughenour.

Gregory Maffei

Therefore, he excused the plaintiffs from having to make a demand on the board and denied Zillow’s motion to dismiss the suit. Shareholders’ allegations of breach of fiduciary duties and unjust enrichment against Zillow’s current and former directors will proceed.

In an emailed statement, Lombardi told Inman,“We are disappointed in last week’s ruling but continue to believe these claims are without merit and intend to vigorously defend ourselves against the lawsuit.”

Email Andrea V. Brambila.
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