A class action lawsuit alleging Zillow Group’s co-marketing program violated RESPA is set for jury trial.
The Washington state securities case is scheduled to begin March 27 before U.S. District Judge John Coughenour.
The case is Shotwell v. Zillow Group, Inc. et al. (U.S. District Court, Western Washington District, No. C17-1387).
The thrust of the claims is the online real estate company misrepresented its compliance with RESPA, and that investors acquired Zillow’s securities at inflated prices during the class period of Nov. 17, 2014, and Aug. 8, 2017.
The plaintiffs also alleged even though the Consumer Financial Protection Bureau (CFPB) began investigating Zillow for RESPA violations in 2015, Zillow did not disclose that fact to investors until May 4, 2017, and even then, downplayed the seriousness of the situation.
“According to plaintiffs, the truth came out on Aug. 8, 2017, when Zillow disclosed that the CFPB had proposed settlement discussions with Zillow and intended to charge Zillow with RESPA violations if a settlement was not reached,” Coughenour said in a prior order. “Zillow’s share price fell over the following two trading days.”
At issue was the online real estate company’s co-marketing program, which allows lenders and agents to share costs with leads. The plaintiffs alleged Zillow encouraged violations of RESPA by real estate agents and lenders.
Zillow maintained it did not provide referrals to lenders, but instead displayed advertising from agents and lenders to consumers.
The plaintiffs asked the class to be defined as anyone, other than the defendants and their immediate families and legal representatives, who purchased or acquired Zillow securities between Nov. 17, 2014, and Aug. 8, 2017.
In opposing class certification, Zillow argued 90 percent of the proposed class bought securities before May 5, 2017, and are therefore barred from recovering damages under the Private Securities Litigation Reform Act (PSLRA).
They also claimed the investors failed to prove a class action is superior to individual lawsuits.
“Plaintiffs’ allegations that investors were defrauded by the same misrepresentations over the same period of time and suffered similar losses as a result are sufficient to fulfill Rule 23’s commonality requirement,” the judge wrote. “Common questions of law and fact include whether defendants falsely assured investors that Zillow’s co-marketing program complied with RESPA, whether the individual defendants acted with the requisite scienter, and whether defendants’ false statements and omissions artificially inflated the price of Zillow securities and caused economic losses to members of the class.”
In 2018, the CFPB ended its investigation into Zillow’s co-marketing program. Then, citing PHH Corp.’s case against the CFPB, Coughenour ruled the program complies with RESPA, and dismissed the original securities fraud class-action lawsuit against the company.
The judge later reversed himself after the investors filed an amended complaint with statements from two whistleblowers who claimed Zillow designed the program to provide referrals for money.
In his reversal, Coughenour found the new allegations plausibly allege the co-marketing program violated RESPA, as well as a strong inference that then-Zillow CEO Spencer Rascoff and then-Chief Financial Officer/Chief Legal Officer Kathleen Phillips made materially misleading statements about the co-marketing program.
The investors first claimed the online real estate company’s co-marketing program was designed to allow participating real estate agents to refer mortgage business to participating lenders in violation of Section 8(a) of RESPA, which prohibits giving or accepting “any fee, kickback, or Thing of value” in exchange for referrals.
Zillow argued the investors failed to allege facts proving it designed its business to violate the law, encouraged third parties to violate the law or made false statements about the company’s compliance with the law.
The court previously rejected the investors’ theory the co-marketing program is per se illegal because it allowed agents to make referrals in exchange for lenders paying a portion of their advertising costs. The judge also overruled the shareholders’ other theory that Zillow’s co-marketing program facilitated RESPA violations by allowing lenders to pay more than fair market value for the advertising services they received from Zillow.
However, the latest amended complaint included new allegations regarding both theories of RESPA liability.