court rejects HomeAdvisor's First Amendment defense of its misleading ads

People ex rel. Gascon v. HomeAdvisor, Inc., A154960, 2020 WL 2486970 (Cal. Ct. App. May 14, 2020)

HomeAdvisor appealed an injunction barring it from broadcasting certain ads (except with a disclaimer, for a limited time). HomeAdvisor argued that the order was vague, indefinite, overbroad, and unconstitutional; the court disagreed.

San Francisco’s DA sued HA for violating the FAL and UCL, alleging that its ads were “false and misleading because they are likely to deceive consumers into believing that all service professionals hired through HomeAdvisor who come into their homes have passed criminal background checks. That is not the case. The only person who undergoes a background check is the owner/principal of an independently-owned business.”

For example:

In “Carl,” a middle-aged man explains he can’t always be there when his mother needs help: “So when her roof started to leak I went to HomeAdvisor and found the right pro to help. They are background checked.”

In “Happy Homeowners,” a woman standing with two young children states: “As a single mom, I love that HomeAdvisor does background checks on pros.” The words “background checks” appear on the screen, and then the advertisement cuts to a man who says, “Gives me peace of mind.”…

In “TV Ad Featuring Jason Cameron,” a television show host tells the viewers, “With HomeAdvisor you know that you’ll get a reliable pro because they must pass criminal and financial background checks before they’re listed.” Then a woman says, “As a single mom I have to be careful with who I invite to my home.”

In “HomeAdvisor Testimonials,” another television show host, Amy Matthews, states: “HomeAdvisor pros pass criminal and financial background checks before they’re listed.” In “Pros You Can Trust,” the same host states HomeAdvisor “instantly connects you with top-rated pros who have passed criminal and financial background checks.” In “HomeAdvisor Testimonials,” a woman standing in her bathroom says, “I love the fact that they have been background-checked—that’s a great feeling.” In the same advertisement, another woman standing in her kitchen says, “You can feel safe with them coming into your home.”

HomeAdvisor’s mobile application also stated, “Nationwide, we have a network of hundreds of thousands of background-checked pros specializing in more than 500 home renovation projects.”

However, HA only performs a background check on the “owner/principal” of the businesses that are members of its network. Its terms & conditions stated that HA performs no background check when the businesses are “employees, franchisees, dealers, or independent contractors ... of larger national or corporate accounts.” HA also screened “ (1) the license holder if there is a state-level license, and (2) anyone whom the [business] adds to the account for administrative purposes (e.g., putting the account on hold).” However, if a “franchisee or a dealer is a corporate account,” then they are not subject to HomeAdvisor’s background check policy.  Extending the background checks to all employees would be expensive and difficult, and HA has no plans to do it.

The court found that the ads were misleading, but that “the statements on the website cure that misleading nature except that they’re not in the ads themselves and they’re not conspicuous.” The People proposed a disclaimer: “HomeAdvisor background checks business owners but not employees.” HA objected that some employees, albeit a “limited” number, are checked. The court adopted the People’s proposal over “ ‘HomeAdvisor background checks business owners and limited employees,’ ” or “ ‘HomeAdvisor background checks business owners and account manager employees.’ ”

Along with enjoining specific ads, the court enjoined HA from “[i]ncluding in the description of the HomeAdvisor App in the Apple App Store and the Google Play store words that state or imply that all service personnel who come to consumers’ homes as a result of consumers’ having used the HomeAdvisor service have been background-checked.” However, there was a safe harbor for ads that didn’t state or imply that all service personnel have been background-checked, and for advertisements with disclaimers. HA could continue broadcasting eight of the enjoined advertisements for a period of over four months, and nine of the enjoined advertisements for a period of over seven months, “as long as a clear and conspicuous visual disclaimer appears in each television and Internet advertisement that states: ‘HomeAdvisor Background-Checks Business Owners But Not Employees.’ ”

HA complained that the direction not to “imply” that background checks were conducted on all personnel was impermissibly vague and overbroad, so that it couldn’t tell the difference “between advertisements that ‘state or imply that all service personnel’ are background-checked and those that merely mention the phrase ‘background checks.’ ” Not so. The district court reviewed a lot of ads and modified versions and approved some for a certain period of time with a disclaimer. The injunction was “sufficiently definite to provide a standard for HomeAdvisor to use in developing new advertisements, and for the court to ascertain any alleged violations of the injunction.” The mere mention of background checks wasn’t enjoined, but rather ads that refer to “background-checked pros,” or its variants, such as background-checked or prescreened “ ‘home-improvement professionals’ ” or “ ‘home-improvement pros,’ ” because these terms imply that the person who comes to the consumers’ home has been background-checked.

Nor did the preliminary injunction violate the First Amendment. Commercial speech that is actually or inherently misleading can be banned outright, while potential misleadingness requires the state to try correction by disclaimer (at least initially). HA claimed that references to “ ‘background-checked pros,’ ” or “ ‘prescreened’ pros” were “entirely truthful information about HomeAdvisor’s business” because HomeAdvisor “maintains a network of approximately 200,000 service professional businesses that have been background-checked.”

Nope.

The enjoined advertisements and descriptions are inherently likely to deceive because they exploit the ambiguity of the term “pro.” According to HomeAdvisor, it offers a service that connects “consumers with providers of home services such as plumbers, painters, [and] contractors,” but, when HomeAdvisor uses the term “pros,” it means “service professional businesses,” not the plumbers, painters, or contractors working for these businesses.

But a “professional” “is commonly understood to be a person, not a business.” [citing dictionary] A reasonable consumer “would likely understand ‘pros’ to mean the persons or professionals coming to their home, not the businesses for whom they work.” HA argued for the first time in its reply brief that even if the phrase was misleading, it was nonactionable puffery.  This is a contradiction in terms, but the court declined to address the new argument on the (un)merits.

The court noted that other aspects of the ads made deception even more likely. Many of the TV ads showed search results, which included images of individuals, not businesses. “Pros You Can Trust” refers to pros “who” have passed background checks, not pros “that” have done so. And a number of the ads implied that consumers can feel more comfortable about the people who come into to their homes because of the background checks. True, “Pros You Can Trust” was discontinued, but the trial court took that into account in granting HA time to continue broadcasting non-discontinued ads with disclaimers to give it time to make new ads/lessen financial harm to HA.

HA argued that there was no evidence that its ads caused actual harm. But that’s not required for a finding of inherently deceptive commercial speech. On a de novo review of the record, the court of appeals agreed that HA’s references to “background-checked pros” or its variants were inherently likely to deceive reasonable consumers, and nothing more was required for a preliminary injunction. [Nothing more should be required for a permanent injunction, either!]  When a government entity seeking the statutorily authorized remedy of injunctive relief shows a reasonable probability of success on the merits, “a rebuttable presumption arises that the potential harm to the public outweighs the potential harm to the defendant.” The trial court found that HA failed to rebut the presumption.

Nor was the order an unconstitutional prior restraint on speech. “The special vice of a prior restraint is that communication will be suppressed, either directly or by inducing excessive caution in the speaker, before an adequate determination that it is unprotected by the First Amendment.” But once specific speech is properly ruled unprotected, there’s no problem with an injunction. When it comes to commercial speech, “[t]he government may ban forms of communication more likely to deceive the public than to inform it.” While an injunction may not be “broader than necessary to provide relief to plaintiff while minimizing the restriction of expression,” the injunction here was fine.

HA argued that the safe harbor disclaimer was misleading and was unconstitutional compelled speech. These arguments were moot. The safe harbor expired in January 2019, over a month before the opening appeal brief was filed.