Monday, September 13, 2021

two Zillow false advertising cases, divergent outcomes

REX - Real Estate Exchange Inc. v. Zillow Inc., No. C21-312 TSZ, 2021 WL 3930694 (W.D. Wash. Sept. 2, 2021)

Rex sued Zillow and the National Association of Realtors for antitrust and false advertising violations. Surprisingly, the antitrust claims survive, as do false advertising claims agains Zillow.

NAR “is the nation’s largest trade association for real estate professionals.” Membership includes multiple listings services (MLSs). NAR’s optional Segregation Rule requires members’ listings obtained through MLSs internet data exchange feeds to be “displayed separately from listings obtained from other sources.” NAR also adopted a mandatory rule that requires a seller’s agent to include in any MLS listing a predetermined offer of commission to a buyer’s agent, thereby prohibiting any party from later modifying that commission. “NAR’s members allegedly encourage their customers to offer high commissions for buyers’ agents, resulting in historically high, static commissions throughout the United States, with total commissions averaging about 5.5 percent of a home’s sale price.”

REX is a licensed broker that employs licensed real estate agents across the nation, but it is not a member of NAR or any MLS and thus has not agreed to comply with any of NAR’s rules. Home sellers who choose REX’s services can negotiate a buyer agent commission, and thus pay a total average commission of 3.3 percent of a home’s sale price. REX lists its customers’ homes on various real estate aggregator websites, including two of Zillow’s websites, and, the first and fourth most visited real estate aggregator sites in the US. REX’s listings were historically displayed on Zillow’s primary search page alongside the listings of MLS participants.

But then “the growth and substantial inventory of Zillow-owned homes placed Zillow in a new position: Instead of focusing on being an open access point for consumers to display and access residential real estate listings, Zillow’s interests turned to its own substantial home inventory.” In late 2020, Zillow announced that it would join forces with NAR and several MLSs, publicly committing that “all Zillow-owned homes will be listed on the MLSs with commissions paid to agents representing buyers.” NAR’s mandatory Buyer Agent Commission Rule is allegedly the “paramount reason that real estate commissions are two to three times higher in the United States than in comparable international markets.” Zillow also announced that it would begin to use MLS data feeds to populate its websites.

Zillow’s redesigned website, complying with NAR guidelines, created a separate page or tab, called “Other listings,” that is concealed behind the primary results page or tab, called “Agent listings.” As a result, consumers see only a portion of available homes at a time. Even though REX’s customers’ homes are all listed by licensed real estate agents, its lisitngs are now in “Other listings” rather than “Agent listings.” REX alleged that this was deceptive and harmful, and resulted in views plummeting on Zillow’s websites, causing “a corresponding drop in sales and...lost brokerage service revenues to” REX.

redesigned tab; "other listings" in gray, top right

views after the change

The court found that the antitrust claims were sufficiently well pled.

Lanham Act claim: Was this commercial advertising or promotion? The key question was the Gordon & Breach element asking whether the challenged commercial speech was “for the purpose of influencing consumers to buy defendant’s goods or services,” a requirement not affected by Lexmark.

The complaint alleged that Zillow joined the NAR and MLSs to promote its inventory of Zillow-owned homes. It then changed its websites to comply with the new MLS rules and insulate MLS brokers from competition. The allegations that Zillow adopted the misleading labeling system “for the purpose of influencing its customers to use the Zillow Offers business, as well as the services of other MLS agents, by concealing or discouraging the services of non-MLS agents like Plaintiff,” were sufficient.

However, REX failed to state a Lanham Act claim against NAR. “There are no other allegations explaining what NAR did to design or encourage this particular labeling system on Zillow’s websites, let alone when, where, and how NAR did it.”

So too with the Washington Consumer Protection Act claims. Zillow argued that its conduct was “reasonable in relation to the development and preservation of [its] business.” That was a factual issue inappropriate for a motion to dismiss, even if such a business purpose defense was available. But NAR got off the hook for the same reasons as with the Lanham Act claim. 

Picket Fence Preview, Inc. v. Zillow, Inc., No. 2:21-cv-00012, 2021 WL 3680717 (D. Vt. Aug. 19, 2021)

Picket Fence, which publishes listings for homes that are for-sale-by-owner (FSBO), alleged that Zillow’s policy of providing free online listings for FSBO homes violated the Vermont Consumer Protection Act and the Lanham Act and constituted state law unfair competition. The court dismissed the claims.

“A major incentive for homeowners to advertise with [Plaintiff] is reaching potential buyers directly through [Plaintiff’s] publications and avoiding a 6-8% real estate commission” that is typically paid to real estate agents and brokers. When an FSBO seller lists real property on Zillow, potential buyers see “Contact Agent” prominently displayed. Agents can allegedly pay to get their name on the listing or to be the only contact for a listing. The “Get More Information” tab lists the contact information for “Premier Agents” first “and the owner is listed at the bottom of the list.” Zillow allegedly makes it difficult or impossible to contact the owner.

This is allegedly a bait and switch; FSBO sellers “may lose potential sales” from these listings “because Premier Agents may redirect potential purchasers to other properties if the [FSBO seller] is not willing to share a commission with the Premier Agent” or if another property would provide the Premier Agent with “a better commission.” While Zillow “claims that it is offering a service for free, [ ] in reality [it] is charging the Premier Agents so they can advertise on the website of those free ads and receive hijacked inquiries from deceived buyers.”

Picket Fence, which charges for FSBO listings, allegedly lost a lot of business to Zillow, and was one of the few remaining FSBO publications to survive Zillow.

First, Picket Fence lacked standing to sue on behalf of FSBO sellers.  And it couldn’t sue under the VCPA because it wasn’t a consumer. Nor could it bring a predatory pricing claim because it didn’t allege that the free listings weren’t free or below cost, or that there was a dangerous probability that Zillow would raise prices once competitors were driven from the market.

Lanham Act claim: Lexmark standing existed, but deception wasn’t plausibly pled. Picket Fence argued that Zillow misleadingly failed to “disclose that interested shoppers would be directed to Premier Agents.” However, since 2017, Defendant’s website has included a disclaimer stating that “[b]y pressing Contact, [potential buyers] agree that Zillow Group and its affiliates, and real estate professionals may call/text [potential buyers] about [their] inquiry.” And Picket Fence failed to identify any representation that any sales would be “commission free” or any promise that a real estate agent would not be involved in a subsequent sale. “An FSBO seller remains free to refuse to deal with a real estate agent and free to refuse to pay a real estate agent’s commission even if it uses Defendant’s website. Defendant’s listing focuses only on a preliminary step in a real estate transaction with no promise as to what happens thereafter. Stated differently, a customer who is promised a free listing is not promised a commission free sale either directly or by implication.”

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