Zillow's "agent" and "other" tabs were literally false where some agents ended up in "other" purgatory

REX – Real Estate Exchange, Inc. v. Zillow, Inc., 2023 WL 5334389, No. C21-0312 TSZ (W.D. Wash. Aug. 18, 2023)

Zillow aggregates listings of real properties that are for sale or for rent. Before January 2021, Zillow’s websites displayed on one page (or in one tab) all homes for sale in a certain region regardless of how they were listed, i.e., by a real estate agent, a real estate broker, a realtor, or an unrepresented owner. Then Zillow unveiled a two-tab design, which segregated content between tabs (or webpages) labeled as “Agent listings” and “Other listings.”

According to Zillow, the two-tab display resulted from Zillow’s efforts to comply with the National Association of Realtors model “no-commingling” (or segregation) rule, which had been adopted by roughly two-thirds of the multiple-listing services (MLSs) that had agreed to provide Zillow with data feeds. This rule requires segregating listings obtained through such data feeds from listings obtained from other sources.

REX’s listings come from licensed brokers and agents; they qualified as agent listings, as opposed to for-sale-by-owner (“FSBO”) or non-agent listings. Nevertheless, REX’s for-sale listings were relegated, along with FSBO and non-MLS listings, to the “Other listings” page because REX’s brokers and agents were not members of the MLSs from which Zillow was receiving data feeds.

Before Zillow launched the two-tab system, it evaluated the associated risks. A 2019 investigation of tabs labeled “Agent listings” and “Other listings” revealed “critical comprehension concerns warranting further iteration.” In November 2020, Zillow’s research indicated that eight of the twelve participants in a study (described as “buyers,” meaning individuals trying to purchase a home who had previously used one of Zillow’s platforms) “assumed” that “other” meant “non-agent” listings, while the other four buyers thought “other” meant non-Zillow-agent or agent “not approved by Zillow.”

Zillow’s FAQ said:

“Agent Listings” are properties listed by real estate agents in the MLS. “Agent Listings” do not include homes for sale by owner, non-MLS auctions or foreclosures. “Other Listings” are for sale by owner, non-MLS auctions, foreclosures and other properties. “Other Listings” do not include properties listed by agents in the MLS.

…

If an agent lists your home on the MLS (even through a limited-service brokerage), it will appear under “Agent Listings.” If you advertise your home on Zillow as for sale by owner, it will appear under “Other Listings.”

The FAQ did not indicate that the “Other listings” tab might include homes for sale by agents or brokers who were not MLS members. It also failed to define MLS or to clarify that some licensed real estate agents and brokers do not belong to an MLS.

Zillow recorded a 32% increase in complaints during the weeks after the transition. Comments included: “Why prop up agents when the whole point of your app is to circumvent the need for a high commission agent?” and the like. A user test comment: “Oh...oh no...I wouldn’t even think to click on a separate list. I just assumed all the homes would be in this list.” The Other tab was clicked during only 4–7% of sessions, and 80% of the FSBO page views were lost.

Meanwhile, Zillow perceived REX to be “an industry disruptor” that had not been well received by other agents and brokers because it did not share its listings with MLSs (in other words, it did not “syndicate”), and it did not “pay a buy side commission.” The National Association of Realtors requires that MLS participants, when listing homes for sale, make “blanket unilateral offers of compensation” to other MLS members serving as buyers’ agents. Zillow internally acknowledged that REX was “poised to be a casualty” of the change, and in fact it was.

Falsity/misleadingness: Misleadingness was a fact issue that couldn’t be resolved on summary judgment; Zillow’s own internal records might suffice as extrinsic evidence for that.

Literal falsity: The Third Circuit has held that, although a plaintiff has the burden to prove falsity, a court may find that “a completely unsubstantiated advertising claim by the defendant is per se false without additional evidence from the plaintiff to that effect.” And an assertion of fact may be literally false by necessary implication “when, considering the advertisement in its entirety, the audience would recognize the claim as readily as if it had been explicitly stated.” Under these standards, “Agent listings” and “Other listings,” considered together and in context, were literally false by necessary implication. “When the labels are viewed side-by-side, the unambiguous assertion is that one tab includes homes listed for sale by agents and the second tab contains all other listings, i.e., homes for sale by their owners or by non-agents.”

It was undisputed that REX was a broker and/or agent. Thus, “[b]y relegating REX’s listings to the ‘Other listings’ tab, Zillow falsely stated by necessary implication that REX was not (or did not employ) an agent.” Zillow’s own study showed that no participant construed the tab labels in the way that Zillow proposed to the court (i.e., agent listings and additional agent listings). (Unsurprisingly, because that’s a Borgean category: what could distinguish “agent listings” from “additional agent listings”?) The FAQ didn’t fix the deceptiveness because it didn’t define “MLS” or indicate that agents didn’t have to belong to an MLS.  Summary judgment on falsity to REX.