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Patel v. Zillow, Inc.

United States District Court, N.D. Illinois, Eastern Division

May 7, 2018

VIPUL P. PATEL, et al., Individually and on Behalf of All Others Similarly Situated, Plaintiffs,
v.
ZILLOW, INC. and ZILLOW GROUP, INC., Defendants.

          MEMORANDUM OPINION AND ORDER

          AMY J. ST. EVE UNITED STATES DISTRICT COURT JUDGE

         After the Court granted without prejudice Defendants Zillow, Inc.'s and Zillow Group, Inc.'s (collectively “Zillow”) first motion to dismiss brought pursuant to Federal Rule of Civil Procedure 12(b)(6), [1] Plaintiffs brought the present two-count First Amended Class Action Complaint alleging violations of the Illinois Uniform Deceptive Trade Practices Act (“IDTPA”), 815 ILCS 510/2, and the Illinois Consumer Fraud and Deceptive Business Practices Act (“ICFA”), 815 ILCS 505/2, against Zillow. Before the Court is Defendants' motion to dismiss brought pursuant Rules 12(b)(1) and (6). In the alternative, Defendants move to strike certain allegations under Rule 12(f), and further in the alternative, move to transfer venue as to certain named Plaintiffs to the Western District of Washington under 28 U.S.C. § 1404(a).

         For the following reasons, the Court grants Zillow's Rule 12(b)(6) motion as to both Counts I and II of the First Amended Complaint. The Court grants Zillow's Rule 12(b)(6) motion with prejudice because the Court gave Plaintiffs the opportunity to re-allege their IDTPA and ICFA claims giving them guidance as to their claims' shortcomings in the Court's August 23, 2017 Memorandum Opinion and Order granting Zillow's first Rule 12(b)(6) motion. The Court denies Zillow's remaining motions as moot.

         BACKGROUND

         In the First Amended Class Action Complaint, Plaintiffs allege that they are current owners of real estate property located in Illinois and that their properties are listed on Zillow's website. (R. 28, First Am. Compl. ¶ 8.) Plaintiffs explain that Zillow engages in the business of providing advertising for real estate brokers and lenders through its internet website Zillow.com. (Id. ¶ 18, R. 28, Exs. 4, 6, 11, 21, 27, 38.) More specifically, in exchange for advertising monies paid to Zillow, real estate brokers and lenders are featured on Zillow's website. (Id.) The advertising includes links to these brokers on individual homes/properties, including but not limited to those of Plaintiffs and the putative class of Illinois homeowners. (Id.) Plaintiffs further contend that the brokers who pay Zillow for advertising space are given the name “premier agents” and the breadth of a premier agent's advertising is dependent on how much they pay to Zillow. (Id. ¶ 19.) These premier agents are displayed on active listings within a certain geographic/zip code radius, therefore, buyers or sellers who are reviewing a given property on Zillow.com can connect with and retain premier agents by clicking on the advertising link. (Id.) In addition, Zillow encourages premier agents to solicit “premier lenders” to advertise on Zillow's web page listings for active home/property listings. (Id.) Plaintiffs state that in exchange for the lenders' paid advertising, Zillow reduces the advertising amounts paid by the premier agents to Zillow to incentivize them to bring lenders to their website. (Id.)

         Plaintiffs claim that Zillow engages in a confusing, unfair, and deceptive marketing scheme that impairs homeowners and sellers in relation to the sale of real estate. (Id. ¶ 21.) Specifically, Plaintiffs explain that in addition to the general advertising on its website, Zillow has developed a marketing program called “Seller Boost” that involves premier agents as discussed above. (Id. ¶ 22.) In exchange for the additional advertising payment that the premier agents pay Zillow, Zillow promises “seller leads” in every zip code in which the Zillow premier agent operates. (Id.) Plaintiffs allege that Zillow draws sellers to its website by unilaterally posting information relative to a home-owners/seller's property without the advance permission of homeowners, including but not limited to, Plaintiffs and the putative class. (Id. ¶ 23.)

         Furthermore, Plaintiffs contend that Zillow's website uses “Zestimates” to draw consumers and potential home sellers to Zillow.com. (Id. ¶ 24.) Zestimates are a valuation tool reflecting Zillow's estimated home value for individual homes determined by a computer algorithm. (Id. ¶¶ 27, 35; R. 28, Ex. 1, 10/13 Thompson Article.) The Zillow webpage information attached to the First Amended Complaint, along with other attachments incorporated by reference in the First Amended Complaint, indicate that a Zestimate “is calculated from public and user-submitted data, ” is “a starting point in determining a home's value” and “is not an appraisal.” (Ex. 1, 10/13 Thompson Article; https://www.zillow.com/zestimate (last visited Mar. 26, 2018).[2] The webpage further states, “[w]e encourage buyers, sellers, and homeowners to supplement Zillow's information by doing other research such as” (1) “[g]etting a comparative market analysis (CMA) from a real estate agent”; (2) “[g]etting an appraisal from a professional appraiser”; and (3) [v]isiting the house[.]” (Id.) Under the frequently asked question (“FAQ”) “Is Zestimate an Appraisal?”, Zillow's webpage states:

No. The Zestimate is not an appraisal and you won't be able to use it in place of an appraisal, though you can certainly share it with real estate professionals. It is a computer-generated estimate of the worth of a house today, given the available data. Zillow does not offer the Zestimate as the basis of any specific real-estate-related financial transaction. Our data sources may be incomplete or incorrect; also, we have not physically inspected a specific home. Remember, the Zestimate is a starting point and does not consider all the market intricacies that can determine the actual price a house will sell for.

(Id.)

         In their First Amended Complaint, Plaintiffs allege that Zillow promotes Zestimates as an “accurate” opinion and “valuation tool” for prospective buyers. (Id. ¶ 27.) In doing so, it is the intention of Zillow that the prospective buyers rely on Zestimates as a valuable resource/opinion. (Id.) Plaintiffs also maintain that in its advertising, Zillow does not disclose to prospective purchasers that Zestimates are not based on actual market values, are not prepared by licensed Illinois appraisers, are based on subjective data, and are potentially flawed and often challenged by homeowners. (Id. ¶ 29.) Moreover, Plaintiffs assert that Zillow does not inform the general consumer public that it uses Zestimate as a marketing tool to draw home sellers and buyers to its website in an effort to connect them with Zillow's premier agents. (Id. ¶¶ 30, 34.) Similarly, Zillow does not tell the general public that it has a financial relationship with the premier agents, including that it makes revenue from advertisements purchased by premier agents and premier lenders displayed on Zillow's website. (Id. ¶ 31.) Also, Plaintiffs contend that Zillow does not advise the general consumer public that it perpetuates the Zestimate confusion by ignoring or refusing to delete or correct Zestimates that homeowners challenge as inaccurate or unfounded. (Id. ¶ 32.)

         In relation to properties that are for sale by owner (“FSBO”), Plaintiffs assert that Zillow engages in unfair and deceptive advertising and trade practices to force or “funnel” FSBO sellers to use Zillow's premier brokers. (Id. ¶ 57.) Plaintiffs specifically allege that Zillow will unilaterally list FSBO properties on its website and assign these properties a low Zestimate, but upon a premier broker listing the FSBO properties, the Zestimates “skyrocket.” (Id. ¶¶ 60, 69.) Plaintiffs also allege that Zillow refuses to adjust Zestimates after FSBO sellers request well-founded changes to the low Zestimates. (Id. ¶¶ 63, 71.) Further, Plaintiffs contend that Zillow often lists FSBO properties as “suspect listings.” (Id. ¶¶ 129, 135, 143.)

         Next, Plaintiffs allege that Zillow's practice of creating and posting suspect Zestimates for seller's homes is unfair and violates public policy. (Id. ¶¶ 125, 127.) Specifically, Plaintiffs maintain that it is unfair for a seller to be unable to sell her home: (1) without the realistic ability to do so FSBO; (2) while being coerced by Zillow's “funneling” and improper trade practices to retain a real estate broker; (3) while Zillow offers opinions of value without proper due diligence and/or permission; and (4) while Zillow refuses to take down those opinions of value when challenged. (Id. ¶ 127.) Plaintiffs state that Zestimates and the additional improper trade practices are oppressive because of the confusion surrounding Zestimates and Zillow's refusal to cure unfounded Zestimates, along with the “suspect listing” label for FSBO sellers. (Id. ¶ 129.)

         LEGAL STANDARD

         “A motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6) challenges the viability of a complaint by arguing that it fails to state a claim upon which relief may be granted.” Camasta v. Jos. A. Bank Clothiers, Inc., 761 F.3d 732, 736 (7th Cir. 2014); see also Roake v. Forest Preserve Dist. of Cook Cnty., 849 F.3d 342, 345-46 (7th Cir. 2017). Under Rule 8(a)(2), a complaint must include “a short and plain statement of the claim showing that the pleader is entitled to relief.” Fed.R.Civ.P. 8(a)(2). The short and plain statement under Rule 8(a)(2) must “give the defendant fair notice of what the . . . claim is and the grounds upon which it rests.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (quoting Conley v. Gibson, 355 U.S. 41, 47 (1957)). A plaintiff's “[f]actual allegations must be enough to raise a right to relief above the speculative level.” Id.; see also Oakland Police & Fire Ret. Sys. v. Mayer Brown, LLP, 861 F.3d 644, 649 (7th Cir. 2017). Put differently, “a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.'” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Twombly, 550 U.S. at 570)). When determining the sufficiency of a complaint under the plausibility standard, courts must “accept all well-pleaded facts as true and draw reasonable inferences in the plaintiffs' favor.” Park Pet Shop, Inc. v. City of Chicago, 872 F.3d 495, 499 (7th Cir. 2017).

         ANALYSIS

         I. IDTPA Claim - Count I

         In Count I, Plaintiffs seek injunctive relief, costs, and attorneys' fees under the IDTPA.[3]In particular, Plaintiffs contend that the Zestimate tool is a deceptive trade practice under 815 ILCS 510/2(a)(3) because Zillow promotes it as a reliable valuation resource when in reality it is “a suspect marketing gimmick” drawing people to its website to solicit advertising revenue from real estate brokers and lenders. (Id. ¶ 119(a).) Plaintiffs also assert that Zillow's refusal to resolve or remove challenged Zestimates in good faith is a deceptive trade practice because it: (a) perpetuates improper confusion in the marketplace in violation of 815 ILCS 510/2(a)(3); (b) constitutes an improper and bad faith disparagement of Plaintiffs' properties in violation of 815 ILCS 510/2(a)(8) due to the existence of information that undermines the validity of certain Zestimates; and (c) constitutes advertisements of real property with the intent to not sell as advertised in violation of 815 ILCS 510/2(a)(9). (Id. ΒΆ 119(b).) In addition, ...


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