Zillow ‘Zestimates’ Not Actionable Value Statements; Homeowner Plaintiffs’ Not Consumers Under IL Consumer Fraud Act – IL ND 2018

Decrying the defendants’ use of “suspect marketing gimmicks” that generate “confusion in the marketplace,” the class action plaintiffs’ allegations in Patel v. Zillow, Inc. didn’t go far enough to survive a Rule 12(b)(6) motion.

The Northern District of Illinois recently dismissed the real estate owning plaintiffs’ claims against the defendants, whose Zillow.com website is a popular online destination for property buyers, sellers, lenders and brokers.

The plaintiffs alleged Zillow violated Illinois’s deceptive trade practices and consumer fraud statutes by luring prospects to the site based on fabricated property valuation data, employing “bait and switch” sales tactics and false advertising and giving preferential treatment to brokers and lenders who pay advertising dollars to Zillow.

Plaintiffs took special aim at Zillow’s “Seller Boost” program – through which Zillow provides choice broker leads in exchange for ad dollars – and “Zestimate,” Zillow’s property valuation tool that is based on computer algorithms.

The Court first dismissed Plaintiffs’ Illinois Deceptive Trade Practices Act (IDTPA) claim (815 ILCS 510/1 et seq.). Plaintiffs alleged Zestimate was a “suspect marketing gimmick” designed to lure visitors to Zillow in an effort to increase ad revenue from real estate brokers and lenders, and perpetuated marketplace confusion and disparaged properties by refusing to take down Zestimates that were proven inaccurate. Plaintiffs also alleged Defendants advertise properties for sale they have no intention of actually selling.

The Court found that Zestimates are not false or misleading representations of fact likely to confuse consumers. They are simply estimates of a property’s market value. As Zillow’s disclaimer-laden site says, Zestimates are but “starting points” of a property’s value and no proxy for a professional appraisal. As a result, the Court found Zestimates were nonactionable opinions of value.
Plaintiffs’ allegation that Zestimate creates consumer confusion also fell short. An actionable IDTPA claim premised on likelihood of confusion means a defendant’s use of a given trade name, trademark or other distinctive symbol is likely to mislead consumers as to the source of an advertised product or service. Here, the plaintiffs’ allegations that Zestimate was falsely vaunted as a legitimate valuation tool did not assert confusion between Zillow’s and another’s products or services.

Plaintiffs’ “bait and switch” and commercial disparagement claims fared no better. A bait and switch claim asserts that at a seller advertised one product or service only to “switch” a customer to another, costlier one. A commercial disparagement claim, based on IDPTA Section 510/2(a)(8) prevents a defendant from denigrating the quality of a business’s goods and services through false or misleading statements of fact.

Since plaintiffs did not allege Zillow was enticing consumers with one product or service while later trying to hawk a more expensive item, the bait and switch IDTPA claim failed. The court dismissed the commercial disparagement claim since Zestimates are only opinions of value and not factual statements.

The Court next nixed Plaintiffs’ self-dealing claim: that Zillow secretly tried to enrich itself by funneling For Sale By Owner (FSBO) sellers to premier brokers. While Illinois does recognize that a real estate broker owes a duty of good faith when dealing with buyers, the Court noted that Zillow is not a real estate broker. As a result, Defendants owed plaintiffs no legal duty to abstain from self-dealing.

The glaring absence of likely future harm also doomed the plaintiffs’ IDTPA claim. (The likelihood of future consumer harm is an element of liability under the IDTPA.) The Court found that even if Plaintiffs were confused or misled by Zillow in the past, there was no risk of future confusion. In IDTPA consumer cases, once a plaintiff is aware of potentially deceptive marketing, he can simply refrain from purchasing the offending product or service.

Next, the court jettisoned plaintiffs’ consumer fraud claims which alleged Zestimates impeded homeowners efforts to sell their properties. A business (or another non-consumer) can still sue under ICFA where alleges a nexus between a defendant’s conduct and consumer harm. To meet this consumer nexus test, a corporate plaintiff must plead conduct involving trade practices addressed to the market generally or that otherwise implicates consumer protection concerns. If a non-consumer plaintiff cannot allege how defendant’s actions impact consumers other than the plaintiff, the ICFA claim fails.

The plaintiffs’ consumer fraud allegations missed the mark because plaintiffs were real estate sellers, not buyers. Moreover, the Court found that plaintiffs’ requested relief would not serve the interests of consumers since the claimed actual damages were unique to plaintiffs. The plaintiffs attempt to recover costs incidental to their inability to sell their homes, including mortgage payments, taxes, home owner association costs, utilities, and the like were not shared by the wider consumer marketplace. (For example, the Court noted that plaintiffs did not allege prospective consumer buyers will have to pay incidental out-of-pocket expenses related to Zillow’s Zestimate published values.)

Lastly, the Court dismissed plaintiffs’ deceptive practices portion of their ICFA claim. To state such a claim, the plaintiff must allege he suffered actual damages proximately caused by a defendant’s deception. But where a plaintiff isn’t actually deceived, it can’t allege a deceptive practice.

Here, in addition to falling short on the consumer nexus test, plaintiffs could not allege Zillow’s site content deceived them. This is because under Illinois fraud principles, a plaintiff who “knows the truth” can’t make out a valid ICFA deceptive practice claim. In their complaint, the plaintiffs’ plainly alleged they were aware of Zillow’s challenged tactics. Because of this, plaintiffs were unable to establish Zillow as the proximate cause of plaintiffs’ injury.

Afterwords:

Zillow provides a good primer on Federal court pleading standards in the post-Twombly era and gives a nice gloss on the requisite pleading elements required to state a viable cause of action for injunctive and monetary relief under Illinois’s deceptive practices and consumer fraud statutes.

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PaulP

Litigation attorney at Fisher Kanaris, P.C. representing businesses and individuals in all types of commercial disputes.