Zillow class action over failed home-flipping unit proceeds after U.S. Supreme Court rejection

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Zillow class action lawsuit proceeds

Highlights

The U.S. Supreme Court declines to hear Zillow Group's appeal, allowing a 2021 securities class action over Zillow Offers' failure to proceed.
Investors allege Zillow executives gave an overly positive outlook before the $300 million write-down, November 2021 shutdown of Zillow Offers, and 25% workforce layoffs.
The 9th U.S. Circuit Court of Appeals' decision to allow the class action stands, heightening potential securities litigation exposure for other public companies over price-maintenance claims.

Appeal denial keeps securities case on track

As reported by Reuters, the U.S. Supreme Court declines on Monday to hear Zillow Group's bid to block a federal investor class action tied to the failure of Zillow Offers, the company's former home-flipping division.

The justices turn away the Seattle-based company's appeal of a lower court decision allowing the 2021 lawsuit to proceed in federal court in Washington state. The case centers on what defenses listed companies can use when facing claims that they misled investors through statements that allegedly maintained, rather than inflated, their share price.

Investors allege that statements by Zillow's then-CEO and other executives in the months before the shutdown presented an overly positive view of the business. Zillow disputes the accusations and says in a court filing that it disclosed the risks of entering a new line of business, but that the effort ultimately did not work out as hoped.

Broader implications for price-maintenance claims

Zillow's shares plunged in November 2021 when the company says it is permanently shutting down Zillow Offers after management acknowledges it cannot accurately forecast future home prices. The company also discloses a $300 million write-down in the prior quarter and announces layoffs affecting 25% of its workforce.

The San Francisco-based 9th U.S. Circuit Court of Appeals last year upholds a judge's decision permitting the case to move forward as a class action. The appellate court says Zillow's November 2021 disclosures reveal new information about how its home-pricing struggles threatened the business and suggest earlier statements may have obscured problems in its pricing model.

In seeking Supreme Court review, Zillow argues that the justices should resolve a split among federal appellate courts over how closely corrective disclosures that trigger a stock drop must relate to earlier alleged misstatements to support class certification. Business groups including the U.S. Chamber of Commerce criticize the 9th Circuit ruling, saying it departs from Supreme Court precedent and could expose companies to costly securities class-action litigation.

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