By Jan Wolfe
WASHINGTON, Oct 5 (Reuters) – The US Supreme Court declined on Monday to hear a bid by real estate platform Zillow Group to escape a class action that accused it of misleading investors about its failed home-flipping venture.
The court turned away Seattle-based Zillow’s appeal of a lower court’s decision that allowed the 2021 lawsuit to move forward in federal court in Washington state.
At issue in the case is what defenses publicly traded companies can raise in lawsuits alleging they made false statements to the investing public.
In such class actions, which are common in US courts, plaintiffs’ lawyers frequently allege that companies made misrepresentations designed not to actively drive up their stock price, but simply to keep it from falling.
The Zillow dispute is an example of one of these cases, known as “price-maintenance” cases.
Zillow’s stock plunged in November 2021 because the company announced it was permanently shutting down Zillow Offers, its home-flipping division, after management admitted it could not accurately forecast future home prices. The company disclosed that it wrote down $300 million in losses during the previous quarter and announced a layoff of 25% of its workforce.
Investors sued in federal court, saying statements made by Zillow’s then-CEO and other company leaders in the preceding months painted an overly positive picture of the business unit.
Zillow’s lawyers denied that the company had engaged in securities fraud.
“Zillow made a business decision to enter a new line of business, disclosing all of the risk in doing so, that in the end simply did not work out as the company had hoped,” Zillow’s lawyers said in a court filing.
The San Francisco-based 9th US Circuit Court of Appeals last year upheld a judge’s decision that allowed the case to move forward as a class action. The disclosures Zillow made in November 2021 “revealed new information about how Zillow’s home-pricing struggles threatened the business and suggested that its earlier statements may have obscured how Zillow’s pricing model misfired,” the 9th Circuit said.
In a filing asking the Supreme Court to hear its appeal, Zillow said the justices should clear up a split in federal appellate courts over how closely related a company’s back-end corrective disclosures, which trigger a stock drop, must be to earlier alleged misstatements to justify certifying a class action.
Pro-business lobbying groups including the US Chamber of Commerce have criticized the 9th Circuit decision, saying in a filing that this ruling deviated from Supreme Court precedent and “would expose American businesses to costly securities class-action lawsuits.”
(Reporting by Jan Wolfe; Editing by Will Dunham)
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