The U.S. Supreme Court on Monday declined to hear an appeal from Zillow Group Inc., allowing a class-action lawsuit from investors to proceed. The suit alleges the real estate technology company and its executives misled shareholders about the financial stability and operational models of its discontinued home-flipping business, Zillow Offers.
The court’s decision, issued without comment, leaves in place an August 2022 ruling from the 9th U.S. Circuit Court of Appeals. The appellate court had previously revived the lawsuit after it was dismissed by a federal judge in Seattle. By denying Zillow’s petition, the Supreme Court allows the case to return to the lower court for further proceedings.
The class-action lawsuit was filed by investors who purchased Zillow stock between February 2021 and November 2021. According to the complaint, the plaintiffs allege that Zillow made materially false and misleading statements about the Zillow Offers business. The program, an “iBuying” service, involved Zillow purchasing homes directly from sellers, making minor repairs, and then reselling them.
The investors claim the company publicly promoted the “purported strength” of its pricing algorithm while being aware that the model was inaccurate and was causing Zillow to overpay for properties. The suit contends these statements artificially inflated the company’s stock price.
In its petition to the Supreme Court, Zillow argued that the 9th Circuit’s decision to revive the case would open the door to “fraud-by-hindsight” litigation. The company asserted that the plaintiffs were penalizing it for business forecasts that ultimately proved incorrect, not for intentional misrepresentation.
Zillow announced the shutdown of its Zillow Offers division in November 2021. In its third-quarter earnings report that year, the company reported a write-down of over $300 million related to homes purchased at prices higher than their estimated resale values. The company also announced plans to reduce its workforce by approximately 25% as part of the wind-down. At the time, Zillow CEO Rich Barton cited the “unpredictability in forecasting home prices” as a primary reason for closing the business.
The case will now proceed in U.S. District Court in Seattle, where investors will seek to certify the class action and recover damages for alleged violations of the Securities Exchange Act.
