The US District Court for the Western District of Washington recently dismissed a securities fraud class action against Zillow, Inc. and named officers and directors, holding that the material omissions plaintiff alleged were already known to the market.
Zillow is an online real estate marketing company that derives revenue from online advertisements, including a subscription service for local real estate agents. Subscribers are referred to as Zillow’s Premier Agents. In early 2012, Zillow announced that it would implement a new pricing model for its Premier Agents. Plaintiffs alleged that Zillow withheld material information about difficulties encountered in its new pricing model. Among other claims, plaintiffs alleged that Zillow should have disclosed its Static Average Revenue Per Customer (ARPU), which they claimed would have illustrated whether Zillow was successfully implementing the new pricing plan. According to plaintiffs, when Zillow released its ARPU in early November 2012, it “shocked the market” for Zillow stock. Plaintiffs filed a complaint alleging securities fraud in late November 2012.
The court held that Zillow’s failure to disclose that ARPU was flat was not an actionable omission because analysts in the market had already estimated that Zillow’s ARPU was flat or decreasing. In addition to analyst estimates, one of the named defendants disclosed that ARPU was down. Because the information was credibly available in the market before the November release, the court found that an earlier release of ARPU would not have affected the total mix of information available in the market, and granted Zillow’s motion to dismiss.
Reinschmidt v. Zillow, Inc., No. C12-2084 (W.D. Wash. Oct. 20, 2014).