Zillow settles co-marketing suit for $15M
After more than 5 years of litigation, the company agreed to a settlement with shareholders over its co-marketing program, which remains active.
Key points:
- Two suits were originally filed in 2017 after Zillow disclosed that the Consumer Financial Protection Bureau was investigating the company for RESPA violations.
- Zillow's initial failure to acknowledge the CFPB investigation led to inflated stock prices, the suit claimed.
- In the settlement agreement, Zillow denied any wrongdoing.
Maintaining it did nothing wrong, Zillow has agreed to a $15 million settlement with shareholders who claimed the company failed to notify them that its co-marketing program might be illegal.
"We are pleased that the parties have reached a resolution of this matter," a Zillow spokesperson said.
The co-marketing program at issue allows mortgage lenders to pay for portions of agents' monthly advertising costs on Zillow websites, and it remains active. The claimants in the lawsuit alleged that the program violated the Real Estate Procedures Act (RESPA).
However, the federal investigation that raised concerns about a potential violation has ended without enforcement action, and Zillow continues to operate the co-marketing program.
In the settlement agreement, both sides maintained that they were right but wanted to settle the dispute to save the time and money involved in continuing to trial. Zillow indicates it will ask its insurers to fund at least part of the settlement.
The settlement, which was granted preliminary approval by the U.S. District Court in Western Washington on April 3, will bring to a close more than five years of litigation involving the company's co-marketing program.
Two shareholders each filed suit in 2017, alleging that then-CEO Spencer Rascoff and then-CFO Kathleen Philips signed securities notices assuring shareholders and potential shareholders that the company worked to ensure it complied with applicable laws.
The two suits were combined under a single class action which contended that the co-marketing program violated RESPA, and alleged that Zillow was under investigation for RESPA violations by the Consumer Financial Protection Bureau (CFPB) for two years before notifying investors in August 2017. As a result, said the claimants, Zillow's failure to disclose that violation falsely inflated the company's share prices.
Zillow acknowledged in a quarterly filing on August 8, 2017, that the CFPB "has invited us to discuss a possible settlement and indicated that it intends to pursue further action if those discussions do not result in a settlement."
The stock price dropped significantly upon the revelation.
In the years since, although Zillow and CFPB were unable to reach a settlement, the CFPB concluded its investigation without pursuing enforcement action.