A federal judge in Seattle has refused to throw out an antitrust class action brought by real estate agents against Zillow, letting all five of the plaintiffs’ claims proceed to discovery β including the allegation that Zillow forces agents who buy its referrals to also buy its Follow Up Boss software, then uses that software to push them toward Zillow Home Loans.
U.S. District Judge James L. Robart denied Zillow’s motion to dismiss on Sept. 28 in Dupuis v. Zillow Group, Inc., No. C26-5049JLR, in the Western District of Washington. The 35-page order rejects every ground Zillow raised.
Robart did not find that Zillow broke any law. At this stage the only question is whether the agents pleaded claims that are legally sufficient to go forward. He concluded that they did, and he declined Zillow’s request for oral argument, writing that it “would not aid in its disposition of the motion.”
Two alleged schemes
The complaint describes two practices. The first is a tie: plaintiffs allege Zillow requires agents in its Premier and Preferred programs to purchase and use Follow Up Boss, its customer relationship management product, to work the leads they are buying β even though competing CRM systems exist and Zillow previously supplied a free tool for the same purpose.
The second is steering. Plaintiffs allege Zillow uses Follow Up Boss to track how many mortgage pre-approvals each Preferred agent routes to Zillow Home Loans, and ties an agent’s internal rating to that number. Higher-rated agents get more and better referrals; agents who fall short are demoted, get fewer or lower-value referrals, and risk being cut from the program.
The economics of those programs are set out in the order. Premier Agent participants pay upfront for referrals, which Zillow calls “connections” and generates when a consumer requests a property tour. Preferred Agents, in the program also known as Flex, pay nothing upfront but remit up to 40% of their backend compensation to Zillow when a referred sale closes.
Named plaintiff Stephanie Dupuis alleges she paid roughly $500 a month to keep Follow Up Boss after Zillow made it mandatory. Zillow did not dispute that she has antitrust standing, which was enough for the case to proceed; as Robart noted, in a multi-plaintiff suit generally only one plaintiff needs standing.
The market definitions survived
Zillow’s main line of attack was that the agents had not defined a relevant market. Robart disagreed on each one.
The agents allege Zillow holds a 61% to 64% share of real estate search, a figure the order says is “substantiated by Zillow’s own marketing materials.” They separately allege a distinct market for homebuyer referrals sold to agents, and a third for CRM software, where they cite Zillow’s own statement that Follow Up Boss “powers daily activity for more than 80% of the highest-volume teams in the country.”
The court also accepted a nationwide geographic market, on the reasoning that a defendant setting commercial policy at the corporate level can support one.
On the tying claim, Robart held the agents adequately pleaded market power for treatment under the modified per se rule, and said that disputes over Zillow’s metrics “are for summary judgment, not a motion to dismiss.” Because the per se claim survived, he declined to reach the parties’ Rule of Reason arguments.
The monopolization count under Section 2 of the Sherman Act, the Washington Consumer Protection Act claim, the Maryland Antitrust Act and Oregon Unfair Trade Practices Act claims, and unjust enrichment all survived as well.
The RESPA problem agents raise
One allegation deserves attention from brokerages: the plaintiffs argue that being pressured to steer clients to Zillow Home Loans could conflict with their duty to act in a client’s interest, and could expose them to liability under the Real Estate Settlement Procedures Act. They also point to Zillow’s own annual report, which discloses the risk that Zillow Home Loans “may not meet customers’ financing needs with its product offerings.”
A different result from the same judge
Robart is the judge who, earlier this year, dismissed a separate class action alleging Zillow steered homebuyers to its mortgage unit. That case, brought by consumers under RESPA and RICO, failed on statutory standing because the plaintiffs had not directly paid for the settlement services at issue. This one is brought by the agents themselves, under antitrust law, and turns on money they say they were made to spend.
The suit adds to a heavy litigation calendar for the company. Zillow settled the Federal Trade Commission’s antitrust case over its Redfin rental agreement in August on the morning trial was to begin, and in September a judge in Chicago denied Zillow’s injunction against an MLS and sent that dispute to arbitration.
Dupuis and Sound Music I, Inc. filed the original complaint on Jan. 16; an amended complaint on May 4 added Brian Graham and Anna Alvarez. Zillow moved to dismiss on June 1. With the motion denied, the case moves into discovery, where the class has not yet been certified and the metrics the court set aside for later will be contested on a full record.
