Case 2:21-cv-01551-TSZ Document 97 Filed 12/07/22 Page 1 of 23
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`UNITED STATES DISTRICT COURT
`WESTERN DISTRICT OF WASHINGTON
`AT SEATTLE
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`JEREMY JAEGER,1 on behalf of
`himself and all others similarly
`situated,
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` v.
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`Plaintiff,
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`ZILLOW GROUP, INC., et al.,
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`C21-1551 TSZ
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`ORDER
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`Defendants.
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`THIS MATTER comes before the Court on Defendants’ motion to dismiss, docket
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`no. 85, the Corrected Consolidated Class Action Complaint (“CAC”), docket no. 71, for
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`failure to state a claim. Plaintiff Jeremy Jaeger brings this action on behalf of a putative
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`class of persons who purchased or otherwise acquired shares of Class A or Class C
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`common stock in Zillow Group, Inc. (“Zillow”) between August 5, 2021, and November
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`2, 2021 (the “Class Period”). CAC ¶ 258. Plaintiff sues all Defendants under Section
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`10(b) of the Securities Exchange Act of 1934, 5 U.S.C. § 78j(b), and Rule 10b-5
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`1 By Order entered February 16, 2022, docket no. 61, the Court appointed Jeremy Jaeger as lead plaintiff.
`All future filings shall bear the same caption as this Order.
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`ORDER - 1
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`Case 2:21-cv-01551-TSZ Document 97 Filed 12/07/22 Page 2 of 23
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`promulgated by the Securities and Exchange Commission (“SEC”), 17 C.F.R. § 240.10b-
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`5. Plaintiff also sues Defendants Richard Barton, Jeremy Wacksman, and Allen Parker
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`(the “Executive Defendants”) as control persons of Zillow under Section 20(a) of the
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`Exchange Act, 15 U.S.C. § 78t(a). Having reviewed all papers filed in support of, and in
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`opposition to, the motion, the Court enters the following Order.
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`Background
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`Defendant Zillow is a Washington corporation.2 CAC ¶ 1. Zillow is alleged to
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`operate the most visited real estate website in the United States, “zillow.com,” and other
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`real estate websites, such as “trulia.com” and “streeteasy.com.” CAC ¶ 2. Until 2018,
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`Zillow generated most of its revenue from advertising and from referral fees received
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`when it matched prospective buyers and sellers with real estate agents and brokers. Id.
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`A.
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`Zillow Offers
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`According to the operative pleading, in April 2018, in response to slow growth in
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`Zillow’s core business and stagnating stock price, Zillow entered the “iBuyer” or “Instant
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`Buyer” market. CAC ¶ 2. In the iBuyer market, companies “use algorithms and
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`technology to buy and resell homes quickly.” CAC ¶ 3. Zillow’s new iBuyer business
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`was called Zillow Offers.3 CAC ¶ 4.
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`2 Zillow’s Class A common stock trades on the Nasdaq exchange under the ticker symbol “ZG,” and its
`Class C capital stock trades on the Nasdaq exchange under the ticker symbol “Z.” CAC ¶ 43.
`3 Through Zillow Offers, Zillow would make offers to buy homes directly from homeowners. If a
`homeowner accepted an offer from Zillow Offers, then Zillow would purchase the home, make certain
`repairs and updates, and then list it for sale on the open market. For each home it resold, Zillow would
`recognize a profit, in the form of transaction fees, at the time of closing. CAC ¶ 59.
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`ORDER - 2
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`Case 2:21-cv-01551-TSZ Document 97 Filed 12/07/22 Page 3 of 23
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`In February 2019, Defendant Richard Barton returned to his former role as
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`Zillow’s Chief Executive Officer (“CEO”). CAC ¶ 44. Coinciding with his resumption of
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`CEO duties, Barton announced a goal for Zillow Offers of $20 billion in revenue over
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`five years, with a target of purchasing and selling 5,000 homes per month. CAC ¶ 66.
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`Barton acknowledged that Zillow Offers was behind some of its competitors, like
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`Opendoor and Offerpad, which had entered the iBuyer market a few years earlier. CAC
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`¶ 67. To catch up, Zillow Offers needed to scale up quickly. CAC ¶ 83. Doing so would
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`also allow Zillow Offers to improve its cost structure. CAC ¶ 11. As a result, in the years
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`leading up to the Class Period, Zillow’s executives were, according to the CAC, “laser-
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`focused on increasing Zillow’s home purchasing volumes to achieve Barton’s targets of
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`5,000 homes per month by 2024.” Id.
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`Defendants are alleged to have touted the accuracy of the algorithms used to price
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`homes. CAC ¶ 75. On May 7, 2020, Barton stated, “it’s just the machines getting smarter
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`. . . . [W]e have just gotten a whole lot better at how to figure out what to buy, where to
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`buy it, how to rehab it, how to appraise it, how to price drop it, and all of this is informed
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`by data.” CAC ¶ 76 (alteration in original).
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`B.
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`Zestimate Offer and Project Ketchup
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`On February 25, 2021, Zillow announced that it had launched in certain markets a
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`new program, Zestimate4 offer, which would provide an initial purchase offer from
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`4 “Zestimate” is Zillow’s proprietary pricing model that estimated the current value of over 100 million
`homes in the United States. CAC ¶ 71. Consumers could visit Zillow’s website and look up the Zestimate
`for their home. Id. If a consumer liked the Zestimate, then he or she could contact Zillow and request that
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`Case 2:21-cv-01551-TSZ Document 97 Filed 12/07/22 Page 4 of 23
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`Zillow Offers to homeowners. CAC ¶ 77. This process eliminated the involvement of a
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`pricing expert and made Zillow even more reliant on its Zestimate and other algorithms.
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`In a press release, Zillow stated, “This exciting advancement demonstrates the confidence
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`we have in the Zestimate . . . . This is a proud moment for Zillow’s tech team and speaks
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`to the advancements they’ve made in machine learning and AI technology.” Id.
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`On June 15, 2021, after having missed its inventory-acquisition targets and
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`concluded that it was “under-modeling” the level of home appreciation,5 Zillow issued a
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`press release stating that it had improved its algorithms. The press release said, in
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`relevant part, that “Zillow today launches significant upgrades to its Zestimate® home
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`valuation model. The changes allow the algorithm to react more quickly to current
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`market trends . . . .” CAC ¶ 99 (emphasis in original). As a result of this update, Zillow
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`said that “the Zestimate can now react more quickly to dynamic market conditions,
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`providing homeowners with a more accurate estimate [prediction] of a home’s current
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`value.” Id. (emphasis and alteration in original).
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`the Company make an initial offer for the consumer’s home. Id. After the consumer contacted Zillow,
`Zillow would send out a pricing expert, who would adjust the Zestimate and report his or her
`recommendation to Zillow. Zillow then applied computer models to estimate the length of time required
`to sell the home and how the value of the home would change during that timeframe. CAC ¶ 72. Zillow
`would eventually arrive at the home’s estimated value and make an initial offer to purchase the
`consumer’s home. Id.
`5 In alleging that Zillow did not meet its home-buying goals and that it was underestimating the increase
`in house values over time, Plaintiff relies on statements by former Zillow employees. See CAC ¶¶ 92–96.
`Defendants attempt to discredit the former employees’ statements, particularly as they relate to scienter.
`Defs.’ Mot. at 24 (docket no. 85). The CAC, however, details each former employee’s job title and group
`at Zillow, responsibilities, period of employment, and experience, and the statements of these confidential
`witnesses may therefore be considered. See In re Daou Sys., Inc. Sec. Litig., 411 F.3d 1006, 1015–16 (9th
`Cir. 2005).
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`ORDER - 4
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`Case 2:21-cv-01551-TSZ Document 97 Filed 12/07/22 Page 5 of 23
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`Behind the scenes, however, Zillow was not meeting its home-purchasing goals.
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`CAC at ¶ 100. As a result, Zillow initiated Project Ketchup. Id. Under Project Ketchup,
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`Zillow “applied systematic ‘overlays’ to drive up offers well above the pricing indicated
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`by its algorithm and pricing analysts.” Id. These overlays are alleged to have caused
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`Zillow to “significantly overpay for thousands of homes.” Id.
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`Between late May or early June and August 2021, Zillow increased its home offer
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`prices by, on average, between 400 and 800 base points across all markets. CAC ¶¶ 111,
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`112.
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`Project Ketchup had other consequences. Because Zillow purchased homes at
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`prices that often exceeded their market value, it attempted to save money by decreasing
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`the scope and costs of renovations to be completed before reselling them. See CAC ¶ 127.
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`“These changes were unsustainable” because Zillow’s strategy “squeezed” longtime
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`contractors, as Zillow asked them to renovate more homes for less money than previously
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`charged for the same work. CAC ¶ 128. As a result, Zillow’s contractors began refusing
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`jobs. Id. Without sufficient contractors to complete renovations, a substantial backlog of
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`homes developed on Zillow’s balance sheet. Id. This backlog increased Zillow’s holding
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`and interest rate costs, exposing it to additional risks from broader market movements. Id.
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`C.
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`Allegedly False or Misleading Statements
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`Plaintiff alleges that Defendants made several false and/or misleading statements
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`to the market on two dates: (i) on August 5, 2021, in a shareholder letter and earnings
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`call, and (ii) on September 13, 2021, at a Piper Sandler investment conference. These
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`allegedly false or misleading statements fall into three categories: (i) statements about
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`ORDER - 5
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`Case 2:21-cv-01551-TSZ Document 97 Filed 12/07/22 Page 6 of 23
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`Zillow’s reliance on and improvements to its algorithms; (ii) statements concerning the
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`durability of operational, unit economic, and/or renovation process improvements; and
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`(iii) statements attributing Zillow’s inventory growth to consumer demand. See CAC
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`¶¶ 183–84, 191–92. Between October 18, 2021, and November 3, 2021, Defendants
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`made a series of corrective disclosures to the market. CAC ¶¶ 164–65, 170–72.
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`According to the operative pleading, these disclosures shocked market analysts. CAC
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`¶¶ 175–180. Each disclosure coincided with a decline in both Zillow’s common and
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`capital stock price. CAC ¶¶ 163, 166, 169, & 174.
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`Defendants now move to dismiss all of Plaintiff’s causes of action.
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`Discussion
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`To survive a Rule 12(b)(6) motion to dismiss, a complaint must contain sufficient
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`factual matter that, when accepted as true, states a claim that is plausible on its face.
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`Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). “A claim has facial plausibility when the
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`plaintiff pleads factual content that allows the court to draw the reasonable inference that
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`the defendant is liable for the misconduct alleged.” Id. Although this standard is not a
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`probability requirement, “[w]here a complaint pleads facts that are merely consistent with
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`a defendant’s liability, it stops short of the line between possibility and plausibility of
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`entitlement to relief.” Id. (internal quotation marks and citation omitted). In determining
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`whether a plaintiff has met this plausibility standard, the Court must “accept all factual
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`ORDER - 6
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`Case 2:21-cv-01551-TSZ Document 97 Filed 12/07/22 Page 7 of 23
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`allegations in the complaint as true and construe the pleadings in the light most
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`favorable” to the plaintiff.6 Knievel v. ESPN, 393 F.3d 1068, 1072 (9th Cir. 2005).
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`A.
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`Section 10(b) Claim
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`To prevail on a Section 10(b) claim, a plaintiff must prove six elements: (1) a
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`material misrepresentation or omission by the defendant; (2) scienter; (3) a connection
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`between the misrepresentation or omission and the purchase or sale of a security;
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`(4) reliance upon the misrepresentation or omission; (5) economic loss; and (6) loss
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`causation.” In re NVIDIA Corp. Sec. Litig., 768 F.3d 1046, 1051–52 (9th Cir. 2014)
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`(citation and internal quotation marks omitted). Federal Rule of Civil Procedure 9(b),
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`which “applies to all elements of a securities fraud action, including loss causation,” Ore.
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`Pub. Emps. Ret. Fund v. Apollo Grp. Inc., 774 F.3d 598, 605 (9th Cir. 2014), requires
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`that “the circumstances constituting fraud . . . be stated with particularity.” Fed. R. Civ. P.
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`9(b); Vess v. Ciba-Geigy Corp. USA, 317 F.3d 1097, 1104 (9th Cir. 2003). Defendants
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`move to dismiss Plaintiff’s § 10(b) and Rule 10b-5 claim with respect to the first, second,
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`and sixth elements, arguing that the CAC does not adequately allege an actionable
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`6 Defendants request that the Court take judicial notice, or consider under the incorporation-by-reference
`doctrine, docket no. 87, ten exhibits in docket no. 86, namely, (i) Zillow’s 2020 10-K; (ii) a copy of the
`transcript for Zillow’s May 4, 2021, earnings call; (iii) a copy of the transcript for Zillow’s August 5,
`2021, earnings call; (iv) a copy of the shareholder letter for Q2 of 2021, which was included as an exhibit
`to Zillow’s 8-K; (v) a copy of the transcript for Zillow’s November 2, 2021, earnings call; (vi) a copy of
`the transcript of Zillow’s presentation at the Piper Sandler 2021 Virtual Global Technology conference;
`(vii) a copy of the transcript of Zillow’s November 7, 2019, earnings call; (viii) a copy of the historical
`stock price for ZG from January 4, 2021, through December 31, 2021; (ix) excerpts from Zillow’s 2018
`10-K; and (x) excerpts from Zillow’s 2019 10-K. The Court takes judicial notice of exhibits i-vi and
`exhibits viii, ix, and x in docket no. 86. It does not take judicial notice of exhibit vii as it is not
`incorporated by reference in the CAC. See Kuzmenko v. Lynch, 606 F. App’x 399, 400 (9th Cir. 2015).
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`ORDER - 7
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`Case 2:21-cv-01551-TSZ Document 97 Filed 12/07/22 Page 8 of 23
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`misrepresentation or omission, scienter, or loss causation. Except as to two statements,
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`which are forward looking, and for the reasons stated in this order, Defendants’ motion is
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`denied.
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`1.
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`Safe Harbor
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`“Even where a plaintiff has properly pleaded all six elements of a Section 10(b)
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`violation, the allegedly false or misleading statement may still be shielded from liability
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`by the ‘safe harbor’ provision of” the Private Securities Litigation Reform Act
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`(“PSLRA”). In re Quality Sys., Inc. Sec. Litig., 865 F.3d 1130, 1141 (9th Cir. 2017).
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`The PSLRA exempts from liability any forward-looking statement that is
`“identified as a forward-looking statement, and is accompanied by
`meaningful cautionary statements identifying important factors that could
`cause actual results to differ materially from those in the forward-looking
`statement,” or that the plaintiff fails to prove was made “with actual
`knowledge . . . that the statement was false or misleading.” 15 U.S.C. § 78u-
`5(c)(1). That is, a defendant will not be liable for a false or misleading
`statement if it is forward-looking and either is accompanied by cautionary
`language or is made without actual knowledge that it is false or misleading.
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`Id. The Court agrees with Defendants that the statements reproduced in Paragraph 192 of
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`the operative pleading are forward looking and that Plaintiff has not pleaded they were
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`made with actual knowledge of any falsity or misleading nature.7 In Paragraph 192, the
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`CAC recounts the following interaction between Piper Sandler analyst Thomas Steven
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`Champion and Zillow’s Chief Operating Officer Jeremy Wacksman:
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`7 Defendants concede that the statements made on September 13, 2021, during the Piper Sandler
`investment conference were not accompanied by any cautionary language. See Defs.’ Mot. at 21 (docket
`no. 85). To the extent Defendants rely on generic warnings relating to their statements during the August
`5, 2021, earnings call, Plaintiff alleges a plausible claim that the boilerplate notices were insufficient
`because the risks at issue had already materialized. See In re Harman Int’l Indus., Inc. Sec. Litig., 791
`F.3d 90, 102–03 (D.C. Cir. 2015).
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`ORDER - 8
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`Case 2:21-cv-01551-TSZ Document 97 Filed 12/07/22 Page 9 of 23
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`CHAMPION: So getting the economics right at the unit level is really
`paramount for this business to be successful and to hit the kind of the long-
`term margin targets that you’ve laid out. Kind of -- can you talk about that?
`How are you feeling about the ability to profitably run the business,
`especially on some of those line items below gross profit at the unit level?
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`WACKSMAN: And we talk about wanting to run the business at a plus or
`minus 200-basis point guardrail on the unit level. And [i]n Q2, we saw unit
`economics of nearly 600 basis points, I think 576 basis points. And so, yes a
`good chunk of that is home price appreciation, right, and the market and you
`saw that in HPA itself, but also in kind of holding costs correlated with the
`velocity of sale. But some of those unit economic improvements are
`durable, right. The work we’re doing on more dynamic renovation, the
`work we’re doing on selling costs as our Homes brokerage improvements
`roll out more gradually, you’re going to see us book those improvements
`as unit economic savings to the unit and be able to pass those back onto
`the customer and eventually to the bottom line.
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`CAC ¶ 192 (emphasis in original).
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`The statement “some of those unit economic improvements are durable” deals
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`with economic indicators that Zillow expects to maintain in the future. The referenced
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`durability is not about the past, but rather concerns a trend that Zillow hopes will
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`continue. The subsequent sentence bolsters this conclusion. The phrase “you’re going to
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`see us book” is in the future tense, and the actions it describes are projected to happen in
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`the future. As is clear from their context, the statements about durability are forward
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`looking and they therefore find safe harbor in the PSLRA. Monachelli v. Hortonworks,
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`Inc., 225 F. Supp. 3d 1045, 1056 (N.D. Cal. 2016).
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`Defendants’ contention that, at this stage of the proceedings, the PSLRA otherwise
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`insulates them from liability lacks merit. Defendants argue that (i) the phrases “we
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`expect” or “going to be,” when inserted into a sentence, transform the entire statement
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`ORDER - 9
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`Case 2:21-cv-01551-TSZ Document 97 Filed 12/07/22 Page 10 of 23
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`into a forward-looking one; (ii) the word “durable” is an intrinsically forward-looking
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`term because it indicates that the current trend will continue into the future; and (iii) the
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`phrase “back on track” is inherently forward-looking.8 The Court disagrees.
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`A future-tense phrase does not automatically immunize a statement from
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`containing separable, present- or backward-looking aspects, and simply appending
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`“magic words” does not itself obviate any potential to mislead investors. See Omnicare,
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`Inc. v. Lab. Dist. Council Const. Indus. Pens. Fund, 575 U.S. 175, 193 (2015). To fall
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`under the PSLRA’s safe harbor, the statement must be forward-looking in substance, not
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`merely in form, with no separable present- or backward-looking aspects. Thus, after the
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`Court’s examination, except for CAC ¶ 192, all other statements are not protected by the
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`PSLRA safe harbor provision.
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`With respect to the PSLRA defense, Defendants’ motion is GRANTED as to CAC
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`¶ 192, and Plaintiff’s claims related to the statements in CAC ¶ 192 are DISMISSED
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`without prejudice and with leave to amend, although the Court is skeptical that Plaintiff
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`can cure the deficiency. To the extent premised on the PSLRA, Defendants’ motion is
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`otherwise DENIED.
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`8 The phrase “back on track,” however, presupposes that Zillow left a track at some point in the past. The
`statement that Zillow is “back on track” indicates that Zillow got back on the track sometime before the
`statement was made. Thus, “back on track” is not forward looking, but rather contains representations of
`past and present facts. The phrase “back on track” is different from the statement “on track to achieve [a]
`goal,” and Wochos v. Tesla, Inc., 985 F.3d 1180 (9th Cir. 2021), is therefore distinguishable.
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`ORDER - 10
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`Case 2:21-cv-01551-TSZ Document 97 Filed 12/07/22 Page 11 of 23
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`2. Misrepresentation or Omission
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`In order to plead an actionable misrepresentation or omission, the complaint must
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`“specify each statement alleged to have been misleading [and] the reason or reasons why
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`the statement is misleading[.]” Tellabs, Inc. v. Makor Issues & Rts., Ltd., 551 U.S. 308,
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`321 (2007) (quoting 15 U.S.C. § 78u–4(b)(1)). “In setting forth the reasons why they
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`contend that each challenged statement is misleading, securities plaintiffs may rely on
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`either an affirmative misrepresentation theory or an omission theory.” Wochos, 985 F.3d
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`at 1188 (citing 17 C.F.R. § 240.10b-5(b)). “[A]n affirmative misrepresentation is an
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`‘untrue statement of a material fact,’ and a fraudulent omission is a failure to ‘state a
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`material fact necessary in order to make the statements made, in the light of the
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`circumstances under which they were made, not misleading.’” Id. (citation omitted).
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`A plaintiff can allege falsity by “point[ing] to defendant’s statements that directly
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`contradict what the defendant knew at that time.” Khoja v. Orexigen Therapeutics, Inc.,
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`899 F.3d 988, 1008 (9th Cir. 2018) (citation omitted). “Even if a statement is not false, it
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`may be misleading if it omits material information.” Id. at 1008–09 (citation omitted).
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`Courts apply the objective standard of a “reasonable investor” to determine whether a
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`statement is misleading. See In re VeriFone Sec. Litig., 11 F.3d 865, 869 (9th Cir. 1993).
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`“Disclosure [of omitted information] is required . . . only when necessary ‘to make . . .
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`statements made, in the light of the circumstances under which they were made, not
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`misleading.’” Matrixx Initiatives, Inc. v. Siracusano, 563 U.S. 27, 44 (2011) (quoting 17
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`C.F.R. § 240.10b-5(b)). As such, “companies can control what they have to disclose
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`under these provisions by controlling what they say to the market.” Id. at 45. “But once
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`ORDER - 11
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`Case 2:21-cv-01551-TSZ Document 97 Filed 12/07/22 Page 12 of 23
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`defendants [choose] to tout positive information to the market, they [are] bound to do so
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`in a manner that wouldn’t mislead investors, including disclosing adverse information
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`that cuts against the positive information.” Schueneman v. Arena Pharm., Inc., 840 F.3d
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`698, 705–06 (9th Cir. 2016) (quotation marks and citation omitted).
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`Defendants argue that Plaintiff’s § 10(b) and Rule 10b-5 claim should be
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`dismissed because (i) Plaintiff’s allegations do not raise the inference that the challenged
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`statements were false or misleading, (ii) Defendants themselves adequately disclosed the
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`requisite information to the market,9 and (iii) some of the statements at issue amount to
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`inactionable puffery.
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`False or Misleading Statements
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`a.
`Contrary to defendants’ contention, Plaintiff has plausibly pleaded that the
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`challenged statements would have been misleading to a reasonable investor. Plaintiff
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`alleges that Defendants’ statements about the algorithms and pricing models were false
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`and/or misleading because Zillow was not, in fact, basing their pricing and inventory
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`decisions on the algorithms’ price and was not, in fact, “sharpening” its pricing models.10
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`9 Plaintiff labels this defense “truth on the market,” but Plaintiff is mistaken. The truth-on-the-market
`defense occurs when a third party releases the information at issue to the marketplace, not when a
`defendant itself releases that information. See Limantour v. Cray Inc., 432 F. Supp. 2d 1129, 1135 (W.D.
`Wash. 2006). This distinction is important because the truth-on-the-market defense is a highly factual
`inquiry, which makes it inappropriate to address on a motion to dismiss. See id. Defendants instead
`contend that they themselves adequately disclosed the truth or, in other words, that their own adequate
`disclosure of the truth negates falsity, which is an argument the Court can consider on a motion to
`dismiss.
`10 Defendants admit that Zillow did not rely solely on the algorithms to make pricing and inventory
`decisions. See Defs.’ Mot. at 11–12 (docket no. 85). Defendants argue, however, that “there is no
`distinction between adjustments to Zillow’s algorithm and pricing models and Zillow’s use of GPO [gross
`price overlays] and OCS [offer calibration system] pricing adjustments.” Id. at 11. This argument
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`ORDER - 12
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`Case 2:21-cv-01551-TSZ Document 97 Filed 12/07/22 Page 13 of 23
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`According to the CAC, Defendants concealed the broader, more complicated,
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`human-driven process implemented by Project Ketchup, as well as the resultant “offer
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`calibration” practice, and instead created the misleading impression that Zillow was still
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`advancing its automation efforts. Plaintiff quotes Zillow’s Chief Financial Officer Allen
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`Parker as stating, for example, “This step-up in pace [in home buying] demonstrates our
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`confidence in our ability to scale, resulting from the progress we have made in
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`strengthening our pricing models and automating the top of the funnel.” (emphasis in
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`original to indicate aspects that Plaintiff alleges are materially false and/or misleading).
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`CAC ¶ 184.
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`Plaintiff further alleges that Zillow’s statements about “durable operational
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`improvements” were misleading because Zillow could not sustain its cost cuts, which had
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`caused contractors to de-prioritize or refuse Zillow’s renovation jobs.11 See CAC ¶¶ 129–
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`150.
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`Finally, Plaintiff alleges that Defendants’ statements about consumer demand were
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`misleading because the higher volume of transactions did not result from consumer
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`demand for Zillow Offers, but rather from the significant price overlays added to Zillow’s
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`pricing models, which drove up the rate of home acquisitions. CAC ¶¶ 113–17. In
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`attempts to contradict the allegations of the CAC, which the Court must, in deciding the pending Rule
`12(b)(6) motion, accept as true. See CAC ¶¶ 101–04 (indicating that the overlays were human-driven
`decisions, whereas the pricing models were automated).
`11 Defendants suggest that these statements might have referred to other durable improvements, but they
`point to nothing else that could have been meant. See Defs.’ Mot. at 16–17 (docket no. 85). The Court
`will not divine reasons on Defendants’ behalf.
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`ORDER - 13
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`Case 2:21-cv-01551-TSZ Document 97 Filed 12/07/22 Page 14 of 23
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`support of this theory, Plaintiff cites to media reports, statements of former Zillow
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`employees (“FEs”), and Zillow’s home-buying statistics.12 Defendants counter as
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`follows: “No facts support Zillow was creating demand with high offers—i.e., inducing
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`sellers who were not otherwise interested in selling—rather than responding to existing
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`demand in a competitive market. Not even the FEs or news articles purport to make this
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`leap.” Defs.’ Mot. at 16 (docket no. 85). Plaintiff, however, is entitled to the reasonable
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`inferences to be drawn from the factual allegations of the CAC, and in light of those
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`favorable inferences, Plaintiff has plausibly pleaded that Zillow’s statements about
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`consumer demand were misleading.
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`b.
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`Defendants’ Disclosures
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`Defendants argue that, although they did not explicitly disclose Project Ketchup
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`and the pricing overlays, they gave the market enough information to determine that
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`Defendants used pricing overlays. In support of this contention, Defendants cite their
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`statement that they were “testing price elasticity in this hot housing market” as they
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`“improved [their] offer strength” and expected to be within their profit target in “the
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`second half of the year.” Zillow FQ2 2021 Earnings Call Transcript at 5, Ex. 3 to
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`Knowles Decl. (docket no. 86-3). Plaintiff, however, has pleaded enough factual material
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`12 Prior to Project Ketchup, Zillow struggled to meet its inventory targets. CAC ¶¶ 83–90. In the two
`quarters before Zillow applied overlays, its purchase volume averaged 1,823 homes per quarter. CAC
`¶¶ 115–16. In the three quarters after implementation of Project Ketchup, Zillow averaged 7,359
`purchases per quarter. Id.
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`ORDER - 14
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`Case 2:21-cv-01551-TSZ Document 97 Filed 12/07/22 Page 15 of 23
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`had a duty not to mislead the market to believe that Zillow was progressing automation
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`for pricing and inventory decisions—a trend that Defendants had repeatedly touted—
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`when, as the CAC alleges, Zillow had introduced overlays that reduced automation. CAC
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`¶¶ 101–04; see also Schueneman, 840 F.3d at 705–06. Plaintiff has alleged that analysts
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`drew from Defendants’ public statements the (incorrect) conclusion that Defendants had
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`sharpened their algorithms’ response to the market, i.e., had increased automation. The
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`perceptions of analysts are an acceptable measure of what reasonable investors would
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`have understood. See CAC ¶¶ 175–77; see also In re STEC Inc. Sec. Litig., 2011 WL
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`2669217, at *8 (C.D. Cal. June 17, 2011).
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`Defendants also argue that they disclosed to the market the truth about reduced
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`payments to contractors, Defs.’ Mot. at 16 (docket no. 85) (citing Zillow FQ1 2021
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`Earnings Call Transcript at 16, Ex. 2 to Knowles Decl. (docket no. 86-2)), and the risks
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`associated with Zillow’s reliance on “contractors, vendors, and service providers,” as to
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`whom Zillow could make no assurances of “uninterrupted, unlimited access,” see Form
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`10-K (FY 2020) at 15, Ex. 1 to Knowles Decl. (docket no. 86-1). Plaintiff, however, has
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`alleged more than reduced payments to Zillow’s contractors, and the disclosures cited by
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`Defendants do not mention that contractors were refusing, stopping, or delaying jobs as a
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`result of the reductions or that the lower renovation costs might not be sustainable or
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`were likely not durable.
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`c.
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`Puffery
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`Defendants contend that seven statements are mere puffery, but Plaintiff does not
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`challenge two of the statements listed by Defendants (CAC ¶¶ 181, 185), and one of the
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`ORDER - 15
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`Case 2:21-cv-01551-TSZ Document 97 Filed 12/07/22 Page 16 of 23
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`statements was not made by Defendants, but rather by Piper Sandler (CAC ¶ 193). Thus,
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`the Court addresses only whether the statements quoted in CAC ¶¶ 182, 183, 184, and
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`191 are actionable. “Puffing” involves expressions of opinion, as opposed to statements
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`of fact, and vague statements of optimism cannot be the foundation of a § 10(b) and
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`Rule 10b-5 claim. Ore. Pub. Emps. Ret. Fund, 774 F.3d at 606. Statements by a company
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`that are capable of objective verification do not, however, constitute “puffery,” and are
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`actionable. Id.
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`With regard to CAC ¶ 182, Defendants focus on the phrase “Zillow is back on
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`track,” while ignoring the rest of the verbiage, which recites the number of home
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`purchases during the first and second quarters of 2021, and draws a connection to “strong
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