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In re Zillow Group, Inc. Securities Litigation

United States District Court, W.D. Washington, Seattle

April 19, 2019

In re Zillow Group, Inc. Securities Litigation

          ORDER

          JOHN C. COUGHENOUR UNITED STATES DISTRICT JUDGE.

         This matter comes before the Court on Defendants' motion to dismiss the second consolidated amended complaint (hereinafter “second amended complaint”) (Dkt. No. 50). Having thoroughly considered the parties' briefing and the relevant record, the Court finds oral argument unnecessary and hereby DENIES Defendants' motion for the reasons explained herein.

         I. BACKGROUND

         The Court has provided a detailed description of this case in a prior order, which it will refer to as relevant to this motion. (See Dkt. No. 46.) Plaintiffs filed this putative class action against Zillow Group, Inc., (“Zillow”) on behalf of purchasers of Zillow securities, [1] alleging violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (“Exchange Act”) and violation of the Securities and Exchange Commission Rule 10b-5.[2] (Id. at 1-2.) Plaintiffs also name as defendants Spencer Rascoff and Kathleen Phillips (collectively with Zillow, “Defendants”), who were Zillow's Chief Executive Officer and Chief Financial Officer/Chief Legal Officer respectively, during the relevant class period. (Id. at 2.)

         The thrust of Plaintiffs' claims is that Zillow's “co-marketing program” was designed to allow participating real estate agents to refer mortgage business to participating lenders in violation of Section 8(a) of the Real Estate Settlement Procedures Act (“RESPA”), 12 U.S.C. §§ 2601, 2607. (Id. at 8.) Plaintiffs assert that Defendants made a series of misleading statements regarding Zillow's legal compliance by failing to disclose the co-marketing program's alleged illegality, particularly after the Consumer Financial Protection Bureau (“CFPB”) launched an investigation into the program. (Id.) Plaintiffs allege that Defendants' misrepresentations about Zillow's legal compliance caused them to purchase the company's stock at artificially inflated prices. (Id. at 4.)

         Defendants moved to dismiss Plaintiffs' consolidated amended complaint (Dkt. No. 35) for failure to state a claim upon which relief can be granted. (Dkt. No. 36.) On October 2, 2018, the Court granted Defendants' motion, and dismissed Plaintiffs' Exchange Act claims without prejudice and with leave to amend. (Dkt. No. 46.) In its order, the Court wrote:

[I]f Plaintiffs choose to file a second amended complaint, they must assert particularized facts that demonstrate that Zillow designed the co-marketing program to violate RESPA, and that Zillow was instructing and encouraging third-parties to commit such violations. Plaintiffs must additionally allege with particularity that Defendants made material false or misleading statements regarding the co-marketing program's compliance with RESPA, that Defendants' statements evinced a strong inference of scienter, and that such statements caused the loss alleged by Plaintiffs.

(Id. at 32.) On November 16, 2018, Plaintiffs timely filed their second amended complaint. (Dkt. No. 47.) Plaintiffs again allege that the co-marketing program was designed to violate RESPA and Defendants made false statements regarding Zillow's legal compliance. (Id. at 3-5.) Plaintiffs also allege, for the first time, that Defendants violated the Consumer Financial Protection Act (“CFPA”), 12 U.S.C. § 5336, by providing “substantial assistance” to co-marketing participants who were violating RESPA. (Id. at 24-26.) Plaintiffs assert that these alleged CFPA violations provide a separate basis for the Court to conclude that Defendants made misleading statements. (Id. at 35-40.)

         On December 17, 2018, Defendants filed a motion to dismiss the second amended complaint for failure to state a claim upon which relief can be granted. (Dkt. No. 50.) Defendants assert that Plaintiffs have failed to correct the deficiencies identified by the Court in its prior order dismissing the amended complaint-specifically, that Plaintiffs have failed to allege “particularized facts demonstrating that Zillow designed its business to violate the law, encouraged third parties to violate the law, made false or misleading statements about the Company's compliance with the law, and caused the losses alleged.” (Id. at 6.)

         II. DISCUSSION

         A. Legal Standard for Motion to Dismiss Securities Fraud Claim

         To state a claim for securities fraud under Section 10(b) and Rule 10b-5, a plaintiff must allege: “(1) a material misrepresentation or omission by the defendant; (2) scienter; (3) a connection between the misrepresentation or omission and the purchase or sale of a security; (4) reliance upon the misrepresentation or omission; (5) economic loss; and (6) loss causation.” Police Ret. Sys. of St. Louis v. Intuitive Surgical, Inc., 759 F.3d 1051, 1057 (9th Cir. 2014) (quoting Halliburton Co. v. Erica P. John Fund, Inc., 134 S.Ct. 2398, 2407 (2014)).

         Normally, to survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to state a claim for relief that is plausible on its face. Ashcroft v. Iqbal, 556 U.S. 662, 677-78 (2009). Complaints alleging securities fraud claims under Section 10(b) and Rule 10b-5 must additionally satisfy the dual pleading requirements of Federal Rule of Civil Procedure 9(b) and the Private Securities Litigation Reform Act (“PSLRA”). WPP Luxembourg Gamma Three Sarl v. Spot Runner, Inc., 655 F.3d 1039, 1047 (9th Cir. 2011) (citing Zucco Partners, LLC v. Digimarc Corp., 552 F.3d 981, 990 (9th Cir. 2009)). Rule 9(b) requires that complaints alleging fraud or mistake must “state with particularity the circumstances constituting fraud or mistake.” Fed.R.Civ.P. 9(b). This standard requires that a complaint allege the “who, what, when, where, and how” of the fraud. Vess v. Ciba-Geigy Corp. USA, 317 F.3d 1097, 1106 (9th Cir. 2003).

         Pursuant to the PSLRA, a complaint alleging securities fraud must “specify each statement alleged to have been misleading, the reason or reasons why the statement is misleading, and if an allegation regarding the statement or omission is made on information and belief, the complaint shall state with particularity all facts on which the belief is formed.” 15 U.S.C. § 78u-4(b)(1). In addition, the complaint must “state with particularity facts giving rise to a strong inference that the defendant acted with the required state of mind.” 15 U.S.C. § 78u-4(b)(2). While the facts supporting a securities fraud claim must be stated with particularity, the Court must accept as true all well-pleaded allegations and draw all reasonable inferences from those allegations in the light most favorable to the plaintiff. See Khoja v. Orexigen Therapeutics, Inc., 899 F.3d 988, 1008 (9th Cir. 2018).

         B. Plaintiffs' Exchange Act Claims

         Before the Court can analyze the statements that Plaintiffs allege were materially misleading, it must first assess Plaintiffs' allegations regarding Zillow's RESPA and CFPA violations. If the second amended complaint lacks particularized facts regarding these alleged violations, then many of Defendants' statements could neither have been misleading nor made with the requisite scienter. See 15 U.S.C. § 78u-4(b)(1)-(2) (stating that plaintiffs must allege with specificity “the reason or reasons why the statement is misleading, ” and facts “giving rise to a strong inference that the defendant acted with the requisite state of mind.”); (see also Dkt. No. 46 at 8-16.)

         1. RESPA Allegations

         RESPA Section 8(a) prohibits giving or accepting “any fee, kickback, or thing of value pursuant to any agreement or understanding, oral or otherwise, that business incident to or a part of a real estate settlement service involving a federally related mortgage loan shall be referred to any person.” 12 U.S.C. § 2607(a). “Courts commonly find a violation of § 2607(a) when (1) a payment or thing of value was exchanged, (2) pursuant to an agreement to refer settlement business, and (3) there was an actual referral.” Edwards v. First Am. Corp., 798 F.3d 1172, 1178 (9th Cir. 2015). “An agreement or understanding for the referral of business incident to or part of a settlement service need not be written or verbalized but may be established by a practice, pattern or course of conduct.” 12 C.F.R. § 1024.14(e). A referral includes “any oral or written action directed to a person which has the effect of affirmatively influencing the selection by any person of a provider of a settlement service” such as a mortgage lender. 12 C.F.R. § 1024.14(f)(1).

         Notwithstanding the law's prohibition on paying for referrals, RESPA Section 8(c) contains a safe harbor provision that permits “[a] payment to any person of a bona fide salary or compensation or other payment for goods or facilities actually furnished or for services actually performed.” 12 U.S.C. § 2607(c); 12 C.F.R. § 1024.14(g)(iv). The Ninth Circuit has interpreted the safe harbor to apply (1) where “goods or facilities were actually furnished or services were actually performed for the compensation paid” and, (2) “the payments are reasonably related to the value of the goods or facilities that were actually furnished or services that were actually performed.” Geraci v. Homestreet Bank, 347 F.3d 749, 751 (9th Cir. 2003); see also PHH Corp. v. Consumer Fin. Prot. Bureau, 839 F.3d 1, 40 (D.C. Cir. 2016) (holding that RESPA's safe harbor prohibits “payments for referrals, ” but not “bona fide payments for services.”). For the safe harbor to apply, the payments in question “must be commensurate with the amount normally charged for similar services in similar transactions in similar markets.” Schuetz v. Banc One Mortg. Corp., 292 F.3d 1004, 1011 (9th Cir. 2002).

         The Court previously rejected both of Plaintiffs' theories that the co-marketing program violated RESPA Section 8(a). (Dkt. No. 46 at 10-16.) First, the Court ruled that Plaintiffs failed to allege particularized facts demonstrating that Defendants designed the co-marketing program to allow real estate agents to make illegal referrals to lenders in exchange for the lenders paying a portion of the agents' advertising costs to Zillow or that such referrals were occurring. (Id. at 10-12.) Second, the Court ruled that Plaintiffs failed to allege particularized facts demonstrating that the co-marketing program was designed to allow participating lenders to pay more than fair market value for the advertising services they received, such that the Court could reasonably infer that the program fell outside RESPA's safe harbor provision. (Id. at 12-14.) The second amended complaint includes new allegations regarding both theories of RESPA liability, which the Court examines in turn.

         a. Allegations Regarding Illegal Referrals

         Plaintiffs assert that the purpose of the co-marketing program was “to enable lenders to obtain referrals in exchange for payments to [Zillow].” (Dkt. No. 51 at 7.) The second amended complaint alleges that “Zillow designed the program with the understanding that agents would . . . use it to violate RESPA by making illegal referrals to lenders.” (Dkt. No. 47 at 4.) Plaintiffs further allege that “Zillow actively monitored and encouraged lenders and agents to violate RESPA, contacting agents to make sure they are making referrals.” (Id.) In support of these allegations, Plaintiffs offer statements from two anonymous witnesses (hereinafter “AW1” and “AW2”) both of whom worked for Zillow during the class period. (Id. at 16-18, 23-25.)

         AW1 was a regional sales manager who was responsible for overseeing a team of sales representatives tasked with upselling and cross-selling to existing co-marketing customers. (Id. at 16.) AW1 states that co-marketing lenders received fewer leads than their co-marketing agents but continued to participate in the program because “lenders expected real estate agents to refer business.” (Id. at 16-17.) She further stated that she did not believe “lenders recoup[ed] advertising costs through leads from the Zillow site but through the referral relationship forged with the real estate agent.” (Id. at 17.) AW1 also stated that she was personally aware of real estate agents providing their co-marketing lenders with access to their Zillow accounts so that the lender could obtain the agent's leads in cases where prospective homebuyers had opted out of giving their contact information to the lender. (Id.)

         AW2 was a sales and operations trainer, who began working for Zillow after it merged with Trulia. (Id.) AW2 was responsible for training employees on the co-marketing program, “including how to talk to real estate agents about the program and the ‘operations behind it.'” (Id.) AW2 stated that “[e]very agent and lender knew that the Co-Marketing program was for the lender to get leads and referrals, ” and that “everyone knew that the lenders paid the agents for leads and referrals.” (Id.) Although AW2 stated that she trained Zillow's sales representatives to present the co-marketing program as an opportunity for agents and lenders to get more exposure to potential customers, she reiterated that “it was understood that lenders were paying for referrals.” (Id. at 17-18.)

         In support of her statements that co-marketing lenders were participating in the program to receive referrals, AW2 states that Zillow trained its sales representatives to “track the number of referrals lenders received from the Co-Marketing program.” (Id. at 18.) She further explained that each quarter, sales representatives contacted every real estate agent customer to conduct a business assessment, at which time they would ask the agents “how much they did in lender referrals.” (Id.) AW2 describes one instance where a co-marketing agent wanted to cancel its advertising account “because the lender [didn't] want to pay anymore.” (Id.) According to AW2, that lender had been paying “100% of the co-marketing costs for approximately 2 ½ years.” (Id.) Whenever AW2 spoke to Zillow about potential concerns with the co-marketing program, she was “reminded not to ask questions.” (Id.)

         A securities fraud complaint “relying on statements from confidential witnesses must pass two hurdles to satisfy the PSLRA pleading requirements.” Zucco Partners, 552 F.3d at 995. First, the confidential witness must be described “with sufficient particularity to support the probability that a person in the position occupied by the source would possess the information alleged.” In re Daou Sys., Inc., 411 F.3d 1006, 1015 (9th Cir. 2005). Second, the complaint must include “adequate corroborating details” of the confidential witness' statements. Id.

         The second amended complaint contains sufficient facts regarding AW1 and AW2 to credit their statements. Both held positions at Zillow that provided them with working knowledge of the co-marketing program. (Dkt. No. 47 at 16-17.) As a sales manager, AW1 had direct contact with co-marketing agents and lenders, putting her in a position to understand how Zillow's customers used the program. (Id. at 16.) As a sales and operations trainer, AW2 had personal knowledge of how Zillow implemented the co-marketing program as well as how the company trained its employees about presenting the program to agents and lenders. (Id. at 17.) AW2 also dealt directly with agents when she handled “escalated” calls and was therefore familiar with how Zillow communicated with its customers about the program. (Id. at 18.)

         The second amended complaint also contains adequate corroborating details of the anonymous witnesses' statements. Both anonymous witnesses describe how Zillow made changes to the co-marketing program in the beginning of 2017 during the CFPB's investigation. (Id. at 17, 23, 27.) Their statements are corroborated by Zillow's disclosure of the investigation in May 2017, and subsequent disclosure in August 2017 that the CFPB had invited Zillow to discuss a possible settlement regarding alleged RESPA violations and intended to pursue further action if a settlement was not reached. (Id. at 43-44.) The Court has previously ruled that the “consistent and interlocking nature” of anonymous witness testimony “bolsters the evidence's reliability and credibility.” S. Ferry LP No. 2 v. Killinger, 399 F.Supp.2d 1121, 1140 (W.D. Wash. 2005). Here, AW1 and AW2 offer consistent and interlocking testimony about how Zillow altered the co-marketing program during the CFPB's investigation. (Dkt. No. 47 at 17, 23, 27.) The anonymous witnesses also offer consistent testimony regarding how agents and lenders used the co-marketing program to provide mortgage referrals in exchange for advertising payments. (Id. at 16-18.)

         The anonymous witnesses' statements regarding referrals are further corroborated by Plaintiffs' allegation that in a 2017 consent judgment with the CFPB, a mortgage originator admitted to using a co-marketing arrangement on a “third-party” website to pay real estate agents for referrals. (Id. at 19.) While the consent judgment did not identify the third-party, Plaintiffs have alleged particularized facts that, accepted as true, allow the Court to reasonably infer that it was Zillow. (Id.) (“The website as described in the consent judgment mirrors Zillow's premier agent product and no other website that operated during the relevant time frame.”); (see also Dkt. No. 52 at 1) (declaration of Plaintiffs' attorney stating basis for allegations regarding consent judgment).[3]

         The anonymous witnesses' statements are further corroborated by the co-marketing program's design. The second amended complaint alleges that Zillow provided agents with a list of every user who generated a lead even when they declined to have their contact information sent to the co-marketing lender. (Dkt. No. 47 at 10.) This feature could allow agents to connect the customer with their partnering lender-either by providing the lender with a lead it would not have otherwise received or by referring the customer directly to the lender. Viewed in the light most favorable to Plaintiffs, that feature of the co-marketing program tends to corroborate AW1 and AW2's testimony that agents and lenders were engaging in a pay-for-referral arrangement.[4]

         Based on the anonymous witnesses' statements, as well as the other allegations in the second amended complaint, the Court can draw a reasonable inference that Zillow designed the co-marketing program to allow agents to provide referrals to lenders in violation of RESPA, and that such referrals were occurring. The second amended complaint contains particularized facts alleging that there was an understanding between Zillow and the co-marketing participants, that in exchange for lenders paying a portion of agents' advertising costs, lenders would receive mortgage referrals from their partnering agents. That arrangement-although not ostensibly based on an oral or written agreement-is evinced by participating agents allegedly providing, and Zillow allegedly tracking, referrals to participating lenders. (Id. at 17-18.) Those allegations are sufficient to support an “agreement or understanding for the referral of business” based on a “pattern or course of conduct” in violation of RESPA. See Edwards, 798 F.3d at 1178; 12 C.F.R. § 1024.14(e). Further, the second amended complaint plausibly alleges that RESPA violations were occurring, based on the anonymous witnesses' testimony regarding how participants were using the co-marketing program and the structure of the program itself.

         Defendants' arguments to the contrary are unavailing. Defendants assert that the Court should disregard the anonymous witnesses' statements because they are either contradicted by other information in the second amended complaint or not specific enough to demonstrate that the co-marketing program violated RESPA. (Dkt. No. 50 at 12-13.) Defendants point out that AW1's description of how lenders received leads through the co-marketing program is not consistent with how the process is described elsewhere in the second amended complaint. (Dkt. No. 47 at 10, 16.) However, AW1's description of how lenders received leads does not undermine the fact that lenders received significantly less leads than their co-marketing agents- a fact that Defendants do not dispute, and which supports both anonymous witnesses' testimony that lenders participated in the co-marketing program because they valued both leads and referrals. (Id. at 15, 17-18.)

         Defendants assert that AW2 “muddles key concepts” and conflates “leads” with “referrals.” (Dkt. No. 50 at 13.) That is not an accurate characterization of AW2's statements. AW2, and the second amended complaint, draw a plain distinction between leads-Zillow's provision of a prospective homebuyer's contact information to an agent, lender, or both-with referrals-an agent's affirmative recommendation of a co-marketing lender to a prospective homebuyer or an agent's provision of a lead that a lender would not otherwise receive. (Dkt. No. 47 at 10-18.) AW2 distinguishes the two concepts when stating that lenders used the co-marketing program to get “leads and referrals, ” and that “lenders paid the agents for leads and referrals.” (Id. at 17.)

         Indeed, in support of her statement that “every agent and every lender knew that the Co-Marketing program was for the lender to get leads and referrals, ” AW2 states that Zillow representatives were trained to track the number of referrals lenders received from the co-marketing program and inquire as to “how much [agents] did in lender referrals.” (Id. at 18.) In response to those allegations, Defendants merely argue that it “is far from clear what AW2 may have meant by ‘did in lender referrals.'” (Dkt. No. 53 at 7.) What is clear, however, is the legal standard that the Court must apply at the motion to dismiss stage-that all well-pleaded allegations be accepted as true and viewed in the light most favorable to Plaintiffs. See Khoja, 899 F.3d at 1008. The Court cannot ignore AW2's allegations regarding Zillow's practice of tracking referrals or view them in a way that is unfavorable to Plaintiffs' RESPA theory.

         Finally, Defendants assert that Plaintiffs have failed to allege a specific instance of a co-marketing agent referring mortgage business to its partnering lender. (Dkt. No. 50 at 12.) In its prior order, the Court noted that Plaintiffs had failed to allege that a specific co-market agent had provided a referral to a specific lender in exchange for the lender paying the agent's advertising costs to Zillow. (Dkt. No. 46 at 13.) The second amended complaint addresses that deficiency in at least two ways. First, Plaintiffs have alleged that a specific mortgage originator admitted to making mortgage referrals to lenders while using what the Court can reasonably infer was Zillow's co-marketing program. See supra Part II.B.1.a. Second, even if Plaintiffs did not offer a specific example of a co-marketing agent making illegal referrals, they offer other particularized facts that allow the Court to infer that such referrals were occurring. Such an inference is supported by the anonymous witnesses' testimony regarding why agents and lenders participated in the co-marketing program and Zillow's tracking of referrals, as well as the structure of the program. Id.

         b. Allegations Regarding Fair Market Value of Co-Marketing Services

         The second amended complaint again alleges that the co-marketing program was not protected by RESPA's safe harbor “because it permitted lenders to pay a greater share of the marketing budget than is justified by the number of leads provided by the program.” (Dkt. No. 47 at 19.) Plaintiffs explain that while Zillow's official policy allowed individual lenders to pay up to 50% of an agent's advertising spend, lenders only received approximately 40% of the agent's leads.[5] (Id.) And in cases where multiple lenders were working with a single agent, lenders would receive much fewer leads.[6] (Id.) Because Zillow charges agents each time a user views a listing, and not when a customer generates a lead, Plaintiffs assert that lenders were paying more than fair market value for co-marketing advertising-a premium that Plaintiffs allege is attributable to the referrals lenders were receiving from agents. (Id.; Dkt. No. 51 at 16.)

         The second amended complaint contains several new factual allegations that describe how the co-marketing program's pricing “was drastically more expensive for lenders than comparable product offerings by Zillow.” (Id. at 20.) Plaintiffs allege that Zillow offered a program that sold leads directly to mortgage lenders without the co-marketing feature. (Id.) According to the second amended complaint, lenders who advertised with Zillow could purchase customer leads for approximately $2.38 per lead. (Id.) By contrast, lenders who paid 50% of an agent's advertising costs through the co-marketing program were paying approximately $37.50 for the leads they received.[7] (Id.) Plaintiffs argue that this price difference is especially anomalous because the leads Zillow sells directly to lenders are generated from prospective homebuyers who are actively searching for a mortgage lender, whereas the leads generated from the co-marketing program are more likely from homebuyers who are contacting a real estate agent about a listing and simply failed to un-check the box that forwards their contact information to the lender. (Id. at 20-21; Dkt. No. 51 at 16.)

         Plaintiffs additionally allege that the price of co-marketing advertising did not bear a rational relationship to its actual market value because the price was based on different criteria than other advertising Zillow sold directly to lenders. (Dkt. No. 47 at 16.) For example, the price of co-marketing advertising was based on the demand in a given zip code, whereas the direct-to-lender advertising was priced according to a prospective homebuyers' “credit rating, loan amount, and loan type.” (Id.) Plaintiffs assert that these variations in pricing further demonstrate that co-marketing advertising fell outside RESPA's safe harbor, which requires that payments for mortgage-related services “must be commensurate with the amount normally charged for similar services in similar transactions in similar markets.” See Schuetz, 292 F.3d at 1011.

         The second amended complaint also describes how, in practice, the co-marketing program allowed lenders to evade the 50% cap that Zillow officially placed on advertising payments. (Id.) AW2 stated that, notwithstanding the 50% cap, it “was possible for a lender to make a payment of up to 90% of co-marketing costs through the Zillow website.” (Id. at 23.) As previously mentioned, AW2 was personally aware of one co-marketing lender who paid “100% of the co-marketing costs for approximately 2 ½ years.” (Id. at 18.) Although AW2 would train Zillow sales representatives about the 50% cap, sales representatives would still “tell agents that the lender could pay up to 90%.” (Id.) When AW2 reported to her superiors that practice might violate RESPA, she was told that the company had “bigger issues to deal with.” (Id.)

         The second amended complaint corroborates AW2's statements about co-marketing overpayments with allegations from a 2015 wrongful termination lawsuit filed against Zillow, in which two former employees were allegedly fired after reporting similar violations to Zillow's upper management. (Id. at 22) (citing Boehler v. Zillow, Inc., Case No. 14-CV-01844-DOC, 2015 WL 12743688 (C.D. Cal. 2015)). In Boehler, the plaintiffs reported several instances in which co-marketing lenders provided Zillow with a single credit card to bill both the lenders' and agents' portion of advertising costs. (Dkt. No. 47 at 22.) The plaintiffs believed that such a practice violated RESPA by allowing individual lenders to evade the 50% cap on payments of an agent's advertising costs. (Id.) The plaintiffs were fired for allegedly identifying these and other suspected violations to various Zillow executives, including Rascoff.[8] (Id. at 22-23.) The allegations in Boehler corroborate AW2's description of how, in practice, lenders could use the co-marketing program to pay more than 50% of an agent's advertising costs.

         Based on the above allegations, the Court can draw a reasonable inference that Zillow designed the co-marketing program to allow lenders to pay more than fair market value for the advertising they received and therefore fell outside RESPA's safe harbor provision. The second amended complaint contains particularized facts demonstrating that Zillow allowed lenders to pay more for co-marketing advertising than for similar advertising products Zillow sold to lenders. Further, Plaintiffs have alleged that lenders were not only paying more than 50% of an agent's advertising costs, but that Zillow, through its design of the program and inaction in enforcing the spending cap, was allowing the practice to occur. The Court can reasonably infer that lenders were paying more for co-marketing advertising than was “commensurate with the amount normally charged for similar services in similar transactions in similar markets.” See Schuetz, 292 F.3d at 1001. Such an inference is especially warranted when considering that the second amended complaint has plausibly alleged that lenders and agents were using the co-marketing program to make referrals in violation of RESPA Section 8(a). See supra Part II.B.1.a.

         Defendants have not persuaded the Court otherwise. Defendants challenge Plaintiffs' method for calculating the price or value that lenders place on leads. (Dkt. No. 50 at 14.) As an initial matter, Defendants argue that Plaintiffs incorrectly assume that lenders only valued leads, without taking into consideration other benefits offered by co-marketing advertising such as lenders appearing next to agents on their listing. (Id.) In its prior order, the Court acknowledged that ...


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