Zillow Appeal Threatens to Curb Stock Drop Suits in Key Courts

Zillow Group Inc.‘s appeal of an investor suit is jeopardizing other class actions over large stock selloffs.

The US Court of Appeals for the Ninth Circuit is expected to hear oral arguments about decertifying a stockholder class Thursday in a suit alleging the website misrepresented its house-flipping business prospects. A victory for Zillow could ward off similar proposed shareholder class actions, attorneys say, because it would mandate a stronger link between the alleged misstatement and the eventual market selloff.

“If the Ninth Circuit decertifies and holds that there needs to be a much closer connection between the corrective disclosure and the alleged misrepresentation, defendants in securities class actions—particularly in the Ninth Circuit—will have a much stronger argument to defeat class certification,” said Jesse Bernstein, co-chair of Quinn Emanuel Urquhart & Sullivan LLP’s securities litigation practice

There are many cases where corrective disclosures are far more specific than the alleged misrepresentations, he said, making the claims difficult to prove under higher scrutiny.

Cases that are harder to certify as securities class actions are harder to bring in the first place, said Ann Lipton, a professor at the University of Colorado Law School. “And we have a lot more fraud, quite frankly, that goes unredressed.”

Goldman Landscape

The Ninth and Second circuits, home to a lot of large public companies, are the most popular arenas for securities class actions.

A 2021 Supreme Court and subsequent Second Circuit decision that dismantled a Goldman Sachs Group Inc. investor class found a defendant can rebut a presumption of classwide reliance by showing a mismatch between alleged misstatements and the corrective disclosure that lowers share prices.

The Third Circuit in July upheld a class of Johnson & Johnson investors, finding that unlike in Goldman, there wasn’t a “mismatch between the subject of the alleged misrepresentation and the content of the disclosures” in their suit over safety representations of talc products.

“With damages in these cases reaching record levels driven by the strong valuations in the US market, class certification has become more important than ever,” said Eric Belfi, chairman of Labaton Keller Sucharow LLP. “It is an opportunity for defendants to either challenge the size of the class—we have certainly seen more cases where courts don’t just grant or deny certification outright, but instead narrow the class period or break up the class.”

Courts may have a real mix of rulings in part because the Supreme Court’s Goldman standard doesn’t answer whether an alleged false statement impacted stock prices, regardless of what sunk them, Lipton said. “The nexus between the lie and the disclosure at the end has nothing to do with that question, which means courts are just sort of ‘gut feeling it.’”

Zillow’s Appeal

In certifying a Zillow class, the US District Court for the Western District of Washington said the lead investor was entitled to a presumption that a collective of shareholders relied on the company’s stock price under a 1988 Supreme Court decision. Basic Inc. v. Levinson lets courts presume stocks trading in an efficient market take in all public information, including pertinent misrepresentations, and that investors rely on the price’s integrity. Zillow failed to demonstrate alleged misrepresentations and later corrective disclosures didn’t impact its stock price, Judge Thomas S. Zilly said.

Zillow told the Ninth Circuit it sufficiently demonstrated a wide-enough gap per Goldman, but the lower court didn’t consider its evidence.

But Zillow asserted a mismatch test that would result in class status being denied in almost any securities case, said investor Jeremy Jaeger.

If the Ninth Circuit sides with Jaeger, not much will change, said Neal Potischman, co-head of Davis Polk & Wardwell LLP’s Northern California office.

“While the Supreme Court and Second Circuit cracked the door for defendants in their Goldman decisions, district courts in the Ninth Circuit have seemed reluctant to let it swing wide open,” he said.

Skadden, Arps, Slate, Meagher & Flom LLP and Perkins Coie LLP represent Zillow, co-founder and co-executive chairman Richard Barton, former chief financial officer Allen Parker, and CEO Jeremy Wacksman. Skadden declined to comment and Perkins Coie didn’t respond to an email seeking comment.

Hagens Berman Sobol Shapiro LLP, which declined to comment, is class counsel and Kessler Topaz Meltzer & Check LLP is additional counsel for Jaeger.

The case is Jaeger v. Zillow Grp., Inc., 9th Cir., No. 24-6605, oral arguments 8/14/25.