Zillow’s Appeal of Investor Class Status Stumbles Before Court

Zillow Group Inc.‘s highly-watched attempt to overturn certification of a shareholder class suing the real estate business over a purported mismatch between corporate statements about its home-flipping business’ pricing model and market selloffs appeared to fizzle before an appellate panel Thursday.

“I’m not really sure why you think there’s a mismatch,” Judge Susan Graber of the US Court of Appeals for the Ninth Circuit said to Zillow’s attorney during oral arguments in Anchorage, Alaska. Judge Ryan D. Nelson at one point likened the allegations to the Theranos Inc. scandal, in which Elizabeth Holmes and her company lied to the market about its blood-testing capabilities and reports later revealed it to be a failure.

The lower court in granting class status wrongly relied on a looser standard required for loss causation than stock price impact, Zillow attorney Peter B. Morrison of Skadden, Arps, Slate, Meagher & Flom LLP told the court.

A 2021 Supreme Court ruling requires a closer fit between generic corporate statements and corrective disclosures that weigh on the stock price, he said. Announcements such as Zillow shuttering its home-flipping business that hurt share prices didn’t connect with allegations that misrepresentations about its pricing algorithm kept the stock afloat.

Revelations that Zillow struggled with pricing were already public, and share prices were stable then, Morrison said, adding that if the Ninth Circuit lets the district court’s order on class status stand, it’d would be creating a split with the Second Circuit.

That 2021 Supreme Court and subsequent Second Circuit decision dismantling a Goldman Sachs Group Inc. investor class said a defendant can rebut a presumption of classwide reliance on the stock by showing a “mismatch” between the subject of alleged misstatements and the corrective disclosure that lowers share prices. Goldman questions are among some of the drivers for shareholder class challenges in appellate courts nationwide.

Simpler Than Described

The US District Court for the Western District of Washington did follow Goldman in its analysis, said investors’ attorney Lucas Gilmore of Hagens Berman Sobol Shapiro LLP. Just as the Third Circuit found while upholding a class of Johnson & Johnson investors in July, there wasn’t a mismatch here, he said.

Nelson pressed Gilmore about whether any alleged fraud about manipulating its home-pricing model was revealed, with the investors’ attorney saying its typical in a securities fraud case that a company doesn’t admit they were wrong the same way they’d misrepresented something.

But Graber and Judge John B. Owens stepped in to say that it was simpler than Gilmore was describing: “They said it worked, and then they said it didn’t work. Isn’t that what the case is?” Owens said.

Graber asked what the panel should do if they agree certification is appropriate, and that they don’t see a mismatch, but would’ve gotten there a different way than the district court.

Post Goldman

A victory for Zillow would mandate a stronger link between alleged misrepresentations and a market selloff, attorneys have said, potentially warding off similar proposed stockholder class actions in a circuit where many of these investor cases are filed.

In certifying the Zillow class, the district court allowed the presumption that a shareholder collective relied on the its 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, Seattle US District Judge Thomas S. Zilly said then.

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

Investor Jeremy Jaeger countered that the company asserted a mismatch test that would result in class status being denied in almost any securities case.

Skadden and Perkins Coie LLP represent Zillow, co-founder and co-executive chairman Rich Barton, former chief financial officer Allen Parker, and CEO Jeremy Wacksman. Hagens Berman is class counsel and Kessler Topaz Meltzer & Check LLP is additional counsel for Jaeger. None of these law firms nor Zillow immediately responded to emails sent before the oral arguments seeking comments for when they concluded.

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