1 2 3
4 UNITED STATES DISTRICT COURT 5 WESTERN DISTRICT OF WASHINGTON AT SEATTLE 6 7 REX - REAL ESTATE EXCHANGE INC., 8 Plaintiff, 9 v. C21-312 TSZ 10 ZILLOW INC.; ZILLOW GROUP 11 INC.; ZILLOW HOMES INC.; ORDER ZILLOW LISTING SERVICES INC.; 12 TRULIA LLC; and THE NATIONAL ASSOCIATION OF REALTORS, 13 Defendants. 14 THIS MATTER comes before the Court on the motion to dismiss filed by 15 Defendants Zillow Inc., Zillow Group Inc., Zillow Homes Inc., Zillow Listing Services 16 Inc., and Trulia LLC (“Zillow”), docket no. 83, and the motion to dismiss filed by the 17 National Association of REALTORS® (“NAR”), docket no. 84. Having reviewed all 18 papers filed in support of, and in opposition to, the motions, the Court enters the 19 following Order. 20 Background 21 NAR is the nation’s largest trade association for real estate professionals, 22 consisting of multiple listings services (“MLSs”), more than a thousand local 1 associations, and around 1.45 million real estate agents. Compl. at ¶ 24 (docket no. 1). NAR promulgates rules governing how its members operate their businesses, which have 2 allegedly become ubiquitous within the marketplace. Id. at ¶ 29. For example, NAR has 3 adopted an optional rule, known as the Segregation Rule,1 which requires members’ 4 listings that are obtained through MLSs’ internet data exchange (“IDX”) feeds to be 5 “displayed separately from listings obtained from other sources.” Id. at ¶¶ 83 & 85. 6 NAR has also adopted a mandatory rule, known as the Buyer Agent Commission Rule, 7 which requires a seller’s agent to include in any MLS listing a predetermined offer of 8 commission to a buyer’s agent, thereby prohibiting any party from later modifying that 9 commission. Id. at ¶¶ 31 & 33. NAR’s members allegedly encourage their customers to 10 offer high commissions for buyers’ agents, resulting in historically high, static 11 commissions throughout the United States, with total commissions averaging about 5.5 12 percent of a home’s sale price. See id. at ¶¶ 34 & 42. 13 Established in 2015, Plaintiff REX – Real Estate Exchange Inc. is a licensed 14 broker that employs licensed real estate agents across the nation, including in 15 Washington. Compl. at ¶¶ 40, 44, & 47. Plaintiff is not a member of NAR or any MLS 16 and thus has not agreed to comply with any of NAR’s rules. Id. at ¶ 35. Home sellers 17 who choose Plaintiff’s services are able to avoid paying a predetermined buyer agent 18 commission and can instead negotiate that fee—as a result, Plaintiff’s clients pay a total 19 average commission of 3.3 percent of a home’s sale price. Id. at ¶ 42. 20 21 22 1 The complaint refers to the “segregation rule” or “IDX segregation rule,” e.g., Compl. at ¶¶ 85 & 93, but 1 Plaintiff has developed proprietary digital technology to market its customers’ homes, allegedly saving customers more than $29 million in commissions over the past 2 five years. Compl. at ¶¶ 40–43. Plaintiff lists its customers’ homes on various real estate 3 aggregator websites, including two of Zillow’s websites, Zillow.com and Trulia.com, 4 which are the first and fourth most visited real estate aggregator sites in the United States. 5 Id. at ¶ 54. Zillow’s websites are alleged to be a “dominant doorway into the residential 6 real estate market.” Id. Plaintiff’s listings were historically displayed on Zillow’s 7 primary search page alongside the listings of MLS participants. Id. at ¶ 63. 8 In 2018, Zillow launched its “Zillow Offers” business, allowing Zillow to 9 “transact[] thousands of homes annually” as an “ibuyer” of homes. Compl. at ¶ 58. 10 Based on Plaintiff’s information and belief, “the growth and substantial inventory of 11 Zillow-owned homes placed Zillow in a new position: Instead of focusing on being an 12 open access point for consumers to display and access residential real estate listings, 13 Zillow’s interests turned to its own substantial home inventory.” Id. In late 2020, Zillow 14 announced that it would join forces with NAR and several MLSs, publicly committing 15 that “all Zillow-owned homes will be listed on the MLSs with commissions paid to 16 agents representing buyers.” Id. at ¶ 59. Plaintiff alleges that NAR’s Buyer Agent 17 Commission Rule, which is “now adopted by Zillow, is the paramount reason that real 18 estate commissions are two to three times higher in the United States than in comparable 19 international markets.” Id. Zillow also announced that it would begin to use MLS data 20 feeds to populate its websites. Id. at ¶ 60. 21 In January 2021, Zillow unveiled its newly designed website display to be 22 “rules.” Compl. at J] 64 & 70-71. The new display created a separate page or tab,
called “Other listings,” that is concealed behind the primary results page or tab, called
3 “Agent listings,” as depicted below:
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12 is et cd secst0 $1,490,000 13 || /d. at §] 64. Asa result of this new display, consumers see only a portion of the homes at 14 | one time, based on whether they are viewing the primary “Agents listings” tab or the 15 || secondary “Other listings” tab; and they must now move back and forth between these 16 | two tabs. Jd. at | 66. Although Plaintiff's customers’ homes are all listed by licensed 17 || real estate agents, its listings are now being displayed in the “Other listings” category to 18 | comply with NAR and MLS rules, rather than in the “Agent listings” category. Jd. at 19 | 67-68 & 71. Zillow allegedly knows that Plaintiff is a licensed broker with licensed 20 | agents, as Plaintiff pays Zillow to be a part of Zillow’s Premier Agent Program. /d. at 21469. Plaintiff alleges that this new display and labeling system “is not only inaccurate 22 || and nonsensical, it is misleading and deceptive,” as it “degrades non-MLS listings” by 23 || placing them on the “Other listings” tab. /d. at §] 67 & 71.
After Zillow redesigned its websites, views of Plaintiffs listings “plummeted” on
Zillow’s websites, causing “a corresponding drop in sales and . . . lost brokerage service
3 || fevenues to” Plaintiff. Compl. at 4] 73-74 & 88. For example, views of one of
4 Plaintiff's listings on Zillow.com dropped dramatically after January 2021, when Zillow
5 added the “Other listings” tab to the website, as depicted below:
6 Latest Activity
7 Your listing traffic (last 30 days) omen 8 Views on your listing 9 This Week —_ Last 30 Days
10 300
14 i = Tn iy 7 5 10 15 *finzei f° 16 7 Id. at 74. Zillow’s and NAR’s actions are also allegedly harming other non-MLS
agents, see id. at ] 71, as well as the sellers of the homes that are listed on Zillow’s
19 “Other listings” tab, “causing them to list the home for more days on market and accept
lower sales prices.” /d. at 73.
In March 2021, Plaintiff brought this action against Zillow and NAR, asserting
9 four claims: (1) an unreasonable restraint of trade in violation of Section 1 of the
33 Sherman Act, 15 U.S.C. § 1; (2) false advertising in violation of the Lanham Act, 15
1 U.S.C. § 1125; (3) an unfair or deceptive act or practice in violation of the Washington Consumer Protection Act (“CPA”), RCW 19.86.020; and (4) conspiracy to restrain trade 2 in violation of the CPA, RCW 19.86.030. Compl. at ¶¶ 114–64. Plaintiff simultaneously 3 filed a motion for a preliminary injunction, docket no. 5, seeking to enjoin Defendants 4 from implementing any rule requiring the segregation of Plaintiff’s listings from MLS 5 listings, excluding Plaintiff’s listings from the “Agent listings” tab, and categorizing 6 Plaintiff’s listings as “Other listings” on Zillow’s websites. The Court denied that 7 motion, concluding that Plaintiff failed to satisfy its burden to show a likelihood of 8 prevailing on its federal and state law claims, or a likelihood of suffering irreparable 9 harm in the absence of an injunction. Order (docket no. 80 at 23). 10 Defendants now move to dismiss the claims asserted against them, see docket nos. 11 83 & 84. NAR also requests that the Court take judicial notice of certain documents, 12 docket no. 85. Plaintiff partially opposes the request, docket no. 91, with respect to two 13 of the documents, a complaint filed in a civil case, see Ex. C to request (docket no. 85-3), 14 and the final judgment entered in that case, including a 2008 consent decree between 15 NAR and the United States, see Ex. D to request (docket no. 85-4). The United States 16 also filed a statement of interest, docket no. 95, asking this Court to decline to draw any 17 inference in NAR’s favor from the 2008 consent decree, which is now expired. See id. at 18 2. The Court previously noted the existence of that consent decree in ruling on the 19 motion for a preliminary injunction, see docket no. 80 at 13. Because no one disputes the 20 authenticity of these court records, the Court GRANTS NAR’s request to take judicial 21 notice of them (docket nos. 85-3 & 85-4), as well as the unopposed documents (docket 22 1 Discussion 1. Article III Standing 2 NAR argues that Plaintiff fails to plausibly allege that its injury is traceable to 3 NAR or that such injury is redressable. “[L]ack of Article III standing requires dismissal 4 for lack of subject matter jurisdiction under Federal Rule of Civil Procedure 12(b)(1).” 5 Maya v. Centrex Corp., 658 F.3d 1060, 1067 (9th Cir. 2011). “[T]hose who seek to 6 invoke the jurisdiction of the federal courts must satisfy the threshold requirement 7 imposed by Article III of the Constitution by alleging an actual case or controversy.” Id. 8 (quoting City of Los Angeles v. Lyons, 461 U.S. 95, 101 (1983)). “[T]o satisfy Article 9 III’s standing requirements, a plaintiff must show (1) it has suffered an ‘injury in 10 fact’ . . . ; (2) the injury is fairly traceable to the challenged action of the defendant; and 11 (3) it is likely, as opposed to merely speculative, that the injury will be redressed by a 12 favorable decision.” Id. (quoting Friends of the Earth, Inc. v. Laidlaw Env’t Servs., Inc., 13 528 U.S. 167, 180–81 (2000)). “For purposes of ruling on a motion to dismiss for want 14 of standing, . . . courts must accept as true all material allegations of the complaint and 15 must construe the complaint in favor of the complaining party.” Id. (quoting Warth v. 16 Seldin, 422 U.S. 490, 501 (1975)). On a motion to dismiss, courts “presum[e] that 17 general allegations embrace those specific facts that are necessary to support the claim.” 18 Id. (citation omitted). 19 The Court first considers whether Plaintiff’s allegations are sufficient to show that 20 its alleged injuries are traceable to NAR. In arguing that Plaintiff has failed to plead 21 causation, NAR points to the complaint’s allegations that the Segregation Rule applies 22 1 has not been adopted by all MLSs, and it was implemented by Zillow alone. See NAR Mot. (docket no. 84 at 9–11). NAR also relies on allegations purportedly showing that 2 Zillow’s selection of a new website design was done independently of NAR. See id. at 3 10. According to NAR, such allegations are “breaks in the chain of causation,” 4 demonstrating that “the specific website changes made by Zillow that allegedly harmed 5 REX were the product of Zillow’s independent actions,” and not NAR’s actions. Id. 6 NAR’s argument fails for the simple reason that it ignores the other allegations 7 that NAR is a direct participant in the challenged conduct. The complaint challenges not 8 only the Segregation Rule but also the Buyer Agent Commission Rule, both of which 9 were “written by NAR and enforced by its member MLSs”; moreover, the Buyer Agent 10 Commission Rule allegedly “mandate[s] offers of commissions to buyer agents.” See 11 Compl. at ¶¶ 7 & 59. The complaint also alleges that NAR “coopt[ed] Zillow” and that 12 Zillow’s “[t]op sites . . . now all have restrictions based on NAR and MLS guidelines.” 13 Id. at ¶¶ 61 & 71. In addition, one Zillow representative allegedly stated that they 14 changed the websites as “a result of [Zillow] joining the MLS” and “to comply with MLS 15 rules.” Id. at ¶ 88. The complaint plausibly alleges that, absent NAR’s actions in 16 drafting the rules and effectively forcing Zillow and other MLS participants to comply 17 with them, Zillow would not have changed its websites. Plaintiff’s alleged injuries are 18 thus fairly traceable to NAR’s actions. 19 As to whether Plaintiff’s alleged injuries are redressable, Plaintiff seeks not just 20 injunctive relief, it also seeks statutory damages under 15 U.S.C. §§ 15 and 15/1117" style="color:var(--green);border-bottom:1px solid var(--green-border)">1117, other 21 “damages and statutory damages to be proven at trial,” and “attorneys’ fees and costs.” 22 1 2. Rule 12(b)(6) Standard Although a complaint challenged by a Rule 12(b)(6) motion to dismiss need not 2 provide detailed factual allegations, it must offer “more than labels and conclusions” and 3 contain more than a “formulaic recitation of the elements of a cause of action.” Bell Atl. 4 Corp. v. Twombly, 550 U.S. 544, 555 (2007). In ruling on a motion to dismiss, the Court 5 must assume the truth of the plaintiff’s allegations and draw all reasonable inferences in 6 the plaintiff’s favor. See Usher v. City of Los Angeles, 828 F.2d 556, 561 (9th Cir. 1987). 7 The question for the Court is whether the facts in the complaint sufficiently state a 8 “plausible” ground for relief. Twombly, 550 U.S. at 570. If the Court dismisses the 9 complaint or portions thereof, it must consider whether to grant leave to amend. See 10 Lopez v. Smith, 203 F.3d 1122, 1130 (9th Cir. 2000). 11 3. Antitrust Violations 12 Defendants argue that Plaintiff’s complaint fails to state an antitrust claim, both 13 under Section 1 of the Sherman Act and under Washington law,2 regardless of whether 14 the Court applies the per se analysis or the “rule of reason” analysis. Plaintiff responds 15 that “[t]he Court is not required to decide which rule applies in [ruling on] a motion to 16 dismiss.” Resp. (docket no. 90 at 14). The Court has already ruled that Plaintiff’s 17 challenge to a less-than-obvious restraint,3 as well as the complicated nature of the 18 19 2 The parties do not separately brief Plaintiff’s state law claim for conspiracy to restrain trade under the 20 CPA, RCW 19.86.030, and Zillow argues that this claim should be dismissed on the same basis that the Section 1 claim should be dismissed. See Zillow Mot. (docket no. 83 at 20–21). The Court recognizes 21 that the state and federal standards are essentially the same and thus analyzes both claims under the federal standards. See State v. LG Elecs., Inc., 186 Wn.2d 169, 186 n.3, 375 P.3d 1035 (2016) (concurring, McCloud, J.). 22 3 Although the complaint alleges a “group boycott,” it is clear from the face of the complaint that 1 parties’ business relationships, do not lend themselves to per se analysis. See Order (docket no. 80 at 13). The Court therefore analyzes the complaint under the rule of 2 reason to determine whether Plaintiff has sufficiently pleaded antitrust claims. 3 To state a Section 1 claim under the rule of reason, Plaintiff “must plead facts 4 which, if true, will prove: (1) a contract, combination or conspiracy among [Defendants]; 5 (2) by which the [Defendants] intended to harm or restrain trade or commerce among 6 several States . . . ; (3) which actually injures competition”; and “(4) [Plaintiff is] the 7 proper part[y] to bring the antitrust action because [it was] harmed by [Defendants’] 8 contract, combination, or conspiracy, and the harm [it] suffered was caused by the anti- 9 competitive aspect of [Defendants’] conduct.”4 In Re Nat’l Football League’s Sunday 10 Ticket Antitrust Litig., 933 F.3d 1136, 1150 (9th Cir. 2019) (quoting Brantly v. NBC 11 Universal, Inc., 675 F.3d 1192, 1197 (9th Cir. 2012)). 12 A. Anticompetitive Agreement 13 Defendants contend that Plaintiff has failed to plead the first two elements of a 14 Section 1 violation, namely that they entered an anticompetitive agreement or conspiracy. 15 According to Zillow, the complaint fails to allege a “conscious commitment to a common 16 17 18 Zillow’s websites. Compl. at ¶¶ 101, 109, 118 & 122. See Boycott, BLACK’S LAW DICTIONARY (11th ed. 2019) (defining “group boycott” as “[a] type of secondary boycott by two or more competitors who refuse 19 to do business with one firm unless it refrains from doing business with an actual or potential competitor of the boycotters,” and noting that such claims are “analyzed under either the per se rule or the rule of reason, depending on the nature of the boycott”). 20 4 Neither Defendant appears to challenge Plaintiff’s alleged harm or so-called antitrust standing to bring 21 this action. Although NAR argues (unsuccessfully) that Plaintiff lacks constitutional standing, see supra, Section 1 of this Order, and suggests that Plaintiff also lacks standing to bring an antitrust action, NAR confines its argument to the complaint’s purported failure to plead harm to competition—rather than any 22 failure to plead harm to Plaintiff as a result of Defendants’ anticompetitive conduct. See NAR Mot. 1 scheme designed to achieve an unlawful objective.” Zillow Mot. (docket no. 83 at 14) (quoting Toscano v. Prof. Golfers Assoc., 258 F.3d 978, 984 (9th Cir. 2001)). Although 2 the complaint alleges that Zillow implemented the new website display as “a result of 3 joining the MLS and changing over to IDX feeds” and to “comply with MLS rules,” 4 Compl. at ¶ 88, the complaint also alleges that it was “Zillow’s decision to conceal non- 5 MLS listings under the misleading and inferior ‘other’ category,” causing “listings from 6 non-MLS brokers such as [Plaintiff] [to] be far less competitive.” Id. at ¶ 90; see id. at 7 ¶ 108 (alleging that Zillow is “using” the MLS rules “to implement a change in” its 8 website designs). The complaint further alleges that “Zillow signaled its dedication to . . 9 . inflated commissions—by committing that ‘all Zillow-owned homes will be listed on 10 the MLSs with commissions paid to agents representing buyers.’” Id. at ¶ 59. As the 11 Supreme Court has held, “[c]oncerted efforts to enforce (rather than just agree upon) 12 private product standards face more rigorous antitrust scrutiny.” Allied Tube & Conduit 13 Corp. v. Indian Head, Inc., 486 U.S. 492, 501 n.6 (1988) (emphasis in original). At 14 times, the complaint appears to allege that Zillow’s mere act of entering agreements with 15 MLSs constitutes “horizontal agreements between competitors.” Compl. at ¶¶ 93 & 97; 16 see also Resp. (docket no. 90 at 20). Such acts, standing alone, would be insufficient to 17 plead an anticompetitive agreement or conspiracy. See Toscano, 258 F.3d at 984 (finding 18 no evidence of concerted action to restrain trade where a third party “independently set 19 the terms of the contracts, and [defendants] merely accepted them”). Because the 20 complaint also alleges that Zillow went a step further—e.g., by affirmatively redesigning 21 its websites to enforce an allegedly misleading labeling system—Plaintiff has plausibly 22 1 For its part, NAR argues that Plaintiff cannot plausibly allege the existence of an unlawful agreement because NAR’s challenged rules are “optional.” See NAR Reply 2 (docket no. 93 at 7–8). This argument is unavailing for two reasons. First, Plaintiff 3 challenges not just the optional Segregation Rule, but also the mandatory Buyer Agent 4 Commission Rule. See Compl. at ¶¶ 29, 34, & 59. Second, the Supreme Court has 5 concluded that the interpretation and promotion of a trade association’s “so-called 6 voluntary standards” by the association’s agents and members could be deemed to be 7 “repugnant to the antitrust laws,” and the association “should be encouraged to eliminate 8 the anticompetitive practices of all its agents acting with apparent authority.” Am. Soc’y 9 of Mech. Eng’rs, Inc. v. Hydrolevel Corp., 456 U.S. 556, 561–62, 570 & 574 (1982). The 10 complaint alleges that the challenged rules were “written” by NAR and are being 11 “promulgated” or “enforced” by its members, namely the MLSs and their members 12 (including Zillow), and that these “combined” actions constitute illegal restraints on 13 trade. See Compl. at ¶¶ 7, 86, & 120–21. The complaint further alleges that “NAR is the 14 rare trade association that sets the rules of competition among its members,” 15 promulgating “mandates governing [IDX feeds] and the structure of compensation 16 offers.” Id. at ¶ 29. Allegedly, “[b]ecause of the size and scope of NAR and MLSs, these 17 rules have become ubiquitous within the marketplace—essentially making consumers 18 subject to them.” Id. In other words, brokerages, agents, and even customers allegedly 19 have no choice but to comply with NAR’s so-called optional rules. See Hydrolevel, 456 20 U.S. at 570 (emphasizing that the trade association was “in reality an extra-governmental 21 agency, which prescribes rules for the regulation and restraint of interstate commerce”); 22 1 3616480, at *6 (N.D. Cal. Aug. 16, 2021) (“That NAR exercises control over the operating rules of the market for home sales in most major markets across the country is 2 not, in and of itself, good for competition.”). The complaint plausibly alleges NAR’s 3 involvement in an anticompetitive agreement or conspiracy. 4 B. Harm to Competition 5 “The rule of reason requires courts to conduct a fact-specific assessment of the 6 ‘market power and market structure . . . to assess the [restraint’s] actual effect’ on 7 competition.” FTC v. Qualcomm Inc., 969 F.3d 974, 989 (9th Cir. 2020) (citation 8 omitted) (emphasis in original). “[T]he plaintiff has the initial burden to prove that the 9 challenged restraint has a substantial anticompetitive effect that harms consumers in the 10 relevant market.”5 Id. (citation omitted). “A threshold step in any antitrust case is to 11 accurately define the relevant market, which refers to ‘the area of effective competition.’” 12 Id. (quoting Ohio v. Am. Express Co., 138 S. Ct. 2274, 2285 (2018)). 13 i. Relevant Market 14 Plaintiff alleges that the relevant market is the “market for the provision of real 15 estate brokerage services to sellers and buyers of residential real estate in local markets 16 throughout the country where REX operates.” Compl. at ¶ 102; see id. at ¶ 44 & n.9. 17 18 19 5 This circuit has adopted a three-part, burden-shifting test, under which a plaintiff must meet this initial burden and only “then the burden shifts to the defendant to show a procompetitive rationale for the 20 restraint.” Qualcomm, 969 F.3d at 991. “If the defendant makes this showing, then the burden shifts back to the plaintiff to demonstrate the procompetitive efficiencies could reasonably be achieved through 21 less anticompetitive means.” Id. In ruling on a 12(b)(6) motion, the Court exclusively focuses on whether Plaintiff has sufficiently pleaded the first element. See Sitzer v. Nat’l Assoc. of Realtors, 420 F. Supp. 3d 903, 915 (W.D. Mo. 2019) (concluding that at the motion to dismiss stage, “the [c]ourt’s job is 22 not to balance the anticompetitive effects of [the challenged restraints] against procompetitive 1 Zillow contends that the only harm to competition that is alleged in the complaint has been suffered by consumers outside of the relevant market. See Qualcomm, 969 F.3d at 2 993 (holding that regardless of whether a defendant’s “practices are interrelated, actual or 3 alleged harms to customers and consumers outside the relevant markets are beyond the 4 scope of antitrust law”). Zillow, like Qualcomm, “is no one-trick pony.” Id. at 983. 5 According to the complaint, Zillow has traditionally operated aggregator websites that 6 display and market homes for sale, as well as its related “Premier Agent” program, 7 through which Zillow charges a fee to promote brokers and agents on its websites. 8 Compl. at ¶¶ 47–48 & 69. In 2018, Zillow also started “transacting thousands of homes 9 annually” as an “ibuyer” through its Zillow Offers business. Id. at ¶ 58. Zillow then 10 joined NAR as an “MLS participant.” Id. at ¶ 59. 11 Zillow argues that because the Segregation Rule was implemented in Zillow’s 12 capacity as a data aggregator (and not in connection with providing real estate 13 brokerage services), Plaintiff cannot plausibly allege that the restraint occurred within the 14 relevant market. Zillow Mot. (docket no. 83 at 20). Even assuming that Zillow’s 15 implementation of a new website design, which displays real estate listings nationwide, 16 can be deemed as occurring “outside” the market for real estate brokerage services, 17 Zillow does not address the other restraint at issue: the Buyer Agent Commission Rule, 18 which was allegedly implemented in Zillow’s capacity as a real estate broker and MLS 19 participant. See Compl. at ¶¶ 34 & 59 (alleging that “all Zillow-owned homes will be 20 listed on the MLSs with commissions paid to agents representing buyers,” thereby 21 “preserv[ing] sky-high real estate fees across the United States”). As other courts have 22 1 some compensation to the buyer-broker, . . . by itself, raises antitrust concerns given that the offer is the same regardless of the buyer-broker’s experience or the value of services 2 provided by the buyer-broker.” Moehrl v. Nat’l Assoc. of Realtors, 492 F. Supp. 3d 768, 3 784 (N.D. Ill. 2020) (emphasis added); see also Sitzer v. Nat’l Assoc. of Realtors, 420 F. 4 Supp. 3d 903, 915 (W.D. Mo. 2019). The court in Moehrl also noted that the 5 anticompetitive aspects of this NAR rule are exacerbated by the fact that “many 6 prospective homebuyers [now] use online websites like Zillow to find homes,” and that 7 Zillow and other websites “have agreed not to compete with the MLSs by becoming 8 licensed brokerages or offering compensation or cooperation.” 492 F. Supp. 3d at 784. 9 The Court rejects Zillow’s argument that Qualcomm precludes relief in this case. 10 NAR likewise contends that the complaint fails to allege sufficiently specific 11 geographic markets, or that NAR has market power within those markets. The complaint 12 identifies twenty states in which Plaintiff employs or will employ licensed real estate 13 agents, see Compl. at ¶ 44 & n.9, and alleges that at least 70 percent of licensed agents 14 are NAR members, id. at ¶ 26 & n.3. Although NAR members might make up more or 15 less than 70 percent of the active licenses in a given state or local market, the complaint 16 sufficiently alleges that NAR enjoys substantial market power within the market for real 17 estate brokerage services in the states that Plaintiff operates. See Moehrl, 492 F. Supp. 18 3d at 782 (noting that NAR and the other defendants did not “deny that they have market 19 power” in the relevant market and that “the Seventh Circuit and several other courts have 20 recognized that MLSs have market power”); see also Sitzer, 420 F. Supp. 3d at 915 21 22 1 (concluding “[g]iven the sheer market power possessed by the . . . MLS,” NAR and the other defendants have “significant influence” in the relevant market).6 2 ii. Substantial Anticompetitive Effect 3 Defendants also argue that the complaint lacks sufficient allegations to plead harm 4 to competition, principally arguing that Plaintiff merely assumes that harm to itself is 5 harm to competition. See Zillow Reply (docket no. 92 at 10); NAR Mot. (docket no. 84 6 at 13–14). The Court disagrees, as the complaint is replete with allegations of harm to 7 competition. Specifically, the complaint alleges that “Zillow and NAR are . . . harming 8 the sellers of the[] homes” that are listed on the “Other listings” tab, “causing them to 9 maintain the home for more days on the market and accept lower sales prices” because 10 “[i]interested buyers are likely to continue avoiding or missing ‘Other listings’ 11 altogether.” Compl. at ¶¶ 73 & 77. Home listings on the “Other listings” tab include, in 12 addition to Plaintiff’s listings, “For Sale by Owner (FSBO)” and “foreclosure” listings. 13 Id. at ¶ 77. Plaintiff plausibly alleges that Defendants’ actions have a substantial 14 anticompetitive effect that harms consumers in the relevant market. See id. at ¶¶ 8, 59, 15 61, 65, 71, 80 & 106 (collectively, alleging that the enforcement of NAR’s rules have 16 harmed non-MLS agents and sellers, as well as buyers); see Moehrl, 492 F. Supp. 3d at 17 785 (concluding the “Buyer-Broker Commission Rules have caused an artificial inflation 18 of commission rate”); Sitzer, 420 F. Supp. 3d at 915 (same). 19 20 21 6 NAR also argues that the relevant market alleged in the complaint is “implausible” because it fails to include individuals who “provide real estate brokerage services to themselves,” or other reasonable substitutes. See NAR Mot. (docket no. 84 at 17). The complaint alleges that “Zillow and NAR are . . . 22 harming the sellers of the[] homes” that are listed on the “Other listings” tab, including “For Sale by 1 The Court therefore DENIES Defendants’ motions to dismiss, docket nos. 83 & 84, the antitrust claims brought under Section 1 of the Sherman Act and under the CPA, 2 RCW 19.86.030. 3 4. False Advertising or Other Deceptive Acts 4 A. Pleading Standard 5 Zillow argues that Plaintiff’s claims for false advertisement or other deceptive acts 6 under the Lanham Act and Washington’s CPA, RCW 19.86.020, “sound in fraud” and 7 that Plaintiff must therefore satisfy Rule 9(b)’s heightened pleading standards. Zillow 8 further argues that Plaintiff “does not meaningfully contest that Rule 9(b) governs.” 9 Zillow Reply (docket no. 92 at 13). The Court concludes that Plaintiff sufficiently 10 contests the rule’s applicability. See Resp. (docket no. 90 at 30 n.9). 11 Rule 9(b) provides that “in alleging fraud or mistake, a party must state with 12 particularity the circumstances constituting fraud or mistake.” Fed. R. Civ. P. 9(b). 13 “[T]he Ninth Circuit has not definitively spoken as to whether Rule 9(b) applies to 14 Lanham Act claims,” Clorox Co. v. Reckitt Benckiser Grp. PLC, 398 F. Supp. 3d 623, 15 634 (N.D. Cal. 2019), or to claims brought under the CPA, see Vernon v. Quest 16 Commc’ns Int’l, Inc., 643 F. Supp. 2d 1256, 1264–65 (W.D. Wash. 2009). “[T]he 17 majority of district courts within the Ninth Circuit” have applied “Rule 9(b)’s pleading 18 standards . . . to false advertising claims under the Lanham Act,” particularly “when the 19 claim relies on factual allegations that necessarily constitute fraud.” A.H. Lundberg 20 Assocs., Inc. v. TSI, Inc., No. C14-1160, 2014 WL 5365514, at *7 (W.D. Wash. Oct. 21, 21 2014) (listing cases); see also 23andMe, Inc. v. Ancestry.com DNA, LLC, 356 F. Supp. 3d 22 1 Lanham Act claim is predicated on the theory that the defendant engaged in a knowing and intentional misrepresentation, then Rule 9(b) is applicable”). This District has also 2 applied Rule 9(b)’s pleading requirements to CPA claims. See, e.g., Fidelity Mortg. 3 Corp. v. Seattle Times Co., 213 F.R.D. 573, 575 (W.D. Wash. 2003); but see Vernon, 643 4 F. Supp. 2d at 1265.7 These cases principally rely on the Ninth Circuit’s application of 5 Rule 9(b) to other types of claims involving false or misleading conduct. See, e.g., 6 Vess v. Ciba-Geigy Corp. USA, 317 F.3d 1097, 1100 & 1106–08 (9th Cir. 2003) 7 (applying Rule 9(b) to claims brought under California’s Consumer Legal Remedies 8 Act): Kearns v. Ford Motor Co., 567 F.3d 1120, 1125–27 (9th Cir. 2009) (concluding 9 that in the event a plaintiff alleges “a unified course of fraudulent conduct,” “the claim is 10 said to be ‘grounded in fraud’ or to ‘sound in fraud’”). 11 In Vess, the Ninth Circuit held that “Rule 9(b)’s heightened pleading requirements 12 [apply] only to ‘averments’ of fraud supporting a claim rather than to the claim as a 13 whole,” and clarified that “[f]raud can be averred by specifically alleging fraud, or by 14 alleging facts that necessarily constitute fraud (even if the word ‘fraud’ is not used).” 317 15 F.3d at 1104–05. Allegations “of fraud must be accompanied by ‘the who, the what, 16 when, where and how’ of the misconduct charged.” Id. at 1106 (quoting Cooper v. 17 Pickett, 137 F.3d 616, 627 (9th Cir. 1997)). 18 The Court acknowledges that the complaint never uses the words “fraud” or 19 “intent” in support of Plaintiff’s Lanham Act or CPA claims. Those omissions, however, 20 21 22 7 In Vernon, this Court did not apply Rule 9(b) to the plaintiffs’ CPA claim because the plaintiffs did “not 1 are not dispositive because the complaint also alleges facts that necessarily constitute fraud. In support of the Lanham Act claim, for example, the complaint alleges that 2 “Zillow and NAR knowingly adopted this labeling system for all [nationwide] listings on 3 Zillow as part of a common plan or scheme to confuse, mislead, and deceive consumers” 4 and that such actions were “deliberately calculated to confuse and/or deceive.” Compl. 5 at ¶¶ 132 & 134 (emphasis added). Likewise, in support of Plaintiff’s CPA claim, the 6 complaint alleges that “Zillow changed its display so that the first page of results is 7 presented under a deceptive and misleading heading, . . . while hiding [Plaintiff’s] 8 listings” and that “Zillow’s deceptive search listing practice” has injured Plaintiff and 9 others. See id. at ¶¶ 141 & 145–46 (emphasis added). In contrast, the complaint also 10 alleges, at times, that Zillow’s websites have the “tendency” or the “capacity to deceive 11 consumers.” Compl. at ¶¶ 130–31 & 143. Although Plaintiff has alleged some 12 fraudulent and some non-fraudulent conduct, the Court concludes that Plaintiff has 13 alleged “a unified fraudulent course of conduct” in support of the Lanham Act claims 14 asserted against both Defendants and the CPA claim asserted against Zillow. See Vess, 15 317 F.3d at 1105; see also Vernon, 643 F. Supp. 2d at 1265 (“Rule 9(b) can also apply 16 where . . . [p]laintiffs allege some fraudulent and some non-fraudulent conduct.”). 17 Because these claims are “grounded in fraud,” the Court applies Rule 9(b)’s heightened 18 pleading requirements the claims. 19 Plaintiff also asserts a CPA claim against NAR, but it does not implicate NAR in 20 any of the fraud-based allegations supporting that claim. See Compl. at ¶¶ 136–51. The 21 22 1 Court therefore does not apply Rule 9(b) to the CPA claim asserted against NAR.8 B. Lanham Act Violation 2 Defendants contend that Plaintiff has failed to sufficiently plead a Lanham Act 3 claim for false advertising. The Lanham Act creates a private cause of action for “any 4 person who believes that he or she is or is likely to be damaged by” a “person who” uses 5 “false or misleading representation of fact,” which, “in commercial advertising or 6 promotion, misrepresents the nature, characteristics, [or] qualities” of “another person’s 7 goods, services, or commercial activities.” 15 U.S.C. § 1125(a)(1)(B). “The Act itself 8 does not define ‘advertising’ or ‘promotion,’ but [the Ninth Circuit] has adopted the 9 following definition: (1) commercial speech, (2) by a defendant who is in commercial 10 competition with plaintiff, (3) for the purpose of influencing consumers to buy 11 defendant’s goods or services, and (4) that is sufficiently disseminated to the relevant 12 purchasing public.” Ariix, LLC v. NutriSearch Corp., 985 F.3d 1107, 1115 (9th Cir. 13 2021) (quoting Coastal Abstract Serv., Inc. v. First Am. Title Ins. Co., 173 F.3d 725, 735 14 (9th Cir. 1999)).9 “[T]he representations need not be made in a ‘classic advertising 15 campaign,’ but may instead consist of more informal types of ‘promotion.’” Coastal 16 Abstract Serv., 173 F.3d at 735 (citation omitted). 17 Zillow does not dispute that the complaint plausibly alleges that Zillow’s 18 commercial speech—adopting a new labeling system for its website displays— 19 20 8 The Court nevertheless concludes that Plaintiff has failed to state a Lanham Act claim against NAR 21 under the less demanding pleading requirements. See infra, Section 4(C). 22 9 Although jurists debate whether the second element is still valid in light of the Supreme Court’s decision in Lexmark Int’l, Inc. v. Static Control Components, Inc., 572 U.S. 118 (2014), there is no question that 1 misrepresents the nature of Plaintiff’s services and was sufficiently disseminated to the public. Zillow Mot. (docket no. 83 at 21–24). Zillow instead relies on the complaint’s 2 purported failure to allege that Zillow made the misleading statements to influence 3 consumers to purchase Zillow’s products or services. See id. at 22–23. The complaint 4 alleges, however, that in late 2020, Zillow joined the NAR and MLSs to promote its 5 “Zillow Offers” business. Compl. at ¶¶ 58–59. According to the complaint, the “growth 6 and substantial inventory of Zillow-owned homes placed Zillow in a new position: 7 Instead of focusing on being an open access point for consumers to display and access 8 residential real estate listings, Zillow’s interests turned to its own substantial home 9 inventory.” Id. The complaint further alleges that Zillow changed its websites “to 10 comply with the new MLS rules” and that the “new web display includes several features 11 that . . . insulate MLS brokers from competition.” Id. at ¶¶ 65 & 88 (emphasis added). 12 The complaint alleges that Zillow adopted the misleading labeling system for the 13 purpose of influencing its customers to use the Zillow Offers business, as well as the 14 services of other MLS agents, by concealing or discouraging the services of non-MLS 15 agents like Plaintiff. See Ariix, 985 F.3d at 1120 n.10 (noting that to satisfy this element, 16 “it might be useful” to explore defendants’ relationships with third parties). The Court 17 concludes that these allegations are sufficient to state a Lanham Act claim. Cf. Alfasigma 18 USA, Inc. v. First Databank, Inc., 398 F. Supp. 3d 578, 591 (N.D. Cal. 2019) (concluding 19 plaintiff’s allegations that the representations influenced consumers’ decisions to buy 20 plaintiff’s goods, but not defendant’s own goods, were insufficient to state a claim).10 21 22 1 The Court further concludes that the fraud-based allegations implicating Zillow also satisfy Rule 9(b)’s heightened pleading standard, as such allegations specify “what is 2 false or misleading” about Zillow’s websites, “why it is false,” and how Zillow knew it 3 was false. See Compl. at ¶¶ 128–34; see Vess, 317 F.3d at 1106. 4 Although the Court concludes that Plaintiff has plausibly stated a Lanham Act 5 claim against Zillow in accordance with Rule 9(b)’s pleading requirements, its allegations 6 fall short of stating such a claim against NAR. The complaint alleges, in a conclusory 7 fashion, that “Zillow and NAR knowingly adopted this labeling system for all 8 [nationwide] listings on Zillow as part of a common plan or scheme to confuse, mislead, 9 and deceive consumers.” Compl. at ¶ 132; see id. at ¶ 134. There are no other 10 allegations explaining what NAR did to design or encourage this particular labeling 11 system on Zillow’s websites, let alone when, where, and how NAR did it. See Fed. R. 12 Civ. P. 9(b), 12(b)(6); see also A.H. Lundberg Assocs., 2014 WL 5365514, at *8 13 (dismissing a Lanham Act claim where the plaintiff failed to satisfy, “at a minimum,” the 14 “what” and the “how” aspects of Rule 9(b)). Plaintiff has failed to plausibly state a 15 Lanham Act claim against NAR. 16 Accordingly, the Court DENIES Zillow’s motion to dismiss the Lanham Act 17 claim, docket no. 83, but GRANTS NAR’s motion to dismiss this claim, docket no. 84, 18 19 20 21 negatively impacted its data-aggregation business. Zillow Mot. (docket no. 83 at 23) (citing Compl. at 22 ¶¶ 54 & 65). The Court perceives no contradiction: Zillow could plausibly be motivated to join NAR 1 and hereby DISMISSES, without prejudice, the Lanham Act claim against NAR.11 C. CPA Violation – RCW 19.86.020 2 Defendants also assert that Plaintiff fails to state a claim for unfair or deceptive 3 acts under the CPA, RCW 19.86.020. To state a claim under RCW 19.86.020, a plaintiff 4 must plausibly allege “(1) an unfair or deceptive act or practice, (2) occurring in trade or 5 commerce, (3) affecting the public interest, (4) injury to a person’s business or property, 6 and (5) causation.” Panag v. Farmers Ins. Co. of Wash., 166 Wn.2d 27, 37, 204 P.3d 885 7 (2009). 8 Zillow does not argue that the complaint fails to sufficiently plead the elements of 9 a CPA claim. See Zillow Mot. (docket no. 83 at 24–25). Instead, Zillow invokes the so- 10 called “business purposes defense,” citing the complaint’s allegations that Zillow 11 changed its websites merely to comply with NAR’s Segregation Rule. Zillow argues that 12 the complaint shows that Zillow’s conduct was “reasonable in relation to the 13 development and preservation of [its] business.” Id. at 24; see Zillow Reply (docket 14 no. 92 at 15). Regardless of whether Zillow may rely on the business purposes defense in 15 this case, Zillow’s argument is premature at this stage in the proceedings.12 The 16 complaint emphasizes only the harmful effects of Zillow’s actions, including that 17 “Zillow’s new search listing practice has the capacity to deceive its more than 240 18 million annual unique users,” e.g., “by concealing from them the opportunity to list or 19 20 21 11 Leave to amend a complaint should be freely given, see Fed. R. Civ. P. 15(a)(2), and at this stage, it is not clear to the Court that an amendment would be futile. See Lopez, 203 F.3d at 1130. 22 12 The Court expressly does not decide whether Zillow could later prevail on a business purposes defense. 1 buy a home from a licensed real estate agent who may charge significantly lower commissions than” an MLS agent. See Compl. at ¶¶ 147–48. The complaint says 2 nothing about whether Zillow’s allegedly deceptive practices were reasonable in relation 3 to the development or preservation of its business. Because the Court concludes that the 4 fraud-based allegations in support of this claim also satisfy Rule 9(b)’s heightened 5 pleading standards, Plaintiff has plausibly alleged a CPA claim against Zillow. 6 With respect to NAR, however, the allegations are insufficient. The allegations 7 made in support of the CPA claim do not once mention NAR. See Compl. at ¶¶ 136–51. 8 Even if the Court considers the complaint’s other factual allegations, including those 9 made in support of the other claims (see id. at ¶¶ 132 & 134), such allegations are simply 10 too conclusory to plausibly allege that NAR had any involvement in designing or 11 encouraging Zillow’s misleading website display. See supra, Section 4(B). In light of 12 these deficiencies, Plaintiff has not stated a CPA claim against NAR under the less 13 demanding pleading requirements. See Fed. R. Civ. P. 8(a)(2), 12(b)(6). 14 The Court DENIES Zillow’s motion to dismiss the CPA claim under RCW 15 19.86.020, docket no. 83; but the Court GRANTS NAR’s motion to dismiss this claim, 16 docket no. 84, and hereby DISMISSES, without prejudice, the CPA claim asserted 17 against NAR. See supra, n.11. 18 Conclusion 19 For the foregoing reasons, the Court ORDERS: 20 (1) Zillow’s motion to dismiss, docket no. 83, the claims asserted against 21 Zillow (Counts I, II, III, & IV) is DENIED; 22 1 (2) NAR’s motion to dismiss, docket no. 84, is DENIED in part as to the antitrust claims brought under Section 1 of the Sherman Act and the CPA, RCW 2 19.86.030 (Counts I & IV); the motion is GRANTED in part as to the claims for false 3 advertising or deceptive acts brought under the Lanham Act and the CPA, RCW 4 19.86.020 (Counts II & III), and these claims are DISMISSED without prejudice and 5 with leave to amend. Plaintiff may file any amended complaint on or before September 6 30, 2021. Any answer or response is due on or before October 14, 2021. See Fed. R. 7 Civ. P. 15(a)(3); and 8 (3) The Clerk is directed to send a copy of this Order to all counsel of record. 9 IT IS SO ORDERED. 10 Dated this 2nd day of September, 2021. 11 A 12 13 Thomas S. Zilly United States District Judge 14 15 16 17 18 19 20 21 22