Tuesday, February 26, 2019

FYI: 7th Cir Rejects Licensing and UDAP Claims Against Online Valuation Service

The U.S. Court of Appeals for the Seventh Circuit affirmed a trial court judgment in favor of an online real estate marketplace company ("Company") and against sellers of real property ("Sellers"), finding that an estimate on the website of their property's value did not violate the Illinois Real Estate Appraiser Licensing Act, 225 ILCS 458/1 to 458/999-99 ("Licensing Act") because the Licensing Act does not provide a private right of action.


The Seventh Circuit also affirmed the trial court's judgment in favor of the Company on Sellers' Illinois Consumer Fraud and Deceptive Business Practices Act, 815 ILCS 505/1 to 505/12 ("Consumer Fraud Act") claim holding that the estimate did not violate the Consumer Fraud Act because an estimate is an opinion that falls outside the scope of the Act.


A copy of the opinion is available at:  Link to Opinion


Sellers listed their home for sale with a $1,495 million asking price.  They noticed that the Company had a "Zestimate" valuing their property at $1,333,350.


A Zestimate estimates real estate value using publically available data and a proprietary algorithm.  The Company does not inspect the real property and cannot account for whether a given property is more or less attractive than the general data may suggest.  The Company advises its customers that it does not inspect any of the properties and that the Zestimates, while a useful starting point, "may be inaccurate."


Sellers feared that the Zestimate would make it harder to sell their property so they asked the Company to increase the estimate amount or to remove it from the online database.  The Company refused. 


The Sellers then sued the Company in state court alleging that it violated the Licensing Act by appraising real estate without a license.  The Sellers' lawsuit also claimed that the Company violated the Deceptive Practices Act alleging that the Zestimate was unfair and that it was misleading because the Company would not change or remove disputed estimates. 


The matter was removed to the trial court on diversity grounds. The trial court found that Sellers failed to state a claim for which relief may be granted and dismissed all of their claims. This appealed followed.


The Seventh Circuit first examined the alleged Licensing Act claim.


As you may recall Illinois courts only create non-statutory private right of action "where the statute would be ineffective, as a practical matter, unless such action were implied." 


Against this backdrop, the Seventh Circuit had no trouble agreeing with the trial court that the Licensing Act "omits a private right of action" because the Licensing Act makes a first offense a Class A misdemeanor and any subsequent offence a Class 4 felony.  In addition, the Court noted, the state "may impose fines of up to $25,000 per unlicensed appraisal" and may enforce cease and desist letters via injunction. 


Thus, the Seventh Circuit held that the trial court correctly "found that the multiple means of enforcing the licensing act, and the stiff penalties for noncompliance, show that a private action is not necessary to make the statute effective."


The Court next turned to the alleged Consumer Fraud Act violation.  Once again, the Seventh Circuit agreed with the trial court because the Consumer Fraud Act "deals with statements of fact, while Zestimates are opinions, which canonically are not actionable."


The Sellers argued that the Court should create an exception to this rule because the Company "refuses to alter or remove Zestimates on request." The Seventh Circuit rejected this argument because it "does not make a Zestimate less an opinion."


The Sellers also argued that removing particular estimates, like theirs, would improve the accuracy of the proprietary algorithm.  The Seventh Circuit flatly rejected this notice because removing a given estimate will not improve the algorithm.  Instead, the algorithm is more likely to be accurate overall "when errors are not biased to favor sellers or buyers."


Thus, the Seventh Circuit held that the Consumer Fraud Act did not cover the estimate, and the Seventh Circuit affirmed the judgment of the trial court.





Ralph T. Wutscher
Maurice Wutscher LLP
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Email: rwutscher@MauriceWutscher.com


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