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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 and against the sellers of real property, finding that an estimate on the website of their property’s value did not violate the Illinois Real Estate Appraiser 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 the sellers’ Illinois Uniform Deceptive Trade Practices Act claim, holding that the estimate did not violate the act because an estimate is an opinion that falls outside the scope of the act.

A copy of the opinion in Patel v. Zillow, Inc. is available at:  Link to Opinion.

The 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.”

The sellers feared that the Zestimate would make it harder to sell their property so they asked the company to increase the estimated 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 Illinois Uniform Deceptive Trade 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 the 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 offense 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 trade practices act violation.  Once again, the Seventh Circuit agreed with the trial court because the 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 trade practices act did not cover the estimate nor did the Illinois Consumer Fraud and Deceptive Business Practices Act, which the plaintiffs also invoked, “for essentially the same reasons … the trade practices act claim fails, and for the further reason that plaintiffs are not buyers of real estate” and the Seventh Circuit affirmed the judgment of the trial court.

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Ernest Wagner practices in Maurice Wutscher's Commercial Litigation and Consumer Litigation groups, and leads the firm’s Insurance Recovery and Advisory group. Based in Chicago, he also supports the firm’s litigation matters in its Miami office. Ernest has substantial experience in various types of commercial and insurance recovery litigation. He has conducted more than 35 jury trials, and more than 150 arbitrations for plaintiffs and defendants. He has also successfully represented clients in numerous appeals, in various jurisdictions. Ernest earned his Juris Doctor from Emory University School of Law in Atlanta, Georgia, and his Bachelor of the Arts from the University of Iowa.

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