low-quality lead generation leads to deceptive marketing claims

In re HomeAdvisor, Inc. Litig., No. 16-cv-01849-PAB-KLM, 2020
WL 5798515 (D. Colo. Sept. 29, 2020)

HomeAdvisor “is an online marketplace that helps connect
persons providing home improvement services, i.e., home service professionals (‘HSPs’),
with homeowners in need of such services.” It’s a subsidiary of defendant IAC, a
media and internet company that owns over 20 operating businesses comprising
over 150 brands and products. Defendant ANGI is the holding company for
HomeAdvisor and non-party Angie’s List.

Plaintiffs are home service professionals who paid for memberships
with HomeAdvisor in order to receive homeowners’ service requests or “leads.” The
HSPs must pay $8-140 for each lead depending on type and location; the cost isn’t
included in membership fees.

Plaintiffs alleged that HomeAdvisor misrepresents that its
leads are connected to high quality, project-ready customers, but instead the
leads often directed HSPs to “wrong or disconnected phone numbers,” “wrong
contact information,” “persons who never even heard of HomeAdvisor” or “persons
who are not homeowners,” “stale Leads, including for projects that homeowners
completed months or years prior to the Lead being sent,” or “contacts for
vacant or non-existent residences,” among other things.

HomeAdvisor allegedly contracts with over 100 lead generator
companies, including the “Venture defendants” and defendant CraftJack. HomeAdvisor’s
parent company IAC allegedly exercised control over the terms of the lead
generation agreements that HomeAdvisor entered into with these third-party lead
generators.

Some third-party lead generators, such as CraftJack, are allegedly
HomeAdvisor’s direct competitors and,

in many instances, sell the same
leads provided to HomeAdvisor to their own networks of home service
contractors, a fact which HomeAdvisor did not disclose to plaintiffs.  HomeAdvisor does not exercise any quality
control over the leads it purchases from these third party lead generators, for
which it pays a “nominal” amount, and plaintiffs claim that HomeAdvisor is
aware that a low number of its leads result in actual home service projects for
the HSPs.

CraftJack supplied HomeAdvisor with over 1.15 million leads
from 2012 until mid-2017; these were allegedly poor quality, with low contact
and win rates. HomeAdvisor’s internal tracking allegedly demonstrates that
certain leads generated by CraftJack only have a 24 percent chance of ever
making contact with the homeowner. Likewise, plaintiffs alleged that Venture
defendants’ leads are exclusively generated through websites they owned and
operated; the Venture defendants and HomeAdvisor were allegedly aware that
robots were generating fake leads through the websites, but the Venture
defendants failed to include a CAPTCHA5 to prevent this abuse.

From 2012-2017, HomeAdvisor’s quality filter allegedly “flagged
approximately four to five percent of the leads received, and in most cases,
HomeAdvisor ignored the fact that the lead was flagged by the filter.” Indeed, “more
than 98 percent of the leads obtained by HomeAdvisor from this five-year period
were inserted into HomeAdvisor’s lead database without any significant
screening or verification,” including any validation of the accuracy of the
address, phone number, or homeowner name associated with its leads.

In addition to this allegedly deceptive conduct, the complaint
alleged that the HomeAdvisor entities diverted business away from HSPs by
co-opting, using, and exploiting the identities of current and former HSPs:

When an HSP becomes a HomeAdvisor
member, HomeAdvisor creates an online profile page based on information gathered
during the enrollment process and extracted from the HSPs’ websites and other
online sources. … Plaintiffs allege that HomeAdvisor’s “online marketing and
search engine optimization (‘SEO’) capabilities are employed to rank the HSPs’
HomeAdvisor Online Profile Pages at the top of internet search results,
outranking even the HSPs’ own websites, paid adwords, and other listings.”
Plaintiffs allege that, once an HSP’s HomeAdvisor membership is terminated or
expires, HomeAdvisor does not remove the HSP’s profile page, but continues to
manipulate internet traffic to route homeowners away from HSPs’ websites and
toward a HomeAdvisor-related domain. …

For example, plaintiff Hans Hass
performed an internet search for terms related to his business – “Alpine
Roofing” and “Alpine Roofing Sidney.” His company’s website was listed between
a Google ad for roofing.zone/Alpine domain and his business’s HomeAdvisor
profile page. When he clicked the roofing.zone link, Hass completed a form
asking for his contact information and details about his home improvement
project. He was then contacted by other HomeAdvisor roofing HSPs who had
received Hass’s contact information in the form of a HomeAdvisor lead.  When Hass complained to HomeAdvisor, he was
told that the issue would be reviewed and that HomeAdvisor would follow up with
him about the website hijacking.

The RICO claims failed because they were RICO claims.

Lanham Act/unfair competition/trademark infringement claims:
HomeAdvisor sought to get rid of these claims to the extent they were premised
on “website hijacking,” which here just means infringing uses on websites. Claims
under the Colorado Consumer Protection Act, Florida Deceptive and Unfair Trade
Practices Act, Idaho Consumer Protection Act, and most of their common law
unfair competition claims “are entirely supported by allegations of other
misappropriation by Defendants,” so the court didn’t dismiss those.

Lanham Act/NY common law unfair competition: HomeAdvisor allegedly
used various website domains, such as roofing.zone, to redirect legitimate
internet traffic away from the HSPs’ own websites or businesses by using
current and former HSPs’ company names on these domains, as with the
Hass/Alpine Roofing example above. However, the complaint failed to allege that
HomeAdvisor “owned the allegedly problematic domains or had any control over or
affiliation with the owners of those domains.” Plaintiffs argued that they had
a valid contributory infringement claim because the complaint alleges that
HomeAdvisor “suggested that it could resolve the problem” when Hass complained
about his information being on the roofing.info domain.

But contributory infringement requires that “a defendant
must have (1) ‘intentionally induced’ the primary infringer to infringe, or (2)
continued to supply an infringing product to an infringer with knowledge that
the infringer is mislabeling the particular product supplied.” “Allegations of
‘[d]irect control and monitoring of the instrumentality used by a third party
to infringe the plaintiff’s mark’ could suggest contributory infringement.” However,
the complaint failed to plead intentional inducement, and the lone allegation
about Hass didn’t “sufficiently demonstrate a degree of control over the
roofing.zone domain by HomeAdvisor so as to allege a contributory infringement
theory”; it wasn’t even clear who told him that HomeAdvisor would do something.
  

Defendant IAC sought to dismiss aiding and abetting unfair
practices claims against it; the court considered the arguments only as to
Colorado law, since it only cited a Colorado case stating that aiding and
abetting under Colorado law requires proving a “substantial assistance element”
that requires a showing that “the secondary party proximately caused the
violation, or…that the encouragement or assistance be a substantial factor in
causing the tort.”  For aiding and
abetting fraud under Colorado law, a plaintiff must (1) allege the elements of
common law fraud and (2) allege that the defendant “knowingly participate[d] in
the underlying breach or violation.”

Plaintiffs alleged that IAC “was aware that the leads it was
receiving from third-party lead generators were low quality and resulted in poor
win-rates, but that IAC made the business decision to increase the number of
leads it acquired rather than improve the quality of leads,” and that it was
aware of HSPs’ frequent complaints over the quality of leads and requests for
refunds. The complaint also alleged that IAC exercised control over
HomeAdvisor: IAC was involved in the day-to-day operations; had “the ultimate
say” on whether HomeAdvisor should cut poor-quality leads; initiated and drove
internal discussions concerning how to grow HomeAdvisor’s market share and
HomeAdvisor’s branding strategy; and “exerted operational control over
HomeAdvisor and its business.”

However, knowledge alone is insufficient to state an aiding
and abetting claim. Merely exerting control over HomeAdvisor, the source of the
alleged false representations, without any allegations setting forth “the ‘who,
what, when, where and how’ of the alleged fraud,” was insufficient.

Likewise, the California UCL, FAL, and Florida FDUPTA each
require “an affirmative deceptive act by the defendant.”  The complaint didn’t plead facts that IAC had
control over HomeAdvisor’s marketing or that IAC and HomeAdvisor had common
marketing procedures or personnel, beyond alleging that IAC “drove internal
discussions” over HomeAdvisor’s branding strategy. That wasn’t sufficiently
connected to any of the allegations about the alleged misrepresentations. Those
claims went too.

Unjust enrichment: The defendants didn’t have to take money
directly from plaintiffs for unjust enrichment. The court accepted the theory
that “the leads provided to HomeAdvisor by the Venture defendants were
fraudulently sold to plaintiffs and that the monies plaintiffs paid to
HomeAdvisor made its way to the Venture defendants through the Venture
defendants’ and HomeAdvisor’s profit-sharing agreement.” Plaintiffs plausibly
alleged that the Venture defendants and CraftJack received a benefit conferred
by plaintiffs in the form of profits arising from leads purchased by
plaintiffs.

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