News
June 1, 2018

Lit Alerts—June 2018, Vol. 1

A Publication of the Litigation Practice Group

Deceptive Trade Practices: Illinois Federal Court Dismisses Class Action Against Online Home Listing Service

In Patel v. Zillow, Inc., the U.S. District Court for the Northern District of Illinois dismissed a class action under the Illinois Uniform Deceptive Trade Practices Act (IDTPA) and the Illinois Consumer Fraud and Deceptive Business Practices Act (ICFA) because the plaintiff class alleged they were unwilling to buy services from the defendant, which does not provide a basis for a deceptive trade practices claim.

The suit alleged that Zillow attaches artificially low estimated values to homes listed for sale by their owners, or labels such listings "suspect," in an effort to steer owner/sellers toward brokers who paid to advertise on Zillow. The plaintiffs alleged they were unable to sell their homes for the prices they desired due to the low estimates Zillow placed on their homes and the "suspect" flags. Zillow responded that it notes on its website that all listed values are opinion estimates only, and not proper appraisals.

The court agreed with Zillow, finding that Zillow's estimates were opinions of value only, and therefore non-actionable under the IDTPA. The plaintiffs' ICFA claims also were non-actionable because the owner/sellers had not bought any goods or services from Zillow and could not allege they were deceived in any way.

ERISA: Class Action Dismissed Against Spin-Off's Retirement Fund That Continued to Hold Former Parent's Stock

In Schweitzer v. Investment Committee of the Phillips 66 Savings Plan, the U.S. District Court for the Southern District of Texas held that an employee retirement fund established by a newly spun-off entity did not violate its fiduciary duties to its participants by continuing to hold a major portion of its assets in company stock from the old parent company.

When ConocoPhillips (Conoco) spun off its wholly owned subsidiary, Phillips 66 Company (Phillips), in 2012, its employees' retirement funds were transferred from the plan managed by Conoco to a plan managed by Phillips. Before the spin-off, many Conoco employees held Conoco stock as part of their retirement savings. When Conoco employees left for Phillips after the spin-off, the Phillips retirement plan retained the Conoco stock its members held, which comprised roughly 25% of the new plan's assets. After Conoco stock began to perform badly, a group of employees filed a class action against the administrators of the Phillips plan for violating the duties of diversification and prudence.

The central issue was whether the administrators could defend their holdings of Conoco stock under ERISA, which allows a plan administrator to ignore the duty to diversify when purchasing securities from the plan participants' employer. The defendants also claimed the plaintiff class had not pled any facts establishing a violation of the duty to diversify and the duty of prudence.

The Court held that the Conoco stock was not employer stock that is protected by ERISA, despite having been employer stock when it was initially acquired. However, the Court also held that the defendants had not violated their duty to diversify because they had offered all participants the option to move their savings out of the Conoco stock they had previously purchased, and had not purchased any additional Conoco stock after the spin-off. Nor had the defendants violated their duty of prudence by failing to force the participants to divest their oversized holdings of Conoco stock because there were neither "special circumstances" dictating a divestiture of Conoco stock nor an inadequate investigation into the long-term prospects of Conoco stock.

False Claims Act: Eastern District of New York Dismisses Case Alleging Fraud Against Federal Reserve Banks

The U.S. District Court for the Eastern District of New York decided a long-running whistleblower case last month, which alleged that Wells Fargo and its predecessors-in-interest had defrauded Federal Reserve Banks (FRBs) in order to borrow money at lower interest rates. In United States v. Wells Fargo & Co., No 1:11-cv-05457 (E.D.N.Y. May 9, 2018), the Court ultimately dismissed the False Claims Act (FCA) case, which had been remanded from the Second Circuit in September 2017.

The relators, former employees of Wachovia Bank and World Savings Bank, both of which merged into Wells Fargo in 2008, argued that the FRBs were government agencies for purposes of their FCA case. In addressing this issue, the Court looked to two Supreme Court decisions, Rainwater v. United States and United States v. McNinch, for a non-exclusive list of factors to consider.

Relators relied on provisions of the Federal Reserve Act that create a financial connection between FRBs and the U.S. government. For example, Section 289 states that surplus funds are to be transferred to the Federal Reserve Board and then deposited into the U.S. Department of Treasury's (Treasury) general fund. Based on this provision, the relators argued that because Wells Fargo and its predecessors did not pay as much for loans as they should have, the FRBs that issued the loans had less money to send back to Treasury, thereby depriving the government of money to which it was entitled. The Court found this was "too tenuous of a connection" that "taken to its extreme would render any fraud that reduced a party's liability to the [g]overnment actionable under the FCA." Ultimately, the Court ruled that FRBs are not the U.S. government or its agents for purposes of the FCA because the government has a considerably limited financial connection with FRBs, and as a result, the Court granted the defendants' motion to dismiss the relators' fourth amended complaint for failure to state a claim.

© Arnold & Porter Kaye Scholer LLP 2018 All Rights Reserved. This newsletter is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.

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