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Airquip, Inc. v. HomeAdvisor, Inc

United States District Court, D. Colorado

September 21, 2017

AIRQUIP, INC., KELLY DASILVA, and NICOLE GRAY, on behalf of themselves and all others similarly situated, Plaintiffs,
v.
HOMEADVISOR, INC., IAC/INTERACTIVECORP, and DOES 1 THROUGH 10, Defendants.

          ORDER

          PHILIP A. BRIMMER, UNITED STATES DISTRICT JUDGE.

         This matter is before the Court on HomeAdvisor, Inc.'s Partial Motion to Dismiss Amended Complaint [Docket No. 42] and IAC/InterActiveCorp's Motion to Dismiss Amended Complaint [Docket No. 44]. The Court has jurisdiction pursuant to 28 U.S.C. §§ 1331 and 1332(d)(2).

         I. BACKGROUND[1]

         HomeAdvisor, Inc. (“HomeAdvisor”) uses a digital marketplace to help connect persons providing home improvement services with homeowners in need of such services. Docket No. 32 at 4, ¶ 1. Plaintiffs Airquip, Inc. (“Airquip”), Kelly DaSilva, and Nicole Gray are home service professionals[2] who paid for memberships with HomeAdvisor. Id. at 13-14, ¶¶ 23-25. As part of these memberships, HomeAdvisor provided each plaintiff with leads for new business opportunities. Id. at 4, ¶ 2. Plaintiffs were required to pay HomeAdvisor a fee for each lead ranging from $8 to over $90 per lead. Id. at 11, ¶ 16. Plaintiffs claim that HomeAdvisor misrepresented the quality of its leads and that the leads are characterized by “wrong or disconnected phone numbers and contact information; persons who never heard of HomeAdvisor; stale Leads, including for projects that Homeowners completed months or years prior to the Lead being sent; contacts for homes that were listed for sale; and contacts for vacant or nonexistent residences.” Id. at 8-9, ¶ 12. On behalf of a nationwide class of service professionals who used HomeAdvisor's services, plaintiffs claim that defendants' services were fraudulent. Id. at 103-107, ¶¶ 256-269.

         A. IAC's Acquisition of HomeAdvisor

         IAC/InterActiveCorp (“IAC”) is a media and internet company that owns more than twenty operating businesses. Id. at 14. ¶ 27. IAC acquires, develops, and spins off media and internet businesses. Id. at 17, ¶¶ 40-41. In 2004, IAC acquired ServiceMagic, which it later rebranded as HomeAdvisor. Id. at 14, ¶ 26.

         IAC has been the parent company and majority shareholder of HomeAdvisor since 2004. Id. at 18-19, 45. IAC executives oversee and direct the HomeAdvisor business and IAC has made substantial capital contributions to HomeAdvisor. Id. at 19, ¶¶ 46-47. Since 2012, IAC has repeatedly emphasized HomeAdvisor's growth opportunities to IAC's investors. Id. at 20-22, ¶¶ 50-54. In so doing, IAC executives have touted changes to HomeAdvisor's subscription services, which are intended to make HomeAdvisor's revenue generation “stickier.” Id. at 21, ¶ 53.

         By increasing its salesforce and modifying its subscription model, HomeAdvisor has generated exponential year-to-year growth in revenue and substantially increased the number of home service professionals who pay for HomeAdvisor's services. Id. at 23, ¶¶ 56-57.

         B. HomeAdvisor's Business Model

         HomeAdvisor offers a membership model that allows home service professionals to pay an annual fee to become a “HomeAdvisorSMPro.” Id. at 25-26, ¶¶ 62-63. The basic membership, “Pro ReachTM, ” allows home service professionals to list their services on the HomeAdvisor website. Id. However, home service professionals can upgrade to a “Pro ConnectTM” or “Total ConnectTM” membership, which has a lower up-front cost and provides home service professionals with “ProLeadsTM.” The ProLeads service includes “targeted leads” and “exact match leads.” Id. at 25-26, ¶ 62. Targeted leads match home service professionals with “homeowners who are actively looking for the type of work [the professional] specialize[s] in.” Id. Exact match leads are matches with homeowners searching for services in the professional's area who are interested in that specific professional. Id. HomeAdvisor's website describes the leads as “highly targeted, ” coming from “serious homeowners” and “ready-to-buy” customers. Id. at 29-31, ¶¶ 70-73. According to the website, if a homeowner requests a referral, HomeAdvisor will refer “up to four Service Professionals.” Id. at 29-30, ¶ 70.

         HomeAdvisor represents to home service professionals that members are able to manage and monitor the leads sent to them by HomeAdvisor. Id. at 34, ¶ 79. HomeAdvisor states that the home service professional is able to set a budget for leads and select the service types and locations for his or her leads. Id., ¶ 80.

         On September 3, 2014, IAC announced that HomeAdvisor had acquired a majority stake in mHelpDesk, a startup that offered software services for small to midsize businesses. Id. at 37, ¶ 89. HomeAdvisor promptly began making mHelpDesk's services available to HomeAdvisor members. Id. However, HomeAdvisor did not inform home service professionals that, if they joined HomeAdvisor, they would be automatically enrolled in mHelpDesk and charged for its services after a one-month free trial. Id. at 38, ¶ 91. HomeAdvisor members were automatically charged $59.99 -$99.00 a month for mHelpDesk without any prior authorization. Id. at 39, ¶¶ 93-94.

         C. Fraudulent Leads

         Plaintiffs claim that the manner in which leads are generated is inconsistent with HomeAdvisor's representations and that the leads offered by defendants are a sham. Id. at 39-53, ¶¶ 95-127. Plaintiffs allege that HomeAdvisor relies on three sources for its leads: (1) direct lead generators, which “are in the business of generating consumer contact information for a variety of industries, ” id. at 40, ¶ 98; (2) partner affiliate networks, which “are businesses that connect ‘advertisers' like HomeAdvisor with ‘publishers' like bloggers and other businesses; publishers promote HomeAdvisor on their websites and generate leads that are then sent to HomeAdvisor in exchange for a payment to the “publisher, ” id. at 40-41, ¶ 99; (3) home improvement branded affiliates, which are “established companies and brands [] in the home décor and home improvement business” whose websites and in-store promotions are used by defendants to generate leads. Id. at 41, ¶ 100.

         Plaintiffs allege that “HomeAdvisor conceals the nature and genesis of its Leads by misrepresenting that Leads are exclusively generated and vetted through its patented ProFinderTM and ProLeadsTM systems.” Id. at 45, ¶ 105. To the contrary, HomeAdvisor's leads “are the product of telemarketing, cold-calling, sweepstake entries and other third-party Lead generation companies and sources used by Defendants, a far cry from a process that would be designed and calculated to generate Leads that constitute qualified project-ready Homeowners.” Id., ¶ 107.

         Each plaintiff describes a similar pattern of paying for sham leads. Plaintiff Airquip joined HomeAdvisor on or about September 16, 2015. Id. at 54-55, ¶¶ 130-31. Over the course of six months, it received approximately 180 leads and paid HomeAdvisor $6, 300. Id. Airquip states that it encountered a number of issues with the leads including disconnected phone numbers, leads outside Airquip's service area, stale leads, leads from non-homeowners, leads from individuals with no familiarity with HomeAdvisor, and inaccurate lead information. Id. In addition, Airquip states that it was charged $59.99 a month for mHelpDesk without being told that it would be automatically enrolled in the system.

         On or about November 5, 2015, plaintiff DaSilva paid $347.98 for a HomeAdvisor Pro ConnectTM membership. Id. at 56, ¶ 135. DaSilva states that she received approximately twenty-five leads from HomeAdvisor for which she was charged over $715. Id., ¶ 136. DaSilva encountered problems with her leads including “disconnected phone numbers; persons stating that they were not the Homeowner of the property and were not interested in the service; Leads for services Plaintiff DaSilva did not offer; and even a Lead with a fictitious address.” Id. at 56-57, ¶ 137. DaSilva stated that the most common deficiency with her leads, however, was that the homeowners regularly complained that she was the “tenth or even twentieth HomeAdvisor Home Service Professional ” to contact them. Id. (emphasis in original). DaSilva discovered in April 2016 that she had been charged $59.99 a month for four months for mHelpDesk. Id. at 58, ¶ 141. DaSilva was not told that she would be enrolled in mHelpDesk. Id.

         Plaintiff Gray signed up for a HomeAdvisor Pro ConnectTM on or about February 4, 2016. Id. at 58-59, ¶ 144. Gray encountered deficiencies with the leads including “disconnected phone numbers, numbers that went to fax lines and numbers that rang incessantly before disconnecting.” Id. at 59, ¶ 145. In total, Gray received over 170 leads and paid HomeAdvisor approximately $4, 500 for a Pro ConnectTM membership and leads. Id. at 60, ¶ 148. Gray was also enrolled in mHelpDesk for $59.99 a month without prior notice. Id. at 59-60, ¶ 146.

         The complaint further describes how home service professionals in California, Connecticut, Maryland, Massachusetts, Minnesota, Missouri, New Jersey, Ohio, Pennsylvania, Texas, and Virginia have experienced a range of problems in working with HomeAdvisor. Id. at 62-73, ¶¶ 153-192.

         D. Procedural History

         Plaintiffs filed suit on July 19, 2016. Docket No. 1. On November 14, 2016, plaintiffs filed an amended complaint. Docket No. 32. The amended complaint alleges five causes of action against all defendants: (1) violations of the Racketeer Influenced and Corrupt Organizations Act (“RICO”), 18 U.S.C. § 1962(c); (2) violations of the Colorado Consumer Protection Act (“CCPA”), Colo. Rev. Stat. § 6-1-101, et seq.; (3) fraud/fraudulent concealment under Colorado ...


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