(The opinions expressed here are those of the author, a

columnist for Reuters.)

By Alison Frankel

Nov 6 (Reuters) - Shareholder lawyers, you're going to

want to keep an eye on this case.

The 9th U.S. Circuit Court of Appeals agreed last month to

revisit a Seattle federal judge's decision to certify a class of

Zillow ( ZG ) shareholders who accuse the real estate listing company

of lying to them about its now-shuttered program of buying,

renovating and reselling houses.

This mid-case appeal, if it goes as Zillow ( ZG ) hopes, could make

it substantially more difficult for investors to win class

certification from federal trial judges in California and other

states in the 9th Circuit.

Zillow's ( ZG ) lawyers from Skadden, Arps, Slate, Meagher & Flom

and Perkins Coie pitched the case as a chance for the 9th

Circuit - the second-most important appellate court for

shareholder class actions - to clarify the impact of the U.S.

Supreme Court's ruling in 2021's Goldman Sachs Group ( GS ) v. Arkansas

Teacher Retirement System.

Right now, according to Zillow ( ZG ), there is a gap

between courts in the 9th and 2nd Circuits on the proper

application of the Supreme Court's Goldman precedent. In the 2nd

Circuit, according to Zillow ( ZG ), the appellate court's final

decertification of a class of Goldman Sachs ( GS ) investors claiming

the bank lied about its conflicts policies means that

shareholders must show a direct match between a company's

alleged misrepresentation and the so-called corrective

disclosure that revealed the lie.

As Zillow ( ZG ) sees it, the 2nd Circuit now requires that

damaging back-end revelations must "expressly and specifically"

refute the company's alleged front-end misrepresentation.

But because the 9th Circuit has not yet offered guidance on

the Supreme Court's Goldman ruling (or, for that matter, on the

2nd Circuit's subsequent interpretation of the Supreme Court's

precedent), trial courts in the 9th Circuit are not heeding the

justices' instruction that courts must consider whether there's

a mismatch between the alleged corporate lie and its correction.

Here's the thing, though.

The Goldman Sachs ( GS ) case, at both the Supreme Court and on

remand to the 2nd Circuit, involved a mismatch between the

bank's generic statements about Goldman's business principles

and a very specific revelation that during the 2007 financial

crisis, the bank allowed an important hedge fund client to

design a complex derivative security to reap big profits at the

expense of other Goldman customers.

And, as you surely recall, when the Supreme Court warned

trial courts in its 2021 Goldman ruling to be wary of certifying

shareholder classes with mismatched misrepresentations and

revelations, the justices were focused on the generic nature of

Goldman's alleged lies.

In essence, the court was expressing skepticism that generic

misrepresentations really impact market prices - and doubt that

any price impact from the disclosure of specific bad news can be

linked back to allegedly false but anodyne corporate

representations.

The Zillow ( ZG ) class action does not involve generic alleged

misrepresentations like those at issue in the Goldman case.

Instead, plaintiffs' lawyers at Hagens Berman Sobol Shapiro

and Kessler Topaz Meltzer & Check allege that the company

deceived investors when it said its home pricing algorithms gave

Zillow ( ZG ) a competitive advantage in buying and flipping houses

and, later, that its growing inventory was a sign of customer

demand.

Shareholders claim that a series of news and analyst reports

revealed in the fall of 2021 that Zillow ( ZG ) was in fact overpaying

for houses and underpaying home renovation contractors, leaving

the company with unsellable inventory. (Zillow ( ZG ) subsequently shut

down the house-flipping project.)

When Zillow's ( ZG ) share price fell in the wake of those reports

in the fall of 2021, shareholders argued, the declines proved

that the market had relied upon Zillow's ( ZG ) allegedly false

statements, which told a different story about the prices it was

paying, the renovations it was conducting and the inventory it

was carrying.

So Goldman precedent, as far as Zillow ( ZG ) shareholders are

concerned, doesn't have a whole lot of relevance. Indeed, U.S.

District Judge Thomas Zilly of Seattle hardly mentioned the

Goldman case when he certified Zillow ( ZG ) investors as a class in

August 2023.

The judge rejected Zillow's ( ZG ) arguments about a mismatch

between the allegedly false statements and contradictory news

and analyst reports, quoting a recent 9th Circuit opinion that

said a corrective disclosure "need not 'precisely mirror' the

misrepresentation."

Shareholder lawyers made that point in their brief opposing

interlocutory appeal, accusing Zillow ( ZG ) of twisting Goldman

precedent from both the Supreme Court and the 2nd Circuit.

"They incorrectly claim - despite clear holdings in the

Goldman cases to the contrary - that plaintiffs must establish

that all of the alleged corrective statements expressly and

specifically negated the misstatements," shareholders wrote.

"Because the Goldman cases settle that defendants' assertion is

incorrect, the issue of law that defendants identify is settled

against them."

In response, Zillow ( ZG ) argued that, if anything, shareholders'

fact-specific arguments about precedent from the Goldman cases

underscores the need for the 9th Circuit to instruct trial

judges on how to apply the precedent.

"Plaintiff's interpretation is just that - plaintiff's

interpretation," Zillow ( ZG ) wrote. The existence of conflicting

interpretations, with no 9th Circuit authority to say which is

correct, demonstrates that an unsettled and fundamental issue of

law exists in the 9th Circuit."

Judges William Fletcher and Johnnie Rawlinson apparently

agreed since they granted Zillow's ( ZG ) motion last month. Zilly, the

trial judge, stayed the underlying case last week until the

appeal is resolved.

Zillow ( ZG ) did not respond to a query on the interlocutory

appeal. Shareholder lawyer Steve Berman of Hagens Berman

declined to comment.

For the securities bar, this case could be hugely important.

If the 9th Circuit rules that the Supreme Court's Goldman

precedent allows defendants to rebut the presumption of market

reliance by arguing that corrective disclosure did not

specifically refute alleged misstatements, life is going to get

a lot harder for shareholder lawyers.

Read more:

Goldman Sachs ( GS ) appellate ruling is boon for securities class

action defendants

Securities class action defendants counting on SCOTUS'

Goldman ruling