Order to Show Cause: THE PEOPLE OF THE STATE OF CALIFORNIA VS. HOMEADVISOR, INC. ET AL

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                                MORGAN, LEWIS & BOCKIUS LLP
COLLIE F, JAMES, IV, State Bar No, 192318
collie.james@morganlewis.com

600 Anton Boulevard, Suite 1800

Costa Mesa, CA_92626-7653

Tel: — +1.714,.830,0600

Fax: +1.714.830.0700

MORGAN, LEWIS & BOCKIUS LLP
MEGHAN L. PHILLIPS, State Bar No. 272095
meghan.phillips@morganlewis.com

MARK A. FELLER, State Bar No. 319789
mark.feller@morganlewis.com

300 South Grand, 22nd Floor

Los Angeles, CA 90017

Tel: +1.213.612.2500

Fax: +1.213.612.2501

Attorneys for Defendants
HOMEADVISOR, INC. and ANGI
HOMESERVICES, INC.

ELECTRONICALLY

FILED

Superior Court of California,
County of San Francisco

03/29/2018
Clerk of the Court
BY: SANDRA SCHIRO-
Deputy Clerk

SUPERIOR COURT OF THE STATE OF CALIFORNIA

COUNTY OF SAN FRANCISCO

UNLIMITED JURISDICTION

THE PEOPLE OF THE STATE OF
CALIFORNIA,

Plaintiff,
v.

HOMEADVISOR, INC. a Delaware corporation;
ANGI HOMESERVICES, INC., a Delaware
corporation; and DOES 1 through 100, inclusive,

Defendants.

Case No. CGC-18-565008

DEFENDANTS?’ OPPOSITION TO THE
PEOPLE’S MOTION FOR
PRELIMINARY INJUNCTION AND IN
RESPONSE TO THE COURT’S ORDER
TO SHOW CAUSE RE: PRELIMINARY
INJUNCTION

[Filed Concurrently with Declarations of
Collie F. James, IV, Allison Lowrie and
Matt Zurcher]

Date: April 12, 2018
Time: 2:00 p.m.
Dept.: 302

DEFENDANTS’ OPPOSITION TO THE PEOPLE’S MOT. FOR PRELIM. INJ.

DB2/ 33046827IL.

Ill.

Iv.

TABLE OF CONTENTS

INTRODUCTION
RELEVANT FACTUAL AND PROCEDURAL HISTORY.

A SHCA Oe eee reece ees ll lelalahatatsbahdraadadededelatalelatshaadadecdad
B. HomeAdvisor’s Background Check Program.......c.cscsceecseeseereseseenseeneeaee

Cc. HomeAdvisor Has Consistently Advertised Its Background Check Program
Since 2013... eeeeeecesseseeseecseeseeseseessesseseeessseesneeeeess

Dz Relevant Procedural History
THE MOTION FAILS TO SATISFY THE STRINGENT SUBSTANTIVE

REQUIREMENTS FOR A PRELIMINARY INJUNCTION .......0:cccccecesesesseeeeeenees

A. The Motion Fails To Establish That The Office Is Likely To Prevail On

The Merits At Trial oo... cccessesseeeeeeeesseeesseeseseeesetsnesseneeresnesueesneseeeseseesnenereee
L. The Office Presents No Evidence That any California Consumer
Has Been or Is Likely to Be Deceived by HomeAdvisor’s

Commercials .......ccecesccssessereeeesesseesesseeseeereeee
2. The Office Fails to Establish that HomeAdvisor’s Advertisements

Are Misleading to a Significant Portion of California Consumers......

a. When the ads are viewed in their entirety, it is clear that

“Pros” refers to the businesses, not individual employees.......

b. HomeAdvisor’s ad disclaimer and website terms further

undermine the office’s prospect of success on the merits.............

B. Any Reasonable Balancing Of The Harms Strongly Militates Against Entry
Of A Preliminary Injunction

L. The Offices Is Not Entitled to Any Presumption of Harm in This
Case

2. Defendants Will Suffer Certain, Significant, and Irreparable Harm
If the Court Issues an Injunction

3. The Office Makes No Showing that the Public Has Suffered or Will
Suffer Any Comparable Harm if the Injunction Is Not Granted.

Cc. A Preliminary Injunction Will Upend The Status Quo And Render A Trial

MOO 0. eceeceesecscsceseseeseseeseeeesesneaesessesnesesnesseecsesesssesasssessesesneesesssessseesieaseneanenenees

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DEFS’ OPP. TO THE PEOPLE’S OSC & MOTION FOR PRELIM. INJ.TABLE OF AUTHORITIES

Page(s)
CASES
BellSouth Telecommce’ns v. Hawk Comme’ns, LLC,
No. 1:04-CV-280-MHS, 2004 WL 1085324 (N.D. Ga. Apr. 12, 2004) 0... eects eeeeeereeneee 15

California Med. Ass’n, Inc. v. Regents of Univ. of Californi
79 Cal. App. 4th 542 (2000)...

Churchill Vill., L.L.C. v. Gen. Elec. Co.,
169 F. Supp. 2d 1119 (N.D. Cal. 2000), aff'd, 361 F.3d 566 (9th Cir. 2004)... eee 19

City of South San Francisco v. Cypress Lawn Cemetery Ass‘n,
11 Cal. App. 4th 916 (1992)

Consumer Advocates v. Echostar Satellite Corp.,
113 Cal. App. 4th 1351 (2003)......cceseessessersessserssessesssesserssessrssessssessessaressvessreeseeese 9,10, 13

Day v. AT & T Corp.,
63 Cal. App. 4th 325 (1998).

E. Bay Mun. Util. Dist. v. Dep’t of Forestry & Fire Pro
43 Cal. App. 4th 1113 (1996)

F.T.C. v. US Sales Corp.,
785 F. Supp. 737 (N.D. Ill. 1992), modified, No. 91 C 3893, 1992 WL 104819
(N.D. Ill. May 6, 1992)

Friends of Westwood, Inc. v. City of Los oe S,
191 Cal. App. 3d 259 (1987)...

Goldman y. Bayer AG,
No. 17-CV-0647-PJH, 2017 WL 3168525 (N.D. Cal. July 26, 2017)...cccecseseeseeeteeseeseereee 13

Hadley v. Kellogg Sales Co.,
243 F. Supp. 3d 1074, 1083 (N.D. Cal. 2017)

In re Sony Gaming Networks & Customer Data Sec. Breach Litt
903 F. Supp. 2d 942 (S.D. Cal. 2012)

In re Tobacco Cases LI,
240 Cal. App. 4th 779 (2015)....ccscsssessessesessesseessseeseessseessssessecseesssnssessnesresssasersessesseeeseaesees Il

In re Tobacco Cases I,
No. SDSC 719446, 2002 WL 31628649 (Cal. Sup. Ct. Nov. 22, 2002).....ccccsseseseeseeseereesesee 9

-li-

DB2/ 33046827 DEFS’ OPP. TO THE PEOPLE’S OSC & MOTION FOR PRELIM. INJ.27
28

Morcan, Lewis &
Bocklus LLP

Gost

IT Corp. v. Cty. of Imperial,
39 Cal: 3065 C1983) socetotetatatotetetshdecadedadedadatutatatabatabdecndudedudetatetatetabeiapdterstedsietatetahetateds 8, 16, 22

Krantz v. BT Visual Images, LLC,
89 Cal. App. 4th 164 (Cal. Ct. App. 2001)

Lavie v. Proctor & Gamble Co.

105 Cal. App. 4th 496 (2003)......escecscesseessesssessseesseesseessecssessseessessscssessussueesssssssssasseseseneesvece! 9,13
Lusk v. Krejci,
187 Cal. App. 24 553 (1960)..cccssscsscssssecccsesssessessssecesssnsecenesessesesnesssesunsevessesnseseseuneesseseene 20

O'Connell v. Sup.Ct. of Alameda,
141 Cal. App. 4th 1452 (2011)... cecceeseesesseesseersecssesssessseesserssecssecsssessecsnessnsssssesnsetnesesesevesevee 20

People v. Hill,
66 Cal. App. 3d 320 (Ct. App. 1977).

Wright v. Best,
19 Cal. 2d. 368 (1942) woceccsesssssctsssssesesssessesesecessesesssssesesesscsessssssssstsseeessssecseessseseseesesseeee 17, 21

STATUTES

Cal. Bus. & Prof. Code

§17200
§17500
Cal. Civ. Proc. Code § 529(b) 0... eeceescccceceseceeeeseeecseseceseeesesesseeeseseeseensseeneensieenessesseesieeneeeseseeeeneee 18
Coane A eS ata t adeeb aaatatreh asada tapers tebe reb asta 15
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DB2/ 33046827 DEFS’ OPP. TO THE PEOPLE’S OSC & MOTION FOR PRELIM. INJ.Defendants HomeAdvisor, Inc. and ANGI Homeservices, Inc. respectfully submit this
memorandum in opposition to the Office of the District Attorney for the City and County of San
Francisco’s (the “Office” or the “People”) motion for preliminary injunction.

REQUEST FOR PERMISSION TO FILE A BRIEF IN EXCESS OF 15 PAGES

Defendants’ memorandum filed in opposition to the Office’s motion exceeds the 15-page
limit for briefs. Defendants request permission to file a 23-page brief. Defendants submit that a
brief in excess of 15 pages is necessary to discuss and fully address the arguments in the Office’s
23-page motion, including the legal and factual deficiencies therein, which are addressed further
below.

IL. INTRODUCTION

Notwithstanding the Office’s rush into court, this is an ordinary-course dispute over
whether HomeAdvisor’s five-year long advertising campaign includes suggestions about the
scope of its background check program that could be confusing to some California consumers.
There is no emergency, and there is no risk of imminent or irreparable harm. Indeed, while San
Francisco District Attorney George Gascon boasted on national television last week that this
action is the culmination of a year-long investigation, the Office’s motion fails to present a single
instance of a California consumer who has been misled or who was harmed in any way, much
less in the alarmist — and entirely speculative — manner that the Office claims warrants the
unprecedented relief sought. Moreover, the Office’s claims, rooted in a myopic view of the
advertising in an attempt to create some appearance of deception, are unlikely to prevail at trial,
and an injunction, if issued, would impose substantial, immediate and irreparable harm upon
HomeAdvisor to remedy purported harm to the public that the motion admits is merely
theoretical. Stated simply, this case does not warrant a preliminary injunction, and the Office’s
submission falls far short of the stringent showing required under California law.

The motion fails for the following three reasons:

First, the Office has not shown that they are likely to prevail on the merits at trial. The
Office’s claims of false and misleading advertising are entirely predicated on viewing the

challenged statements about background checks in isolation to subjectively conclude that

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consumers will interpret the words “background-checked pros” to refer to the individual(s) who
comes to the house to do the work. What the viewer actually hears and sees — the express
language and graphics — when viewing the entire ad, however, undermines the Office’s purely
hypothetical construct of consumer confusion. In fact, the ads consistently use the descriptor
“pros” to refer to the businesses in the HomeAdvisor network, not to individual employees of
those businesses, and the references are often accompanied by graphics that highlight this
distinction. Moreover, every ad referenced in the motion contains a disclaimer that directs
viewers to HomeAdvisor’s “Screening” webpage, which provides expansive information about
the scope of the background check program and also links to a more detailed description in
HomeAdvisor’s overall “Terms and Conditions” webpage. In other words, it is the Office’s
representation of HomeAdvisor’s ads that is incomplete and misleading, not the ads themselves.
This is evidenced by what is notably absent from the Office’s motion and supporting papers: any
actual evidence of any California consumer confusion or other harm. Tellingly, following the
Office’s purported year-long investigation, the Office does not present a single anecdotal example
of a California consumer who has been misled, much less harmed, in any way as a result of the
advertising, let alone any examples of the widespread confusion and irreparable harm that could
justify the extraordinary relief sought. Thus, it is unlikely that the Office will prevail on the
merits.

Second, the certain harm that will befall HomeAdvisor if its advertising is enjoined far
outweighs the purely theoretical harm posited by the Office in its motion. Here, if the requested
injunction is granted, HomeAdvisor will immediately and certainly suffer millions of dollars in
direct losses, including forfeited pre-purchased advertising slots, sunk costs of current
commercials that can no longer be used, the cost of re-cutting the few existing ads that could be
saved, and the significant and unexpected expense of rushing new ads into production. Because
its advertising distribution is carried out under nationwide agreements, any injunction issued in
California will necessarily enjoin HomeAdvisor’s advertising everywhere in the country.
HomeAdvisor will suffer further business losses in the form of lost good will and customers until

it can produce and distribute new ads, a process that will take several months. The many

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thousands of Service Pros in the HomeAdvisor network who depend on the company for referrals,
many of whom are located here in the Bay Area, will also be adversely affected.

In stark contrast, the Office presents only purely theoretical harm to the public to support
its sweeping request, i.e., the prospect that a California consumer could be raped or assaulted by a
service professional employee (whom he or she mistakenly believed to have been background-
checked). The Office, however, does not claim that any such assault has ever actually happened,
and, in fact, HomeAdvisor has no record that it ever has in the five years that the advertising has
been running. Perhaps the Office resorted to such dramatic speculation because it knows that no
California consumer could have suffered any monetary harm as a result of the accused advertising
because HomeAdvisor’s service is free to consumers. Thus, the only harm that the Office can
allege is purely hypothetical, not remotely imminent, and vastly outweighed by the harm that is
certain to be suffered by HomeAdvisor should the requested injunction issue.

Third, the injunction requested by the Office upends the purpose for which the law
provides for such interim relief. Assuming the moving party can demonstrate a likelihood of
prevailing on the merits at trial and irreparable harm to the public (which the Office cannot here),
a preliminary injunction may still issue only if necessary to preserve the status quo pending final
resolution at trial. People v. Hill, 66 Cal. App. 3d 320, 330 (Ct. App. 1977). Here, however, the
requested preliminary injunction order would have the opposite effect, reversing the status quo
and effectively rendering a final verdict in the Office’s favor without any presentation of evidence
and mooting the need for a trial on the merits. Upon issuance of the requested injunction,
HomeAdvisor would have no choice but to immediately scrap or substantially re-edit all of its
existing advertising, develop a full complement of new commercials, and incur the eight-figure
costs associated with these efforts. There would be no turning back, regardless of how the
litigation ultimately concluded. As a result, any later victory at trial would be purely Pyrrhic for
HomeAdvisor and of little consequence to the Office. Against this backdrop, a motion that fails
to present any evidence of actual or imminent harm to the public from an advertising campaign
that is more than five years old, falls far short of what the law requires for a grant of preliminary

injunctive relief.

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DB2/ 33046827 DEFS’ OPP. TO THE PEOPLE’S OSC & MOTION FOR PRELIM. INJ.1 Accordingly, and for the reasons more fully set forth below, Defendants respectfully

2 || request that the Court deny the Office’s motion in its entirety.

3 | IL RELEVANT FACTUAL AND PROCEDURAL HISTORY

4 A. HomeAdvisor

5 HomeAdvisor is a free online service that brings together consumers with providers of

6 || home services such as plumbers, painters, contractors, and the like. (March 15, 2018 M. Zurcher
7 || Declaration (“Zurcher Decl.”) 2). Once a consumer describes the work he or she would like to
8 || have done, HomeAdvisor matches the consumer with service professional businesses in its

9 || network (“Service Pro(s)” or “Pro(s)”) for the consumer to consider hiring. (/d.). HomeAdvisor
10 |] also provides consumers with access to consumer ratings and reviews of the Pros. (/d.). In
11 |} addition, HomeAdvisor provides convenient scheduling services that allow the consumer to
12 || schedule and re-schedule appointments with the Pros in the network. (/d.). Consumers do not
13 || pay any fee to join HomeAdvisor, conduct searches, or be matched with a Pro, or for any of the
14 || other services HomeAdvisor provides. (/d.). Thus, the background checks that HomeAdvisor
15 |} performs are only one of several free services that make HomeAdvisor attractive to consumers.

16 B. HomeAdvisor’s Background Check Program

17 From the outset in 1999, HomeAdvisor has conducted background checks on businesses
18 |} seeking to join its network of Service Pros. (Zurcher Decl. 3). With only minor exceptions,
19 |] discussed below, it is HomeAdvisor’s policy to background check every service professional
20 || business seeking to become a member of the HomeAdvisor network. (/d.). The background

21 || checks include investigation into the prospective Pro’s owner/principal’s criminal record, sex
22 || offender status, civil judgments, and bankruptcies, and verification of the owner/principal’s

23 || identity by SSN. (/d.). HomeAdvisor also confirms that the prospective Pros carry any required
24 || state-level trade licenses and, as applicable, that they are registered in the state where they are
25 || doing business. (/d.). This process is explained on the “Screening” page of HomeAdvisor’s

26 || website (www.homeadvisor.com/screening), which in turn links to HomeAdvisor’s complete
27 || “Terms and Conditions” page (https://www.homeadvisor.com/servlet/TermsServlet). (/d.). On

28 || the Screening page and the Terms and Conditions page, HomeAdvisor expressly discloses that

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DB2/ 33046827 DEFS’ OPP. TO THE PEOPLE’S OSC & MOTION FOR PRELIM. INJ.1 || the background checks are performed on the owner/principal of the business. (d.).! In 2017, the
2 || Screening page was accessed 61,079 times and the Terms and Conditions page was accessed
3 || 123,458 times. (/d.). In addition, the HomeAdvisor Help and FAQ page

4 || (https://www.homeadvisor.com/help/fags/), which also provides information on HomeAdvisor’s

5 || background check program, was accessed 44,687 times in 2017. (Ud.).

6 The only exclusions from the background check program are approximately 129

7 || “corporate accounts” (e.g., Sears), representing a trivial .0682% of the approximately 189,000

8 || Service Pros (who are members of the HomeAdvisor network) nationwide. (Zurcher Decl. { 7).

9 || Nonetheless, HomeAdvisor’s contracts with these corporate accounts expressly require the
10 |] company to certify that it is “free from any (i) bankruptcies, civil legal judgments within the last 3
11 || years, and (ii) felony criminal convictions[.]” (/d.). Unless a franchisee or dealer is a corporate
12 |} account, it is subject to HomeAdvisor’s background check policy. (/d.).
13 The cost to HomeAdvisor to carry out these background checks is considerable. In 2017,
14 || HomeAdvisor spent approximately $3.5 million to conduct some 209,619 background checks on
15 || Pros nation-wide. (Zurcher Decl. 5). Consumers never pay for these background checks.
16 |] (Zurcher Decl. § 2). The background checks performed are comprehensive in nature and result in
17 || the disqualification of approximately 9%-10% of prospective new Pros from joining the
18 || HomeAdvisor network. (Zurcher Decl. § 6).
19 Performing background checks on all employees of all service professionals either seeking
20 || to join or already in the HomeAdvisor network would impose a substantial financial burden on
21 || HomeAdvisor and would be impossible for HomeAdvisor to administer on an operational level.
22 || (Zurcher Decl. 9). Given that HomeAdvisor could not confirm the accuracy of any prospective
23 || or existing Pro’s employee lists, and the high turnover and seasonal hiring common in the
24 || industry, it would be effectively impossible for HomeAdvisor to monitor and ensure compliance
25 |) with such a requirement. (/d.). Even if it were somehow possible, the costs associated with such

26 || an expansion of the background check program would be prohibitive, and HomeAdvisor likely

27 ha In addition, HomeAdvisor also screens: (1) the license holder if there is a state-level license, and
28 (2) anyone whom the Service Pro adds to the account for administrative purposes (e.g., putting
eS the account on hold). (Zurcher Decl. § 4).

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could no longer offer its service free to consumers. (/d.).

Cc. HomeAdvisor Has Consistently Advertised Its Background Check Program
Since 2013

HomeAdvisor has consistently referenced its screening processes and/or background
checks in its advertisements at least since the current advertising campaign’s inception in 2013 as
one of several benefits of using the HomeAdvisor service. (March 15, 2018 A. Lowrie
Declaration (“Lowrie Decl.”) 4 2). Critically, none of HomeAdvisor’s ads state: (1) that all
employees of each Pro are background checked; or (2) that any individual a Pro sends to a
customer’s house will have been background checked. See e.g., Office’s Exhs. 4-18. Rather,
HomeAdvisor uses the term “Pro” in reference to business entities (not individuals) and this
usage is reflected in the ads. Moreover, whenever background checks are mentioned in a
television ad, a disclaimer is shown that informs the viewer that more information is available on
HomeAdvisor’s “Screening” web page. See Office’s Exhs. 4-18. The Screening web page states
that owners/principals of Pros are background checked and does not state that all employees of
Pros are background checked (https://www.homeadvisor.com/screening/). The Screening page
further links to HomeAdvisor’s Terms and Conditions page, which also provides information on
HomeAdvisor’s background check program and states that it applies to the owner/principal
(https://www.homeadvisor.com/servlet/TermsServlet).

HomeAdvisor’s records do not suggest that confusion regarding the scope of its
background check program as it applies to a Pro’s employees is at all a common or persistent
complaint among its users. (Zurcher Decl. 10). HomeAdvisor is also not aware of any incident
in California in which a Pro’s employee who had any type of record that would have resulted in a
rejection under HomeAdvisor’s background check screening committed an assault or other
violent crime on a HomeAdvisor consumer in his or her home. (/d.). Similarly, HomeAdvisor is
not aware of any government enforcement action or private class action anywhere else in the
nation that asserts claims similar to those made in the Office’s motion with respect to

HomeAdvisor’s advertising of its background check program. (/d.).

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DB2/ 33046827 DEFS’ OPP. TO THE PEOPLE’S OSC & MOTION FOR PRELIM. INJ.1 D. Relevant Procedural History

2 After an approximately year-long investigation into HomeAdvisor’s background check

3 || program, the Office’s first official communication to Defendants regarding its concerns about

4 || HomeAdvisor’s advertising was a cease and desist letter dated December 28, 2017, demanding

5 || that HomeAdvisor immediately pull all advertising that mentions background checks. (March 15,

6 || 2018 C. James, IV Declaration (“James Decl.”) ¥§ 1, 6).2 On January 22, 2018, through counsel,

7 || Defendants provided a thorough and comprehensive response. HomeAdvisor provided

8 || significant information about the scope of its background check program and its advertising of the

9 || program, noted the absence of consumer complaints or evidence that might support the Office’s
10 || theory, and furnished a detailed explanation of why the Office’s summary demand would impose
11 |] substantial financial and other hardships on the company. (James Decl. §/ 2). HomeAdvisor also
12 |] stated that it welcomed the opportunity to meet with the Office, discuss its concerns, and explore
13 || appropriate and realistic ways to address these concerns. (/d.). HomeAdvisor offered to travel to
14 || San Francisco to meet with the Office’s representatives and requested dates in February that
15 |] would be convenient for the Office. (/d.).
16 For more than seven weeks, HomeAdvisor heard nothing in response, until approximately
17 || 3:15 pm on Tuesday, March 13, 2018, when HomeAdvisor’s counsel received telephonic notice
18 || of the Office’s emergency ex parte application for a temporary restraining order enjoining
19 || HomeAdvisor’s advertising. (/d. 3). At the hearing on the ex parte application on March 16,
20 || the Court found that there was no emergency and converted the application to the instant motion.

21 || This opposition followed.

22 || Il. THE MOTION FAILS TO SATISFY THE STRINGENT SUBSTANTIVE
REQUIREMENTS FOR A PRELIMINARY INJUNCTION

24 At the preliminary injunction phase, the Court “balances the equities of the parties and
25 || determines whether the defendants should be restrained from exercising the right claimed by them

26 || pending a trial on the merits. The general purpose is to preserve the status guo until the merits of

27 | 2 A Good Morning America segment that aired on or around March 21, 2018, stated that the
28 Office’s lawsuit is the result of a “year-long investigation by [the Office’s] consumer protection
eS unit.” (James Decl. § 6).
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DB2/ 33046827 DEFS’ OPP. TO THE PEOPLE’S OSC & MOTION FOR PRELIM. INJ.1 || the action are determined. The court considers who will bear the greater injury should the

2 || preliminary injunction be granted and whether a reasonable probability exists the plaintiff will

3 |] prevail.” People v. Hill, 66 Cal. App. 3d 320, 330 (Ct. App. 1977). “The ultimate goal of any

4 | test to be used in deciding whether a preliminary injunction should issue is to minimize the harm
5 || which an erroneous interim decision may cause.” JT Corp. v. Cty. of Imperial, 35 Cal. 3d 63, 73
6 || (1983). Moreover, to be entitled to injunctive relief, the Office must show that “the right to be

7 || protected is clear, injury is impending and so immediately likely as only to be avoided by

8 || issuance of the injunction.” £. Bay Mun. Util. Dist. v. Dep't of Forestry & Fire Prot., 43 Cal.

9 || App. 4th 1113 (1996) (emphasis added).
10 In sum, to be entitled to its draconian proposed injunction — which would summarily
11 |} terminate a five-year ad campaign and completely ban HomeAdvisor from using certain words —
12 || the Office must first demonstrate that it is likely to prevail on the merits because HomeAdvisor’s
13 || advertisements are likely to deceive a reasonable consumer. Assuming the Office could meet this
14 || first requirement (which it cannot), it must also show that the public will suffer more harm if the
15 |] injunction is denied than HomeAdvisor will suffer if it is granted. The Office’s pleadings and
16 || purported evidence fall well short of these standards, and thus the motion for a preliminary

17 || injunction should be denied.

18 A. The Motion Fails To Establish That The Office Is Likely To Prevail On The
Merits At Trial

19

20 The threshold question before the Court in deciding whether to grant the Office’s request

21 || for extraordinary relief is whether the Office is likely to succeed on the merits at trial. California
22 || Med. Ass'n, Inc. v. Regents of Univ. of California, 79 Cal. App. 4th 542, 552 (2000), This is the
23 || Office’s burden, and its motion fails to make this threshold showing. Indeed, the Office presents
24 || no evidence whatsoever that a single California consumer has been misled or harmed as a result
25 || of HomeAdvisor’s advertising. Instead, the Office takes statements from HomeAdvisor’s

26 || commercials out of context, draws the unfounded inference that consumers would be misled by
27 || those isolated statements, and concludes that injunctive relief effectively terminating

28 || HomeAdvisor’s entire national advertising campaign is therefore appropriate. The Office’s

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DB2/ 33046827 DEFS’ OPP. TO THE PEOPLE’S OSC & MOTION FOR PRELIM. INJ.1 || position is legally and factually deficient.?

2 1. The Office Presents No Evidence That any California Consumer Has
3 Been or Is Likely to Be Deceived by HomeAdvisor’s Commercials
4 To state a cause of action under Business & Professions Code Section 17500, the False

5 || Advertising Law (“FAL”), and Section 17200, the Unfair Competition Law (“UCL”), the Office
6 || must “show that ‘members of the public are likely to be deceived.” Day v. AT & T Corp., 63 Cal.
7 || App. 4th 325, 332 (1998). “‘Likely to deceive’ implies more than a mere possibility that the
8 || advertisement might conceivably be misunderstood by some few consumers viewing it in an
9 || unreasonable manner. Rather, the phrase indicates that the ad is such that it is probable that a
10 || significant portion of the general consuming public or of targeted consumers, acting reasonably
11 || in the circumstances, could be misled.” Lavie v. Proctor & Gamble Co. 105 Cal. App. 4th 496,
12 || 508 (2003) (emphasis added); see also Hadley v. Kellogg Sales Co., 243 F. Supp. 3d 1074, 1083
13 || (N.D. Cal. 2017) (dismissing UCL and FAL claims because plaintiff must allege “more than a
14 |) mere possibility that the advertisement might conceivably be misunderstood by some few
15 |} consumers viewing it in an unreasonable manner.”). In considering the understanding of a
16 |] reasonable consumer, courts look at the entirety of the advertisement rather than mere snippets.
17 |] See Lavie, 105 Cal. App. 4th at 508. Further, a plaintiff’s failure to produce any consumer
18 |] complaints as to the allegedly deceptive advertising is “highly relevant” to the issue of likelihood
19 || of deception. Consumer Advocates v. Echostar Satellite Corp., 113 Cal. App. 4th 1351, 1361
20 || (2003) (emphasis added).*
21 The Office fails to meet this burden, having presented no evidence that the advertisements.
22 || are “likely to deceive” a reasonable California consumer. Instead, the motion merely cites to
3 Even if the Office were able to meet its burden to show that it is likely to succeed on the merits
24 || and that the balancing of harms weighs in its favor (both of which the Office has not and cannot
do), the proposed injunction is unconstitutionally over broad because it would prohibit

25 || HomeAdvisor from using certain words without exception. See In re Tobacco Cases I, No.
SDSC 719446, 2002 WL 31628649, at *10 (Cal. Sup. Ct. Nov. 22, 2002).

26 || 4 The Office’s UCL unlawfulness claim is based on its FAL claim and falls with the FAL claim.
7 See Krantz v. BT Visual Images, LLC, 89 Cal. App. 4th 164, 178 (Cal. Ct. App. 2001) (a UCL
unlawfulness claim stands or falls depending on the fate of the antecedent substantive cause of
28 action); see also Complaint at § 48 (the Office’s UCL claim is based on “the unlawful business
eS practices set forth in this complaint.”).
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multiple isolated statements in the commercials and offers the Office’s own subjective
interpretation of how those statements might be understood by the public. The Office presents no
scientific, statistical, survey, or even anecdotal evidence that any California consumer was, in
fact, or is in fact likely to be, deceived by any advertisement at any point in time. The only
“evidence” presented is in the form of three declarations from the Office’s personnel, who merely
state that they viewed or heard some of the advertisements on MSNBC and NPR or online while
in the Bay Area. These declarations do not state that they were misled or confused by the ads or
that they observed other individuals who claimed to be misled or confused. The absence of actual
evidence of confusion or alleged deception speaks volumes and strongly militates against any
conclusion that the subject advertisements are likely to deceive consumers. See Consumer
Advocates, 113 Cal. App. 4th at 1361 (affirming denial of summary adjudication of UCL claims
based in part on a lack of consumer complaints). On this basis alone, the motion should be

denied.

2. The Office Fails to Establish that HomeAdvisor’s Advertisements Are
Misleading to a Significant Portion of California Consumers

a ‘When the ads are viewed in their entirety, it is clear that “Pros”
refers to the businesses, not individual employees.

The Office identifies fifteen television advertisements and quotes one isolated statement
from each in support of its preliminary injunction request. Mot. at 5-10. Importantly, however,
the Office makes no allegation that any statement made in HomeAdvisor’s advertising is false in
its face. Rather, the Office’s core, indeed only, assertion with respect to all of the ads is that upon
hearing the isolated statement, “consumers [are likely] to believe that the people coming into their
homes will have been background checked.” Mot. at 17:6-28. In support of this theory, the
Office simply notes that the phrase “background checked” is used in connection with “pros” and
presumes that “‘pros” will be interpreted as referring to the specific individual who comes to the
consumer’s house. This presumption is based upon an inaccurate description of the ads and an
inferential leap that is unwarranted when the ads are viewed in their entirety, as required by law.

As an initial matter, the Office overstates the reach of HomeAdvisor’s advertising in

California. Many of the advertisements cited in the Office’s motion are no longer being aired on

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DB2/ 33046827 DEFS’ OPP. TO THE PEOPLE’S OSC & MOTION FOR PRELIM. INJ.1 || television in California or elsewhere, specifically: (1) “Neighbors”; (2) “Happy Homeowners”;

2 || (3) “Pros You Can Trust”; (4) “Testimonials”; and (5) “Carl”. (Lowrie Decl. 4 12). It is

3 || inappropriate to base an injunction against allegedly deceptive advertising on ads that are no

4 || longer being shown. See In re Tobacco Cases IT, 240 Cal. App. 4th 779, 802 (2015).

5 Tn any event, with respect to the remaining advertisements, none of them affirmatively

6 |] state that “everyone” entering consumer’s homes has been background checked, and the Office

7 || makes no claim to the contrary. See Office’s Exs. 6-7, 11-18. Rather, the references to

8 || background checks in the advertisements are consistently made in reference to “pros” — and when
9 || the entire advertisement is viewed (not merely the isolated snippets highlighted in the motion), it
10 || is clear that “pros” does not refer to any particular individual, but to the Service Pro entities (e.g.,
11 || the sole proprietors, small businesses, franchisees, etc.) that would be identified in response to a
12 || consumer’s search of the HomeAdvisor network.
13 For example, in the “Cameron” advertisement cited by the Office, the term “pro” is used
14 |) throughout the ad and at two distinct points — occurring at the 0:33 second and 0:51 second marks
15 || — when the actor uses the term “pro.” graphics of three Service Pro business entities, not
16 || individuals, are displayed prominently on the screen: “Stanton Painting, Inc.,” “LNL Paint

17 || Company,” and “Paint & Stain Inc.” See Office’s Ex. 7 at 0:33 and 0:51 second marks.

@

Paint &
Stain Inc.

hctew 4.6

ful experi

ene Advisor,

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Importantly, this happens not once, but twice, before the first mention of background checks,
which does not occur until 1:02 into the commercial, when the actor mentions that these “pros”
have been background checked. /d. at 1:02. Finally, as is the case with every one of the
advertisements, when the actor in the “Cameron” advertisement does mention that these “pros”
have been background checked, a disclaimer appears on screen directing the viewer to
HomeAdvisor’s Screening webpage for more information. Jd. Office’s Exh. 13 at 0:15. And
while it is true that the woman in the “Cameron” advertisement states that she must be careful
about whom she invites into her home, this statement alone cannot undo the repeated and
consistent use of the term “pros” to mean businesses, not individual employees, throughout all of
the prior references and accompanying graphics. See id. This same analysis applies to each of
the advertisements in question, thereby contradicting the Office’s claims in their entirety.

The Office’s failure to present any evidence of actual confusion among California
consumers is consistent with HomeAdvisor’s own experience and data. HomeAdvisor’s records
do not suggest that confusion regarding the scope of the background check policy as it applies to
a Pro’s employees is at all a common or persistent complaint among its users. (Zurcher Decl. {
10). Further, HomeAdvisor is not aware of any government enforcement action or private action
anywhere else in the nation that asserts claims similar to those made in the motion with respect to
HomeAdvisor’s advertising of its background check program. (/d.).

In sum, the advertisements that the Office cites as misleading to California consumers do
not refer to background checks on personnel or “individuals that enter consumer’s homes.” To
the contrary: all references are to “pros,” which does not inherently suggest that the speaker is
referring to an individual person (rather than a business entity). Moreover, the references
typically are made with accompanying graphics and other statements that make clear that “pros”
are business entities, not individuals, and always provide a disclaimer referencing the Screening
page, which has more details about the background check program.> When the complete ads are

considered (instead of short excerpts from the ads, taken out of context), it is clear that a

5 The radio ads and the mobile app referenced in the motion, like the TV ads, refer as well to
“pros” — not individual employees. These ads also cannot serve as a basis for a finding of
likelihood of success on the merits.

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DB2/ 33046827 DEFS’ OPP. TO THE PEOPLE’S OSC & MOTION FOR PRELIM. INJ.1 || “significant portion” of reasonable consumers would not be misled into thinking that “pros”

2 || includes every single person who works for one of the many businesses in the HomeAdvisor

3 |] network. See Lavie, 105 Cal. App. 4th at 508. The absence of evidence of any actual consumer
4 || complaints, about confusion or otherwise, reinforces this conclusion. See Echostar Satellite

5 || Corp., 113 Cal. App. 4th at 1361. Accordingly, the Office’s claims against HomeAdvisor’s

6 || advertisements are unlikely to succeed on the merits and no preliminary injunction is warranted.

7 b. HomeAdvisor’s ad disclaimer and website terms further
8 undermine the office’s prospect of success on the merits.
9 Even if any statements in the ads did otherwise present a potential for substantial

10 |} consumer confusion (which they do not), any such potential would be eliminated by the clear

11 |] disclaimer in the ads that accompanies HomeAdvisor’s references to the “screening” (or

12 || background check) program, which directs viewers to the company’s website for a full

13 || description of the program’s terms and conditions.® California law makes clear that a disclaimer
14 |) impacts the analysis as to whether a reasonable consumer would be misled. See Goldman v.

15 || Bayer AG, No. 17-CV-0647-PJH, 2017 WL 3168525, at *5 (N.D. Cal. July 26, 2017); in re Sony
16 || Gaming Networks & Customer Data Sec. Breach Litig., 903 F. Supp. 2d 942, 968 (S.D. Cal.

17 || 2012) (finding “in the presence of clear admonitory language that Sony’s security was not

18 |] ‘perfect,’ no reasonable consumer could have been deceived”) (citing Schnall v. Hertz Corp., 78
19 |) Cal. App. 4th 1144, 1163-64 (2000)).

20 Whenever background checks are mentioned during an ad, a disclaimer is presented along
21 || with the statement regarding background checks. For example, the “Basic Repairs to Remodels”
22 || ad has a disclaimer typical of that found in all of HomeAdvisor’s ads that mention background

23 || checks (Office’s Exh. 12 at 0:10):

24 | H//

25 | fi

26

7 ® The Office obliquely claims that the HomeAdvisor ads (e.g., Office’s Exs. 4-18) failed to

disclose all information regarding its background checks to consumers. See Mot. at 18. This
contention is false because the ads direct consumers to HomeAdvisor’s website, where they can

2 : : :
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A reasonable consumer viewing the advertisements who considered the background check
feature important would be inclined to learn more about the screening process by following the
disclaimer’s direction to visit the Screening page. At that page, accessed 61,079 times by
interested consumers in 2017, the consumer will see that the company sets forth clearly and
conspicuously all details of the program, including express statements that the sex offender, legal,
criminal, and identity verification searches are conducted only on the “business

owner/principal.” (www.homeadvisor.com/screening) (emphasis added). No reasonable

consumer would be misled after reading this explanation into thinking that background checks are
conducted on every single employee, sub-contractor or sub-subcontractor employed by a
HomeAdvisor Pro, and the Office makes no argument to the contrary.” Moreover, any reasonable
consumer that decided to use HomeAdvisor based on the background check statements in its ads
(as opposed to other services that HomeAdvisor provides) would likely seek more detailed

information about the program. In fact, the pages that provide information on the background

7 The Office’s attempts to cast doubt on the scope of the background check program by reference
to alleged exclusions of corporate accounts, franchisees and dealers is factually incorrect and
substantively unavailing. Contrary to the Office’s assertion, franchisees and dealers are
background checked pursuant to HomeAdvisor’s policy. (Zurcher Decl. § 7). Further, although
large corporate accounts do not participate in the program, they represent a trivial 0.0682% of the
Service Pro population and must nevertheless certify that they meet substantially the same
background check standards. (/d.).

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DB2/ 33046827 DEFS’ OPP. TO THE PEOPLE’S OSC & MOTION FOR PRELIM. INJ.1 |] check program were accessed over 250,000 times in 2017 alone. (Zurcher Dec. 43).

2 Perhaps recognizing this, the Office argues that HomeAdvisor’s disclaimer should be

3 || disregarded as ineffective, but this argument is contrary to the facts and to California law

4 || discussed above, and is based entirely on weak authority from outside of California. First, the

5 || FTC policy statement on which the Office relies is irrelevant because it dates from 1970—

6 || decades before the advent and growth of the internet and the era of online accessibility that

7 || enables consumers to instantaneously access sources of information like HomeAdvisor’s

8 || Screening page. Second, the 2013 FTC Guidance excerpt merely states that the disclaimers or

9 || disclosures must be conspicuous — and HomeAdvisor’s disclosure meets this requirement because
10 || it is contained in a single simple sentence presented in every advertisement in easily readable
11 || font, typically underneath the actor referencing background checks. Third, in stark contrast to
12 |] this case, the federal cases cited by the Office featured plaintiffs who actually presented
13 || substantial evidence of consumer confusion or deception, which formed the factual basis for
14 |] concluding that the disclaimers in those cases were inadequate. See BellSouth Telecomme’ns v.
15 || Hawk Comme’ns, LLC, No. 1:04-CV-280-MHS, 2004 WL 1085324, at *4 (N.D. Ga. Apr. 12,
16 || 2004) (finding a likelihood of deception in a Lanham Act case based on survey evidence showing
17 || confusion as to DSL speed claims); F.7.C. v. US Sales Corp., 785 F. Supp. 737, 751 (N.D. IIL.

18 || 1992), modified, No. 91 C 3893, 1992 WL 104819 (N.D. Ill. May 6, 1992) (finding likelihood of
19 |} deception where multiple “members” of defendant sales corporation testified that they were
20 || deceived). The Office makes no such showing here, and none of the authority it cites warrants
21 || disregarding HomeAdvisor’s clear disclaimer.
22 The Office’s meager evidence and weak authority demonstrate that it will not be
23 || successful on the merits. Therefore, the Court should deny the motion on this basis alone before

24 || even considering the issue of relative harms.

25
26
7 et
28 * In addition, any consumer that submits a service request agrees to our Terms and Conditions,
eS which clearly state that HomeAdvisor screens the owner/principal of the Pros in its network.
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DB2/ 33046827 DEFS’ OPP. TO THE PEOPLE’S OSC & MOTION FOR PRELIM. INJ.1 B. Any Reasonable Balancing Of The Harms Strongly Militates Against Entry
Of A Preliminary Injunction

2

1. The Offices Is Not Entitled to Any Presumption of Harm in This Case
3
4 “Where a governmental entity seeking to enjoin the alleged violation of an ordinance

5 || which specifically provides for injunctive relief establishes that it is reasonably probable it will
6 || prevail on the merits, a rebuttable presumption arises that the potential harm to the public
7 || outweighs the potential harm to the defendant. If the defendant shows that it would suffer grave
8 || or irreparable harm from the issuance of the preliminary injunction, the court must then examine
9 || the relative actual harms to the parties.” /7 Corp., 35 Cal. 3d at 73. “Once the defendant has
10 || made such a showing, an injunction should issue only if - after consideration of both (1) the
11 || degree of certainty of the outcome on the merits, and (2) the consequences to each of the parties
2 || of granting or denying interim relief - the trial court concludes that an injunction is proper.” Jd.
13 As shown above, the Office has failed to demonstrate that it is likely to prevail on the
14 || merits and, therefore, is not entitled to a presumption of harm. Even assuming arguendo that the
15 |] Office is entitled to the presumption, it is easily rebutted because the record establishes that: (1)
16 || HomeAdvisor will suffer grave and irreparable harm if the injunction is granted; and (2) the
17 || Office has made no showing that the public will suffer irreparable or imminent harm if the
18 || injunction is not granted. Accordingly, as set forth below, the balance of the potential harms

19 |] weighs heavily against an injunction.

20 2. Defendants Will Suffer Certain, Significant, and Irreparable Harm If
the Court Issues an Injunction

21

22 An injunction should not be issued when the benefit to the moving party is slight in

23 || comparison to the injury which would be caused to the restrained party. See e.g., Friends of
24 || Westwood, Inc. v. City of Los Angeles, 191 Cal. App. 3d 259, 264 (1987) (party moving for
25 || preliminary injunction must show it “will suffer more harm from denial of the preliminary
26 || injunction than defendant would suffer from its grant”). Thus, “a court of equity may deny
27 || injunctive relief and relegate the plaintiff to his remedy at law, if the benefit resulting to him from
28 || the granting of the injunction will be slight as compared to the injury caused the defendant
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thereby.” Wright v. Best, 19 Cal. 2d 368, 386 (1942). The balance of the harms here greatly
weighs against issuing an injunction.

HomeAdvisor’s television and radio advertising forms the core of its marketing activities
and is critically important to the company’s ongoing growth and success. (Lowrie Decl. § 3). As
is customary in the industry, this advertising is conducted through agreements with ad placement
agencies, who in turn purchase advertising space from 100+ different national media channels.
(Lowrie Decl. [ 11). HomeAdvisor does not purchase any television advertising directly from
any local Bay Area channels or California-specific channels. (Lowrie Decl. 4/6). As a result,
HomeAdvisor is unable to cordon off or otherwise segregate its advertising on a state-by-state
basis. (/d.). In other words, any change to its California advertising — voluntary or otherwise —
impacts all of HomeAdvisor’s advertising nationwide. (/d.).

The direct losses resulting from the issuance of the injunction sought by the Office would
be substantial. Approximately 30% of HomeAdvisor’s TV ad purchases are “non-cancellable,”
meaning that the company has committed in advance to the media buy and the total cost of the
advertisements is not refundable. (Lowrie Decl. 7). Based on the current weekly spend of $2
million, if the requested injunction is granted, HomeAdvisor will lose approximately $600,000
per week until the period covered by the pre-committed media buy has expired. (/d.).

In addition, the overwhelming majority of HomeAdvisor’s existing television and radio
advertising references its screening process in some manner and, thus, presumably would be
barred by the preliminary injunction given that the Office seeks to flatly prohibit any use of the
words “Background-Checked” or “Prescreened” in HomeAdvisor’s advertisements no matter the
specific statement or actual context. (Lowrie Decl. § 4); (see Office’s Proposed Order filed
concurrently with its Motion). Such a sweeping injunction would effectively foreclose
HomeAdvisor’s advertising everywhere in the country, leaving it with only two choices: re-cut
the existing ads and/or produce new ones. In most cases, the existing ads would simply have to
be scrapped — wasting approximately $3.6 million in sunk production costs — because the
references to screening and background checks are made by on-screen actors and therefore cannot

be modified by voice-overs or other editing. (Lowrie Decl. [ 8). For the two ads that could

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DB2/ 33046827 DEFS’ OPP. TO THE PEOPLE’S OSC & MOTION FOR PRELIM. INJ.1 || potentially be saved, the costs to recut them could be up to $100,000. (Lowrie Decl. { 9).
2 || Finally, new ads typically cost $500,000 each and take four to six months to produce from script
3 |] to screen. (Lowrie Decl. ¥ 10). If HomeAdvisor had to replace the majority of its creative
4 || portfolio (a necessity if the company cannot reference “background checks”), the process would
5 || take approximately six months and cost appr