Preview
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GEORGE GASCON, SBN 182345
District Attorney of San Francisco
JUNE D. CRAVETT, SBN 105094
Assistant Chief District Attorney
EVAN H. ACKIRON, SBN 164628
Managing Assistant District Attorney
ERNST A. HALPERIN, SBN 175493
Assistant District Attorney
732 Brannan Street
San Francisco, California 94103
Telephone: (415) 551-9545
Attorneys for Plaintiff,
The People of the State of California
ELECTRONICALLY
FILED
Superior Court of California,
County of San Francisco
04/09/2018
Clerk of the Court
BY: KALENE APOLONIO
Deputy Clerk
SUPERIOR COURT OF THE STATE OF CALIFORNIA
CITY AND COUNTY OF SAN FRANCISCO
UNLIMITED JURISDICTION
THE PEOPLE OF THE STATE OF
CALIFORNIA,
Plaintiff,
Vv.
HOMEADVISOR, INC., a Delaware
Corporation; ANGI HOMESERVICES,
INC., a Delaware Corporation; and DOES
1 through 100, inclusive,
Defendants.
(Tl
Case No. CGC-18-565008
THE PEOPLE OF THE STATE OF
CALIFORNIA’S CORRECTED REPLY IN
SUPPORT OF APPLICATION FOR A
PRELIMINARY INJUNCTION
Date: April 12, 2018
Time: 2:00 p.m.
Dept: 302
Judge: The Hon. Harold Kahn
line-numbering in the People’ Reply filed April 6, 2018 was inadvertently deleted during the
conversion from Word to PDF. This Corrected Reply restores the line numbering. The text
remains the same with the exception that the period at the end of Heading II has been removed,
and a stray word “to” that found its way into the Lowrie quotation at page 9 line 24 has been
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The defendants admit that HomeAdvisor has no way of doing what its television and radio
ads lead customers to believe it does — background-check the service personnel who come into
consumers’ homes when they use HomeAdvisor. HomeAdvisor’s Senior Vice President of
Operations avers: “Extending the background check to all employees of all Service Pros would . . .
be impossible for HomeAdvisor to administer on an operational level (Zurcher Opp. Decl. P 9).
HomeAdvisor cannot do what it promises consumers because HomeAdvisor has no way of even
knowing who are the employees who come to customers’ homes, much less background-checking
them. “Given that HomeAdvisor could not confirm the accuracy of employee lists coupled with
high turnover and seasonal hiring in the industry, it would be effectively impossible for
HomeAdvisor to keep track of compliance” (Zurcher Opp. Decl. 9).
Faced with these facts the defendants argue against a preliminary injunction on the grounds
that: (1) an injunction would change the status quo; (2) The Court should not issue a preliminary
injunction absent evidence of actual confusion by consumers; and (3) HomeAdvisor would be
irreparably harmed by a preliminary injunction because it spent a lot of money on the misleading
ads and would have to spend more money fixing them. These arguments all fail.
First, the case the defendants cite for the proposition that a preliminary injunction would
change the status quo stands for the opposite proposition: it holds that “the status quo to be
established is that which existed before appellant started using the prohibited words” (People v.
Hill (1977) 66 Cal.App.3d 320, 330-331).
Second, the defendants’ argument that extrinsic evidence of actual customer confusion and
not just the offending advertisements themselves is required for a preliminary injunction is not the
law in California. “It is immaterial under the . . . [Unfair Competition Law and False Advertising
Law] whether a consumer has been actually misled by an advertiser's representations. It is enough
that the language used is likely to deceive, mislead or confuse (Day v. AT&T Corp. (1998) 63 Cal.
App. 4th at 334 (emphasis added)). “The primary evidence in a false advertising case is the
advertising itself’ (Colgan v. Leatherman Tool Group, Inc. (2006) 135 Cal.App.4th 663, 681-682
(rejecting defendant’s contention that a plaintiff must produce extrinsic evidence of customer
confusion to prevail on a claim that the public is likely to be misled by a representation)).
People’s Corrected Reply in Support of Application for a Preliminary Injunction
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Third, the defendants’ “irreparable injury” argument flies in the face of California
Supreme Court authority holding that even a substantial economic loss does not constitute a
showing of grave harm or irreparable injury to the defendant in a case brought by a governmental
entity seeking to enjoin a violation of law which specifically provides for injunctive relief.
UT Corp. v. City of Imperial (1983) 35 Cal.3d 63, 72 (holding that “[a]lthough issuance of the
injunction would cause IT a substantial economic loss of waste disposal and transportation
revenues, IT failed to show that the injunction would cause harm sufficient to constitute grave or
irreparable injury. Even after issuance of the injunction, IT would still be able to process
geothermal and pesticide wastes.”)
I. The “Status Quo” To Be Preserved Is That Which Existed Before
HomeAdvisor Started Broadcasting Its Misleading Advertisements
The defendants argue that a preliminary injunction against their misleading advertising
would “upend the status quo” and “effectively constitute a summary trial verdict” because
HomeAdvisor would no longer be able to broadcast its misleading advertisements (Opposition at
22). The defendants emphasize that HomeAdvisor has “consistently advertised its background
check program since 2013” (Opposition at 6:2-3). They cite one case for their novel propositions,
People v. Hill (1977) 66 Cal.App.3d 320, 330. The Hill case (which the People cited in the
People’s Application for a Temporary Restraining Order) does not stand for the propositions the
defendants advance. In Hill, the Court of Appeal rejected the contention that a preliminary
injunction against false advertising constituted a change in the status quo, and affirmed the lower
court’s grant of a preliminary injunction against the defendant’s false advertising.
Hill was an enforcement action brought by the Santa Clara District Attorney against a
defendant who was doing business under the firm name of “A-Accounting — Jack M. Hill & Co.”
despite the fact that the proprietor was not licensed as a public accountant. The defendant used the
term “Accounting” in his business name; in the telephone directory where his company was listed
under the category “public accountants;” at his place of business; and on his business
correspondence (/d., 66 Cal. App. 3d at 322 & 329). The Santa Clara County District Attorney
alleged that the defendant’s use of the term “accounting” was deceptive and misleading in that it
People’s Corrected Reply in Support of Application for a Preliminary Injunction
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implied that the defendant was licensed to practice public accounting (People v. Hill, 66
Cal.App.3d at 322-23). “The pleadings clearly indicate[d] a long history of appellant’s contested
use of the words “accountant” and “accountancy” (/d., 66 Cal.App.3d at 331).
The District Attorney’s complaint asked for injunctive relief enjoining the defendant from
using the words “accounting,” “accountant” or abbreviations of those words in conjunction with
his business title. On the same day the complaint was filed, the Superior Court issued an order to
show cause why a preliminary injunction should not issue. The defendant filed a declaration and
points and authorities in opposition to the motion for a preliminary injunction, and after a hearing,
the Superior Court granted a preliminary injunction enjoining the defendant from using the words
“accounting,” or “accountant” in conjunction with or reference to his business, and from
“representing himself as an accountant in any manner that would tend to confuse or mislead the
public” (/d., 66 Cal.App.3d at 323). The defendant then answered the complaint, and appealed the
Superior Court’s order granting the preliminary injunction.
On appeal the defendant argued that the Superior Court’s grant of a preliminary injunction
“did not preserve the status quo of the parties” because it required him to take affirmative action to
delete the references to “accounting” from all places where the business title appeared in his
advertising (/d., 66 Cal.App.3d at 330). The Court of Appeal rejected this reasoning, and affirmed
the order issuing the preliminary injunction. It held that “[t]he ‘status quo’ . . . is defined as ‘the
last actual peaceable, uncontested status which preceded the pending controversy.’ The pleadings
clearly indicate a long history of appellant's contested use of the words ‘accountant’ and
‘accountancy.’ The status quo to be established is that which existed before appellant started using
the prohibited words” (People v. Hill (1 Appellate Dist. 1977) 66 Cal.App.3d 320, 331 (internal
citations omitted)).
The defendants’ assertion that HomeAdvisor has a longstanding practice of making the
challenged statements does not prevent the Court from issuing an injunction. As in Hill, the
“status quo” to be preserved by granting injunctive relief is that which existed before
HomeAdvisor started broadcasting its false and misleading advertisements. The Hi// holding
supports the issuance of a preliminary injunction.
People’s Corrected Reply in Support of Application for a Preliminary Injunction
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Il. The Advertisements Themselves Are The Primary Evidence For The Court
To Consider And Defendants’ Argument That They Are Insufficient
Evidence Misstates California Law
The defendants next argue that the Court should deny the People’s request for a
preliminary injunction because the People have not introduced extrinsic evidence of actual
confusion. The defendants argue that the People:
“present[] no scientific, statistical, survey, or even anecdotal evidence that any California
consumer was, in fact, or is in fact likely to be, deceived at any time. The only ‘evidence’
presented [by the People] 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.”
(Opposition at 10:2-10). The defendants cite Consumer Advocates vy. Echostar Satellite Corp.
(2003) 113 Cal.App.4"" 1351, 1361 to support their argument about the role of extrinsic evidence
of actual confusion. The defendants misstate California law.
As the Court of Appeal stated in in Day v. AT&T Corp, “We emphasize that it is immaterial
under the statutes pursuant to which appellants have sued [the Unfair Competition Law and False
Advertising Law] whether a consumer has been actually misled by an advertiser's representations.
It is enough that the language used is likely to deceive, mislead or confuse (Day v. AT&T Corp.,
Supra, 63 Cal.App.4th at 334). !
The defendants’ argument that the Court should not enter a preliminary injunction in the
absence of extrinsic evidence of actual confusion ignores this authority. The defendants also
completely ignore the fact that the advertisements themselves are the primary evidence in a false
advertising case. “The primary evidence in a false advertising case is the advertising itself”
(Colgan v. Leatherman Tool Group, Inc. (2006) 135 Cal.App.4th 663, 681-682). The Leatherman
case involved misrepresentations by defendant Leatherman in its advertising and labeling that its
The defendants quote Day v. AT&T Corp. for the proposition that the People must ‘show that
members of the public are likely to be deceived’ (Opposition at 9:5-7) while omitting the portion
of the opinion stating that it is immaterial whether a consumer has been actually misled.
People’s Corrected Reply in Support of Application for a Preliminary Injunction
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iconic multi-function pocket tools were “Made in the U.S.A.” when parts of those products were
manufactured outside the United States. The Superior Court granted summary judgment to the
plaintiff on its False Advertising Law claims. On appeal, the defendant argued that the trial court
erred because the plaintiff did not introduce extrinsic evidence of actual customer confusion. The
Court of Appeal rejected this contention:
"Leatherman contends that ‘extrinsic evidence,’ such as expert testimony or consumer
surveys, was necessary in this case to sustain the plaintiffs’ burden, citing federal cases
applying the Lanham Act (15 U.S.C. § 1125(a)) and the unfair competition law as support
for its argument. The federal authorities cited by Leatherman do not accurately reflect
California law. .. . [W]e reject defendants’ view that a plaintiff must produce a consumer
survey or similar extrinsic evidence to prevail on a claim that the public is likely to be
misled by a representation. The federal cases have imported into the California UCL
[unfair competition law] standards of proof derived from federal Lanham Act cases, where
misleading, rather than false, statements must be shown to have deceived a ‘significant
portion’ of the recipients.’ As the court in Brockey said, ‘We are not persuaded that these
cases accurately reflect California law.’ The court added that with regard to the showing of
deception, ‘the primary evidence in a false advertising case is the advertising itself.’”
(Colgan v. Leatherman Tool Group, Inc. (2006) 135 Cal.App.4th 663, 681-682 internal citations
omitted).
The People need not provide any evidence of customer confusion in order to prevail at trial
or at summary judgment when discovery has been completed, much less at a preliminary
injunction hearing at the outset of the case, before any discovery at all. The case the defendants
cite to support their argument that the Court should consider a lack of consumer complaints about
background-check misrepresentations is readily distinguishable. In Consumer Advocates v.
Echostar Satellite Corp. (an appeal after an order granting summary adjudication) the Court of
Appeal held that the defendant’s brochure descriptions of the screen and sound quality of their
systems amounted to puffery. “‘Crystal clear’ and ‘CD quality’ are not factual representations that
a given standard is met. Instead, they are boasts, all-but-meaningless superlatives, similar to the
claim that defendants ‘love comparison’” (Consumer Advocates v. Echostar Satellite Corp. (2003)
113 Cal.App.4th 1351, 1361). In rejecting the plaintiff's argument that some consumers might not
even know that they have been deceived, the Court of Appeal reasoned that “the argument is
clearly wrong. Once a consumer has the system in use at home, any misrepresentations in the
People’s Corrected Reply in Support of Application for a Preliminary Injunction
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brochure would be revealed. The lack of complaints and returns is thus highly relevant” (/d., 113
Cal.App.4" at 1361). Here, by contrast, the defendants’ misrepresentations are not puffery. They
are not “meaningless superlatives.” And it would not be readily apparent to consumers when
service personnel they find through HomeAdvisor come to their homes, that HomeAdvisor has not
done a background check. Thus, no conclusion at all can be drawn from a lack of evidence of
consumer complaints about the background checks.
The defendants next argue that the advertisements themselves are not misleading because
they refer to “pros” which — according to the defendants — reasonable consumers would know is a
reference to business entities rather than human beings who will be coming into their homes. (See
Opposition at 11:7-11 “when the entire advertisement is viewed . . . it is clear that ‘pros’ does not
refer to any particular individual, but to the Service Pro entities ....”). This argument strains
credulity. The word “pro” when used as a noun refers to a human being (See, e.g., Miriam-
Webster Online Dictionary, defining the word “pro” when used as a noun as a synonym for a
professional: “Definition of Pro: Professional” (www.merriam-webster.com/dictionary/pro — last
accessed 4/5/2018) see also, Miriam-Webster’s Online Learner’s Dictionary, defining the word
“pro” when used as a noun as: “1. someone who is paid to participate in a sport or activity. 2.
someone who has a lot of experience or skill in a particular job or activity”
(www.learnersdictionary.com/definition/pro — last accessed 4/5/2018)). The actors use pronouns
such as “guys,” and “em” (see, e.g., TRO Ex. 15 & 16) when referring to the “pros,” and the
pictures of the “pros” that pop up during the advertisements depict humans. Perhaps the weakness
of the defendants’ argument that “pros” refers to business entities and not humans is why the
defendants again attempt to buttress it with more argumentation that is contrary to California law
about the supposed necessity for evidence of actual confusion (See Opposition at 10:12-18).
Finally, the defendants argue that the difficult to read message in tiny print in a light-
colored font that appears for a few seconds in their television ads suggesting that the viewer can
“Learn more about HomeAdvisor’s screening procedures at www.homeadvisor.com/screening” is
an effective disclosure. It is not, for the reasons stated in the People’s Application for a
Temporary Restraining Order. The suggestion to “learn more” is not a disclaimer. It does not
People’s Corrected Reply in Support of Application for a Preliminary Injunction
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signal to consumers that there might be qualifications to HomeAdvisor’s representations about
background-checks. “Disclaimers or qualifications in any particular ad are not adequate to avoid
liability unless they are sufficiently prominent and unambiguous to change the apparent meaning
of the claims and to leave an accurate impression. Anything less is only likely to cause confusion
by creating contradictory meanings” (FTC v. US Sales Corp. (N.D. Ill. 1992) 785 F.Supp. 737,
751)(holding that fine-print disclaimers at the bottom of the screen were insufficient to remedy a
television advertisement that told consumers "you will not be turned down” for a home refinance,
because the fine-print “has no effect on the overall net impression of the advertisement. The
disclaimers are simply inadequate to allow Defendants to escape liability.”)).
Moreover, even if HomeAdvisor had said, “DISCLAIMER - see limitations on
background checks at www.HomeAdvisor.com” the reference to statements in another medium
would be ineffective to counter the misleading statements in HomeAdvisor’s advertisements. The
Federal Trade Commission’s Enforcement Policy Statement in Regard to Clear and Conspicuous
Disclosure in Television Advertising states that, in order to be clear and conspicuous, a disclaimer
must appear in the advertisement itself. The defendants characterize this guidance as “irrelevant
because it dates from 1970” (Opposition at 15:4-5) and then immediately cite (for a different
proposition) the Internet-era 2004 case cited in the People’s Application that relied on the FTC
guidance (See Opposition at 15:14-21 citing the Westlaw edition of Bellsouth Telcoms., Ine. v.
Hawk Communs., LLC (N.D. Ga. Apr. 12, 2004)). The defendants rely on both the Bellsouth
Telcoms and FTC v. US Sales Corp cases to support their argument that the Court should not issue
a preliminary injunction in the absence of extrinsic evidence of consumer confusion (Opposition at
15:11-21). But, neither Bellsouth Telcoms nor FTC v. US Sales Corp were California False
Advertising Law cases,” “It is immaterial under [the Unfair Competition Law and False
Advertising Law] whether a consumer has been actually misled by an advertiser's representations”
(Day v. AT&T Corp., Supra, 63 Cal.App.4th at 334 (emphasis added)).
2 Bellsouth Telcoms was a Lanham Act case, and FTC v. US Sales Corp was brought under the
Federal Trade Commission Act.
People’s Corrected Reply in Support of Application for a Preliminary Injunction
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Il. The Cost of Complying With An Order To Stop Lying Is Not Irreparable
Injury
The People seek to enjoin a violation of a law which specifically provides for injunctive
relief. The People have shown in their opening papers that it is reasonably likely that they will
prevail on the merits and — as shown above — the defendants’ arguments to the contrary rely upon
a misstatement of the evidentiary basis required for a California False Advertising Law case and a
nonsensical argument that the references to “pros” in HomeAdviser’s advertisements are not
references to human beings. A rebuttable presumption arises that the potential harm to the public
outweighs the potential harm to the defendant (7 Corp. v. City of Imperial (1983) 35 Cal.3d 63,
72, fn. omitted). This presumption exists because “[w]here a legislative body has enacted a
statutory provision proscribing a certain activity, it has already determined that such activity is
contrary to the public interest.” (/d. at 70.) “Further, where the legislative body has specifically
authorized injunctive relief against the violation of such a law, it has already determined (1) that
significant public harm will result from the proscribed activity, and (2) that injunctive relief may
be the most appropriate way to protect against that harm.” (/d.)°
To rebut the presumption, the defendants must show they would suffer grave or irreparable
harm from the issuance of the injunctive relief (7 Corp., supra, 35 Cal.3d 63, 72.) The
defendants argue that they will suffer “certain, significant, and irreparable harm if the Court issues
an injunction” (Opposition at 16:20-21). But, the only harm the defendants identify is the cost of
modifying HomeAdvisor’s advertisements in order to stop misleading the public about
background checks. The defendants estimate that they would spend “approximately $6 million in
video production expenses, an estimated $300,000 for redistribution” and $50,000 for radio ad
production expenses (Opposition at 8:3-6 & fn. 9, HomeAdvisor Chief Marketing Officer Allison
Lowrie Opposition Decl. PP 10 & 15). The defendants’ opposition then states that “if the
3 The People’s opening papers have also shown that the type of misrepresentations the defendants
are making create a serious potential for especially dangerous harm to the public (Application at
21:10-28). The defendants argue that there is no potential for harm because they don’t know of
any cases where that harm occurred (Opposition at 19:2-28). This is like arguing that a person
who drives drunk every day for five years but is lucky enough not to have an accident presents no
potential of harm to the public.
People’s Corrected Reply in Support of Application for a Preliminary Injunction
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requested preliminary injunction is issued, the total losses to HomeAdvisor will likely exceed $10
million” (Opposition at 18:8). The mere fact that it may cost the defendants some money to
comply with the proposed preliminary injunction does not constitute irreparable harm (/T Corp,
supra, 35 Cal.3d at 75).
In the /T Corp. case, the defendant argued to the California Supreme Court that the trial
court’s preliminary injunction would cause it “substantial economic loss of waste disposal and
transportation revenues.” The California Supreme Court held that even a showing of substantial
economic loss did not constitute harm sufficient to constitute grave or irreparable injury.
“Although issuance of the injunction would cause IT a substantial economic loss of waste disposal
and transportation revenues, IT failed to show that the injunction would cause harm sufficient to
constitute grave or irreparable injury. Even after issuance of the injunction, IT would still be able
to process geothermal and pesticide wastes” (IT Corp, supra, 35 Cal.3d at 75).
Analogously, here, even after issuance of the preliminary injunction, the defendants could
continue to broadcast advertisements extolling all the other benefits of HomeAdvisor, without
making the misleading claims about background checks. The People have submitted with their
opening papers evidence that the defendants already have many versions of HomeAdvisor
television advertisements that do not mention “background-checked” professionals (TRO Exhibits
25 through 37)). The defendants have not rebutted any of this evidence. The defendants also
admit that HomeAdvisor already has a radio advertisement that does not tout its background
checks (Lowrie Opp. Decl. P 14 discussing HomeAdvisor’s radio advertisements (“Of the
produced advertisements running currently, three out of the four advertisements mention
HomeAdyvisor’s screening process and/or background-check program”)). And, the defendants
admit that it would take as little as two weeks to remove the offending television commercials
from the airwaves (See Lowrie Opp. Decl. P 11 (“I anticipate it would take at least two weeks
before the existing advertisements could be removed”).
Moreover, even if one accepts HomeAdvisor’s assertion that compliance would cost $10
million, this does not constitute a showing of harm sufficient to constitute grave or irreparable
injury. For these defendants it does not even rise to the level of a “substantial economic loss” that
People’s Corrected Reply in Support of Application for a Preliminary Injunction
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the California Supreme Court held in /T Corp. was insufficient to preclude a preliminary
injunction. The defendants report their finances on a consolidated basis. According to defendant
ANGI Homeservices’ 2017 Form 10-K, defendant ANGI Homeservices has assets of more than
1.4 billion dollars and had 2017 revenues of more than three-quarters of a billion dollars
(2017 Form 10-K at 28, Halperin Reply Decl. Ex. A). The revenue attributable to the
HomeAdvisor brand alone in 2017 amounted to more than half a billion dollars ($581,414,000)
(2017 Form 10-K at 30-32). The defendants reported more than $460 million in selling and
marketing expense for North America in 2017 (2017 Form 10-K at 33). And the defendants
reported $149 million in stock-based compensation expenses in 2017 stemming principally from
expenses associated with the grants of stock options, appreciation rights, and restricted stock units
(2017 Form 10-K at 39 & 41, Halperin Reply Decl. Ex. A). An expenditure that is less than 1/14"
of the amount a company spent last year on stock-based incentive compensation for its executives
and other employees can hardly be considered as amounting to even the “substantial economic
loss” that the California Supreme Court found insufficient to preclude a preliminary injunction,
much less a showing of grave and irreparable injury.
CONCLUSION
The People have shown a reasonable likelihood of success on the merits. This
presumption that the potential harm to the public outweighs the potential harm to the defendants of
a preliminary injunction if they are allowed to continue misleading consumers with their
advertisements touting HomeAdvisor’s background checks. The only harm the defendants have
identified from issuance of a preliminary injunction is the cost of complying with it. This does not
constitute a showing of grave or irreparable injury necessary to rebut the presumption. The entry
of a preliminary injunction is appropriate and necessary to protect the public.
DATED: April 8, 2018 GEORGE GASCON
District Attorney
BY: ___/s/ Ernst A. Halperin
ERNST A. HALPERIN
Assistant District Attorney
People’s Corrected Reply in Support of Application for a Preliminary Injunction
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oO MON ODO oO RF WY NY = NY NMN NY NY NY YN YN B@ Bs saa a a a a a on oO TO KRW YS = OGD O© OD NN DO oT FW NY = GEORGE GASCON, SBN 182345 District Attorney of San Francisco JUNE D. CRAVETT, SBN 105094 Assistant Chief District Attorney EVAN H. ACKIRON, SBN 164628 Managing Assistant District Attorney ERNST A. HALPERIN, SBN 175493 Assistant District Attorney 732 Brannan Street San Francisco, California 94103 Telephone: (415) 551-9545 Attorneys for Plaintiff, The People of the State of California ELECTRONICALLY FILED Superior Court of California, County of San Francisco 04/09/2018 Clerk of the Court BY: KALENE APOLONIO Deputy Clerk SUPERIOR COURT OF THE STATE OF CALIFORNIA CITY AND COUNTY OF SAN FRANCISCO UNLIMITED JURISDICTION THE PEOPLE OF THE STATE OF CALIFORNIA, Plaintiff, Vv. HOMEADVISOR, INC., a Delaware Corporation; ANGI HOMESERVICES, INC., a Delaware Corporation; and DOES 1 through 100, inclusive, Defendants. (Tl Case No. CGC-18-565008 THE PEOPLE OF THE STATE OF CALIFORNIA’S CORRECTED REPLY IN SUPPORT OF APPLICATION FOR A PRELIMINARY INJUNCTION Date: April 12, 2018 Time: 2:00 p.m. Dept: 302 Judge: The Hon. Harold Kahn line-numbering in the People’ Reply filed April 6, 2018 was inadvertently deleted during the conversion from Word to PDF. This Corrected Reply restores the line numbering. The text remains the same with the exception that the period at the end of Heading II has been removed, and a stray word “to” that found its way into the Lowrie quotation at page 9 line 24 has been eliminated.)oO MON ODO oO RF WY NY = NY NMN NY NY NY YN YN B@ Bs saa a a a a a on oO TO KRW YS = OGD O© OD NN DO oT FW NY = The defendants admit that HomeAdvisor has no way of doing what its television and radio ads lead customers to believe it does — background-check the service personnel who come into consumers’ homes when they use HomeAdvisor. HomeAdvisor’s Senior Vice President of Operations avers: “Extending the background check to all employees of all Service Pros would . . . be impossible for HomeAdvisor to administer on an operational level (Zurcher Opp. Decl. P 9). HomeAdvisor cannot do what it promises consumers because HomeAdvisor has no way of even knowing who are the employees who come to customers’ homes, much less background-checking them. “Given that HomeAdvisor could not confirm the accuracy of employee lists coupled with high turnover and seasonal hiring in the industry, it would be effectively impossible for HomeAdvisor to keep track of compliance” (Zurcher Opp. Decl. 9). Faced with these facts the defendants argue against a preliminary injunction on the grounds that: (1) an injunction would change the status quo; (2) The Court should not issue a preliminary injunction absent evidence of actual confusion by consumers; and (3) HomeAdvisor would be irreparably harmed by a preliminary injunction because it spent a lot of money on the misleading ads and would have to spend more money fixing them. These arguments all fail. First, the case the defendants cite for the proposition that a preliminary injunction would change the status quo stands for the opposite proposition: it holds that “the status quo to be established is that which existed before appellant started using the prohibited words” (People v. Hill (1977) 66 Cal.App.3d 320, 330-331). Second, the defendants’ argument that extrinsic evidence of actual customer confusion and not just the offending advertisements themselves is required for a preliminary injunction is not the law in California. “It is immaterial under the . . . [Unfair Competition Law and False Advertising Law] whether a consumer has been actually misled by an advertiser's representations. It is enough that the language used is likely to deceive, mislead or confuse (Day v. AT&T Corp. (1998) 63 Cal. App. 4th at 334 (emphasis added)). “The primary evidence in a false advertising case is the advertising itself’ (Colgan v. Leatherman Tool Group, Inc. (2006) 135 Cal.App.4th 663, 681-682 (rejecting defendant’s contention that a plaintiff must produce extrinsic evidence of customer confusion to prevail on a claim that the public is likely to be misled by a representation)). People’s Corrected Reply in Support of Application for a Preliminary Injunction “T-oO MON ODO oO RF WY NY = NY NMN NY NY NY YN YN B@ Bs saa a a a a a on oO TO KRW YS = OGD O© OD NN DO oT FW NY = Third, the defendants’ “irreparable injury” argument flies in the face of California Supreme Court authority holding that even a substantial economic loss does not constitute a showing of grave harm or irreparable injury to the defendant in a case brought by a governmental entity seeking to enjoin a violation of law which specifically provides for injunctive relief. UT Corp. v. City of Imperial (1983) 35 Cal.3d 63, 72 (holding that “[a]lthough issuance of the injunction would cause IT a substantial economic loss of waste disposal and transportation revenues, IT failed to show that the injunction would cause harm sufficient to constitute grave or irreparable injury. Even after issuance of the injunction, IT would still be able to process geothermal and pesticide wastes.”) I. The “Status Quo” To Be Preserved Is That Which Existed Before HomeAdvisor Started Broadcasting Its Misleading Advertisements The defendants argue that a preliminary injunction against their misleading advertising would “upend the status quo” and “effectively constitute a summary trial verdict” because HomeAdvisor would no longer be able to broadcast its misleading advertisements (Opposition at 22). The defendants emphasize that HomeAdvisor has “consistently advertised its background check program since 2013” (Opposition at 6:2-3). They cite one case for their novel propositions, People v. Hill (1977) 66 Cal.App.3d 320, 330. The Hill case (which the People cited in the People’s Application for a Temporary Restraining Order) does not stand for the propositions the defendants advance. In Hill, the Court of Appeal rejected the contention that a preliminary injunction against false advertising constituted a change in the status quo, and affirmed the lower court’s grant of a preliminary injunction against the defendant’s false advertising. Hill was an enforcement action brought by the Santa Clara District Attorney against a defendant who was doing business under the firm name of “A-Accounting — Jack M. Hill & Co.” despite the fact that the proprietor was not licensed as a public accountant. The defendant used the term “Accounting” in his business name; in the telephone directory where his company was listed under the category “public accountants;” at his place of business; and on his business correspondence (/d., 66 Cal. App. 3d at 322 & 329). The Santa Clara County District Attorney alleged that the defendant’s use of the term “accounting” was deceptive and misleading in that it People’s Corrected Reply in Support of Application for a Preliminary Injunction =oO MON ODO oO RF WY NY = NY NMN NY NY NY YN YN B@ Bs saa a a a a a on oO TO KRW YS = OGD O© OD NN DO oT FW NY = implied that the defendant was licensed to practice public accounting (People v. Hill, 66 Cal.App.3d at 322-23). “The pleadings clearly indicate[d] a long history of appellant’s contested use of the words “accountant” and “accountancy” (/d., 66 Cal.App.3d at 331). The District Attorney’s complaint asked for injunctive relief enjoining the defendant from using the words “accounting,” “accountant” or abbreviations of those words in conjunction with his business title. On the same day the complaint was filed, the Superior Court issued an order to show cause why a preliminary injunction should not issue. The defendant filed a declaration and points and authorities in opposition to the motion for a preliminary injunction, and after a hearing, the Superior Court granted a preliminary injunction enjoining the defendant from using the words “accounting,” or “accountant” in conjunction with or reference to his business, and from “representing himself as an accountant in any manner that would tend to confuse or mislead the public” (/d., 66 Cal.App.3d at 323). The defendant then answered the complaint, and appealed the Superior Court’s order granting the preliminary injunction. On appeal the defendant argued that the Superior Court’s grant of a preliminary injunction “did not preserve the status quo of the parties” because it required him to take affirmative action to delete the references to “accounting” from all places where the business title appeared in his advertising (/d., 66 Cal.App.3d at 330). The Court of Appeal rejected this reasoning, and affirmed the order issuing the preliminary injunction. It held that “[t]he ‘status quo’ . . . is defined as ‘the last actual peaceable, uncontested status which preceded the pending controversy.’ The pleadings clearly indicate a long history of appellant's contested use of the words ‘accountant’ and ‘accountancy.’ The status quo to be established is that which existed before appellant started using the prohibited words” (People v. Hill (1 Appellate Dist. 1977) 66 Cal.App.3d 320, 331 (internal citations omitted)). The defendants’ assertion that HomeAdvisor has a longstanding practice of making the challenged statements does not prevent the Court from issuing an injunction. As in Hill, the “status quo” to be preserved by granting injunctive relief is that which existed before HomeAdvisor started broadcasting its false and misleading advertisements. The Hi// holding supports the issuance of a preliminary injunction. People’s Corrected Reply in Support of Application for a Preliminary Injunction =eoO MON ODO oO RF WY NY = NY NMN NY NY NY YN YN B@ Bs saa a a a a a on oO TO KRW YS = OGD O© OD NN DO oT FW NY = Il. The Advertisements Themselves Are The Primary Evidence For The Court To Consider And Defendants’ Argument That They Are Insufficient Evidence Misstates California Law The defendants next argue that the Court should deny the People’s request for a preliminary injunction because the People have not introduced extrinsic evidence of actual confusion. The defendants argue that the People: “present[] no scientific, statistical, survey, or even anecdotal evidence that any California consumer was, in fact, or is in fact likely to be, deceived at any time. The only ‘evidence’ presented [by the People] 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.” (Opposition at 10:2-10). The defendants cite Consumer Advocates vy. Echostar Satellite Corp. (2003) 113 Cal.App.4"" 1351, 1361 to support their argument about the role of extrinsic evidence of actual confusion. The defendants misstate California law. As the Court of Appeal stated in in Day v. AT&T Corp, “We emphasize that it is immaterial under the statutes pursuant to which appellants have sued [the Unfair Competition Law and False Advertising Law] whether a consumer has been actually misled by an advertiser's representations. It is enough that the language used is likely to deceive, mislead or confuse (Day v. AT&T Corp., Supra, 63 Cal.App.4th at 334). ! The defendants’ argument that the Court should not enter a preliminary injunction in the absence of extrinsic evidence of actual confusion ignores this authority. The defendants also completely ignore the fact that the advertisements themselves are the primary evidence in a false advertising case. “The primary evidence in a false advertising case is the advertising itself” (Colgan v. Leatherman Tool Group, Inc. (2006) 135 Cal.App.4th 663, 681-682). The Leatherman case involved misrepresentations by defendant Leatherman in its advertising and labeling that its The defendants quote Day v. AT&T Corp. for the proposition that the People must ‘show that members of the public are likely to be deceived’ (Opposition at 9:5-7) while omitting the portion of the opinion stating that it is immaterial whether a consumer has been actually misled. People’s Corrected Reply in Support of Application for a Preliminary Injunction =4-oO MON ODO oO RF WY NY = NY NMN NY NY NY YN YN B@ Bs saa a a a a a on oO TO KRW YS = OGD O© OD NN DO oT FW NY = iconic multi-function pocket tools were “Made in the U.S.A.” when parts of those products were manufactured outside the United States. The Superior Court granted summary judgment to the plaintiff on its False Advertising Law claims. On appeal, the defendant argued that the trial court erred because the plaintiff did not introduce extrinsic evidence of actual customer confusion. The Court of Appeal rejected this contention: "Leatherman contends that ‘extrinsic evidence,’ such as expert testimony or consumer surveys, was necessary in this case to sustain the plaintiffs’ burden, citing federal cases applying the Lanham Act (15 U.S.C. § 1125(a)) and the unfair competition law as support for its argument. The federal authorities cited by Leatherman do not accurately reflect California law. .. . [W]e reject defendants’ view that a plaintiff must produce a consumer survey or similar extrinsic evidence to prevail on a claim that the public is likely to be misled by a representation. The federal cases have imported into the California UCL [unfair competition law] standards of proof derived from federal Lanham Act cases, where misleading, rather than false, statements must be shown to have deceived a ‘significant portion’ of the recipients.’ As the court in Brockey said, ‘We are not persuaded that these cases accurately reflect California law.’ The court added that with regard to the showing of deception, ‘the primary evidence in a false advertising case is the advertising itself.’” (Colgan v. Leatherman Tool Group, Inc. (2006) 135 Cal.App.4th 663, 681-682 internal citations omitted). The People need not provide any evidence of customer confusion in order to prevail at trial or at summary judgment when discovery has been completed, much less at a preliminary injunction hearing at the outset of the case, before any discovery at all. The case the defendants cite to support their argument that the Court should consider a lack of consumer complaints about background-check misrepresentations is readily distinguishable. In Consumer Advocates v. Echostar Satellite Corp. (an appeal after an order granting summary adjudication) the Court of Appeal held that the defendant’s brochure descriptions of the screen and sound quality of their systems amounted to puffery. “‘Crystal clear’ and ‘CD quality’ are not factual representations that a given standard is met. Instead, they are boasts, all-but-meaningless superlatives, similar to the claim that defendants ‘love comparison’” (Consumer Advocates v. Echostar Satellite Corp. (2003) 113 Cal.App.4th 1351, 1361). In rejecting the plaintiff's argument that some consumers might not even know that they have been deceived, the Court of Appeal reasoned that “the argument is clearly wrong. Once a consumer has the system in use at home, any misrepresentations in the People’s Corrected Reply in Support of Application for a Preliminary Injunction =.oO MON ODO oO RF WY NY = NY NMN NY NY NY YN YN B@ Bs saa a a a a a on oO TO KRW YS = OGD O© OD NN DO oT FW NY = brochure would be revealed. The lack of complaints and returns is thus highly relevant” (/d., 113 Cal.App.4" at 1361). Here, by contrast, the defendants’ misrepresentations are not puffery. They are not “meaningless superlatives.” And it would not be readily apparent to consumers when service personnel they find through HomeAdvisor come to their homes, that HomeAdvisor has not done a background check. Thus, no conclusion at all can be drawn from a lack of evidence of consumer complaints about the background checks. The defendants next argue that the advertisements themselves are not misleading because they refer to “pros” which — according to the defendants — reasonable consumers would know is a reference to business entities rather than human beings who will be coming into their homes. (See Opposition at 11:7-11 “when the entire advertisement is viewed . . . it is clear that ‘pros’ does not refer to any particular individual, but to the Service Pro entities ....”). This argument strains credulity. The word “pro” when used as a noun refers to a human being (See, e.g., Miriam- Webster Online Dictionary, defining the word “pro” when used as a noun as a synonym for a professional: “Definition of Pro: Professional” (www.merriam-webster.com/dictionary/pro — last accessed 4/5/2018) see also, Miriam-Webster’s Online Learner’s Dictionary, defining the word “pro” when used as a noun as: “1. someone who is paid to participate in a sport or activity. 2. someone who has a lot of experience or skill in a particular job or activity” (www.learnersdictionary.com/definition/pro — last accessed 4/5/2018)). The actors use pronouns such as “guys,” and “em” (see, e.g., TRO Ex. 15 & 16) when referring to the “pros,” and the pictures of the “pros” that pop up during the advertisements depict humans. Perhaps the weakness of the defendants’ argument that “pros” refers to business entities and not humans is why the defendants again attempt to buttress it with more argumentation that is contrary to California law about the supposed necessity for evidence of actual confusion (See Opposition at 10:12-18). Finally, the defendants argue that the difficult to read message in tiny print in a light- colored font that appears for a few seconds in their television ads suggesting that the viewer can “Learn more about HomeAdvisor’s screening procedures at www.homeadvisor.com/screening” is an effective disclosure. It is not, for the reasons stated in the People’s Application for a Temporary Restraining Order. The suggestion to “learn more” is not a disclaimer. It does not People’s Corrected Reply in Support of Application for a Preliminary Injunction =OoO MON ODO oO RF WY NY = NY NMN NY NY NY YN YN B@ Bs saa a a a a a on oO TO KRW YS = OGD O© OD NN DO oT FW NY = signal to consumers that there might be qualifications to HomeAdvisor’s representations about background-checks. “Disclaimers or qualifications in any particular ad are not adequate to avoid liability unless they are sufficiently prominent and unambiguous to change the apparent meaning of the claims and to leave an accurate impression. Anything less is only likely to cause confusion by creating contradictory meanings” (FTC v. US Sales Corp. (N.D. Ill. 1992) 785 F.Supp. 737, 751)(holding that fine-print disclaimers at the bottom of the screen were insufficient to remedy a television advertisement that told consumers "you will not be turned down” for a home refinance, because the fine-print “has no effect on the overall net impression of the advertisement. The disclaimers are simply inadequate to allow Defendants to escape liability.”)). Moreover, even if HomeAdvisor had said, “DISCLAIMER - see limitations on background checks at www.HomeAdvisor.com” the reference to statements in another medium would be ineffective to counter the misleading statements in HomeAdvisor’s advertisements. The Federal Trade Commission’s Enforcement Policy Statement in Regard to Clear and Conspicuous Disclosure in Television Advertising states that, in order to be clear and conspicuous, a disclaimer must appear in the advertisement itself. The defendants characterize this guidance as “irrelevant because it dates from 1970” (Opposition at 15:4-5) and then immediately cite (for a different proposition) the Internet-era 2004 case cited in the People’s Application that relied on the FTC guidance (See Opposition at 15:14-21 citing the Westlaw edition of Bellsouth Telcoms., Ine. v. Hawk Communs., LLC (N.D. Ga. Apr. 12, 2004)). The defendants rely on both the Bellsouth Telcoms and FTC v. US Sales Corp cases to support their argument that the Court should not issue a preliminary injunction in the absence of extrinsic evidence of consumer confusion (Opposition at 15:11-21). But, neither Bellsouth Telcoms nor FTC v. US Sales Corp were California False Advertising Law cases,” “It is immaterial under [the Unfair Competition Law and False Advertising Law] whether a consumer has been actually misled by an advertiser's representations” (Day v. AT&T Corp., Supra, 63 Cal.App.4th at 334 (emphasis added)). 2 Bellsouth Telcoms was a Lanham Act case, and FTC v. US Sales Corp was brought under the Federal Trade Commission Act. People’s Corrected Reply in Support of Application for a Preliminary Injunction 7soO MON ODO oO RF WY NY = NY NMN NY NY NY YN YN B@ Bs saa a a a a a on oO TO KRW YS = OGD O© OD NN DO oT FW NY = Il. The Cost of Complying With An Order To Stop Lying Is Not Irreparable Injury The People seek to enjoin a violation of a law which specifically provides for injunctive relief. The People have shown in their opening papers that it is reasonably likely that they will prevail on the merits and — as shown above — the defendants’ arguments to the contrary rely upon a misstatement of the evidentiary basis required for a California False Advertising Law case and a nonsensical argument that the references to “pros” in HomeAdviser’s advertisements are not references to human beings. A rebuttable presumption arises that the potential harm to the public outweighs the potential harm to the defendant (7 Corp. v. City of Imperial (1983) 35 Cal.3d 63, 72, fn. omitted). This presumption exists because “[w]here a legislative body has enacted a statutory provision proscribing a certain activity, it has already determined that such activity is contrary to the public interest.” (/d. at 70.) “Further, where the legislative body has specifically authorized injunctive relief against the violation of such a law, it has already determined (1) that significant public harm will result from the proscribed activity, and (2) that injunctive relief may be the most appropriate way to protect against that harm.” (/d.)° To rebut the presumption, the defendants must show they would suffer grave or irreparable harm from the issuance of the injunctive relief (7 Corp., supra, 35 Cal.3d 63, 72.) The defendants argue that they will suffer “certain, significant, and irreparable harm if the Court issues an injunction” (Opposition at 16:20-21). But, the only harm the defendants identify is the cost of modifying HomeAdvisor’s advertisements in order to stop misleading the public about background checks. The defendants estimate that they would spend “approximately $6 million in video production expenses, an estimated $300,000 for redistribution” and $50,000 for radio ad production expenses (Opposition at 8:3-6 & fn. 9, HomeAdvisor Chief Marketing Officer Allison Lowrie Opposition Decl. PP 10 & 15). The defendants’ opposition then states that “if the 3 The People’s opening papers have also shown that the type of misrepresentations the defendants are making create a serious potential for especially dangerous harm to the public (Application at 21:10-28). The defendants argue that there is no potential for harm because they don’t know of any cases where that harm occurred (Opposition at 19:2-28). This is like arguing that a person who drives drunk every day for five years but is lucky enough not to have an accident presents no potential of harm to the public. People’s Corrected Reply in Support of Application for a Preliminary Injunction =a.oO MON ODO oO RF WY NY = NY NMN NY NY NY YN YN B@ Bs saa a a a a a on oO TO KRW YS = OGD O© OD NN DO oT FW NY = requested preliminary injunction is issued, the total losses to HomeAdvisor will likely exceed $10 million” (Opposition at 18:8). The mere fact that it may cost the defendants some money to comply with the proposed preliminary injunction does not constitute irreparable harm (/T Corp, supra, 35 Cal.3d at 75). In the /T Corp. case, the defendant argued to the California Supreme Court that the trial court’s preliminary injunction would cause it “substantial economic loss of waste disposal and transportation revenues.” The California Supreme Court held that even a showing of substantial economic loss did not constitute harm sufficient to constitute grave or irreparable injury. “Although issuance of the injunction would cause IT a substantial economic loss of waste disposal and transportation revenues, IT failed to show that the injunction would cause harm sufficient to constitute grave or irreparable injury. Even after issuance of the injunction, IT would still be able to process geothermal and pesticide wastes” (IT Corp, supra, 35 Cal.3d at 75). Analogously, here, even after issuance of the preliminary injunction, the defendants could continue to broadcast advertisements extolling all the other benefits of HomeAdvisor, without making the misleading claims about background checks. The People have submitted with their opening papers evidence that the defendants already have many versions of HomeAdvisor television advertisements that do not mention “background-checked” professionals (TRO Exhibits 25 through 37)). The defendants have not rebutted any of this evidence. The defendants also admit that HomeAdvisor already has a radio advertisement that does not tout its background checks (Lowrie Opp. Decl. P 14 discussing HomeAdvisor’s radio advertisements (“Of the produced advertisements running currently, three out of the four advertisements mention HomeAdyvisor’s screening process and/or background-check program”)). And, the defendants admit that it would take as little as two weeks to remove the offending television commercials from the airwaves (See Lowrie Opp. Decl. P 11 (“I anticipate it would take at least two weeks before the existing advertisements could be removed”). Moreover, even if one accepts HomeAdvisor’s assertion that compliance would cost $10 million, this does not constitute a showing of harm sufficient to constitute grave or irreparable injury. For these defendants it does not even rise to the level of a “substantial economic loss” that People’s Corrected Reply in Support of Application for a Preliminary Injunction aoO MON ODO oO RF WY NY = NY NMN NY NY NY YN YN B@ Bs saa a a a a a on oO TO KRW YS = OGD O© OD NN DO oT FW NY = the California Supreme Court held in /T Corp. was insufficient to preclude a preliminary injunction. The defendants report their finances on a consolidated basis. According to defendant ANGI Homeservices’ 2017 Form 10-K, defendant ANGI Homeservices has assets of more than 1.4 billion dollars and had 2017 revenues of more than three-quarters of a billion dollars (2017 Form 10-K at 28, Halperin Reply Decl. Ex. A). The revenue attributable to the HomeAdvisor brand alone in 2017 amounted to more than half a billion dollars ($581,414,000) (2017 Form 10-K at 30-32). The defendants reported more than $460 million in selling and marketing expense for North America in 2017 (2017 Form 10-K at 33). And the defendants reported $149 million in stock-based compensation expenses in 2017 stemming principally from expenses associated with the grants of stock options, appreciation rights, and restricted stock units (2017 Form 10-K at 39 & 41, Halperin Reply Decl. Ex. A). An expenditure that is less than 1/14" of the amount a company spent last year on stock-based incentive compensation for its executives and other employees can hardly be considered as amounting to even the “substantial economic loss” that the California Supreme Court found insufficient to preclude a preliminary injunction, much less a showing of grave and irreparable injury. CONCLUSION The People have shown a reasonable likelihood of success on the merits. This presumption that the potential harm to the public outweighs the potential harm to the defendants of a preliminary injunction if they are allowed to continue misleading consumers with their advertisements touting HomeAdvisor’s background checks. The only harm the defendants have identified from issuance of a preliminary injunction is the cost of complying with it. This does not constitute a showing of grave or irreparable injury necessary to rebut the presumption. The entry of a preliminary injunction is appropriate and necessary to protect the public. DATED: April 8, 2018 GEORGE GASCON District Attorney BY: ___/s/ Ernst A. Halperin ERNST A. HALPERIN Assistant District Attorney People’s Corrected Reply in Support of Application for a Preliminary Injunction -10-