| Commitments and Contingencies | Note 16. Commitments and Contingencies
Lease Commitments
We have various operating leases for office space and
equipment.
Seattle, Washington
In March 2011, we entered into a lease agreement for office space
that houses our corporate headquarters in Seattle (as amended from
time to time, the “Seattle Lease”). Pursuant to the
terms of the Seattle Lease, we currently lease a total of 200,426
square feet, and we are obligated to make escalating monthly lease
payments that began in December 2012 and continue through December
2024. We will continue to take possession of additional office
space pursuant to the Seattle Lease as space becomes available
through 2017 under the same terms and conditions.
San Francisco, California
In connection with our February 2015 acquisition of Trulia, we
assumed a lease agreement for office space in San Francisco (as
amended from time to time, the “San Francisco Lease”),
which houses Trulia’s corporate headquarters and
Zillow’s personnel located in San Francisco. Pursuant to the
terms of the San Francisco Lease, we lease a total of 105,897
square feet, and we are obligated to make escalating monthly lease
payments through September 2023.
In November 2012, we entered into an operating lease in San
Francisco, California for 18,353 square feet under which we are
obligated to make escalating monthly lease payments which began in
December 2012 and continue through December 2018. In March 2015, we
ceased use of this space in connection with our February 2015
acquisition of Trulia, and in May 2015, we sublet this office space
to another occupant. Pursuant to the terms of the operating lease
and since October 2015, we lease an additional 8,311 square feet of
office space under the same terms and conditions, and we also
sublet this office space to another occupant.
New York, New York
In February 2014, we entered into an operating lease in New York
(as amended from time to time, the “New York Lease”).
Pursuant to the terms of the New York Lease, we lease a total of
approximately 39,900 square feet, and we are obligated to make
escalating monthly lease payments that began in August 2014 and
continue through November 2024. In July 2015, we sublet
approximately 6,650 square feet of this office space to another
occupant.
Denver, Colorado
In connection with our February 2015 acquisition of Trulia, we
assumed a lease agreement for office space in Denver. Pursuant to
the terms of the lease, we lease a total of 64,908 square feet, and
we are obligated to make escalating monthly lease payments through
October 2021.
Irvine, California
In April 2012, we entered into a lease agreement for office space
in Irvine (as amended from time to time, the “Irvine
Lease”). Pursuant to the terms of the Irvine Lease, we lease
a total of 60,074 square feet under which we are obligated to make
escalating monthly lease payments which began in August 2012 and
continue through July 2022.
We lease additional office space in Chicago, Illinois, Cincinnati,
Ohio, Lincoln, Nebraska, Atlanta, Georgia and Vancouver, British
Columbia.
Future minimum payments for all operating leases as of
December 31, 2016 are as follows (in thousands):
2017 $ 22,122
2018 23,623
2019 22,282
2020 22,712
2021 22,942
All future years 57,780
Total future minimum lease payments $ 171,461
Rent expense for the years ended December 31, 2016, 2015 and
2014, was $16.6 million, $14.9 million and $7.5 million,
respectively. Total minimum rentals to be received in the future
under noncancelable subleases as of December 31, 2016 is $3.3
million.
Purchase Commitments
As of December 31, 2016, we had non-cancelable purchase
commitments for content related to our mobile applications and
websites totaling $120.3 million. The amounts due for this content
as of December 31, 2016 are as follows (in thousands):
2017 $ 34,841
2018 32,750
2019 33,500
2020 14,750
2021 4,500
Total future purchase commitments $ 120,341
Letters of Credit
As of December 31, 2016, we have outstanding letters of credit
of approximately $5.2 million, $1.8 million, $1.1 million
and $1.1 million, respectively, which secure our lease obligations
in connection with the operating leases of our San Francisco,
Seattle, New York and Denver office spaces. Certain of the letters
of credit are unsecured obligations, and certain of the letters of
credit are secured by certificates of deposit held as collateral in
our name at a financial institution. The secured letters of credit
are classified as restricted cash in our consolidated balance
sheet.
Surety Bonds
In the course of business, we are required to provide financial
commitments in the form of surety bonds to third parties as a
guarantee of our performance on and our compliance with certain
obligations. If we were to fail to perform or comply with these
obligations, any draws upon surety bonds issued on our behalf would
then trigger our payment obligation to the surety bond issuer. We
have outstanding surety bonds issued for our benefit of
approximately $3.6 million and $3.4 million as of December 31,
2016 and 2015, respectively.
Legal Proceedings
We are involved in a number of legal proceedings concerning matters
arising in connection with the conduct of our business activities,
some of which are at preliminary stages and some of which seek an
indeterminate amount of damages. We regularly evaluate the status
of legal proceedings in which we are involved to assess whether a
loss is probable or there is a reasonable possibility that a loss
or additional loss may have been incurred to determine if accruals
are appropriate. We further evaluate each legal proceeding to
assess whether an estimate of possible loss or range of loss can be
made if accruals are not appropriate. For certain cases described
below, management is unable to provide a meaningful estimate of the
possible loss or range of possible loss because, among other
reasons, (i) the proceedings are in preliminary stages;
(ii) specific damages have not been sought; (iii) damages
sought are, in our view, unsupported and/or exaggerated;
(iv) there is uncertainty as to the outcome of pending appeals
or motions; (v) there are significant factual issues to be
resolved; and/or (vi) there are novel legal issues or
unsettled legal theories presented. For these cases, however,
management does not believe, based on currently available
information, that the outcomes of these proceedings will have a
material effect on our financial position, results of operations or
cash flow.
In September 2010, LendingTree, LLC (“LendingTree”)
filed a complaint against us for patent infringement in the U.S.
District Court for the Western District of North Carolina. The
complaint alleged, among other things, that our website technology
infringes two patents purporting to cover a “Method and
computer network for coordinating a loan over the internet.”
The complaint sought, among other things, a judgment that we
infringed certain patents held by LendingTree, an injunction
against the alleged infringing activities and an award for damages.
We denied the allegations and asserted defenses and counterclaims
seeking declarations that we are not infringing the patents and
that the patents are invalid. In March 2014, a federal jury found
that Zillow does not infringe the patents and that the patents
asserted by LendingTree are invalid. In April, 2014, LendingTree
filed two motions for judgment as a matter of law and for a new
trial, all of which we opposed. In October 2014, the Court issued
an order upholding the jury verdict and denying LendingTree’s
motions. In November 2014, LendingTree filed a notice of
appeal and, in September 2015, LendingTree filed its opening brief.
In December 2015, we filed a response brief to LendingTree’s
opening brief. A hearing regarding LendingTree’s appeal
occurred in June 2016. In July 2016, the Court of Appeals for the
Federal Circuit issued an order in which it found all claims
asserted against us invalid under Section 101. In September
2016, LendingTree filed notice that they would be filing to appeal
for a rehearing, but failed to file by the deadline. There are no
further avenues for appeal or rehearing; the order issued by the
Court of Appeals will stand.
In March 2014, Move, Inc., the National Association of Realtors and
three related entities (collectively, “Plaintiffs”),
filed a complaint against us and Errol Samuelson, our Chief
Industry Development Officer, in the Superior Court of the State of
Washington in King County, alleging, among other things, that
Zillow and Mr. Samuelson misappropriated plaintiffs’
trade secrets in connection with Mr. Samuelson joining Zillow
in March 2014. The Plaintiffs sought, among other things, an
injunction against the alleged misappropriations and
Mr. Samuelson working for us, as well as significant monetary
damages. In February 2015, Plaintiffs filed an amended complaint
that, among other things, added Curt Beardsley, our Vice President
of MLS Partnerships, as a defendant in the matter. In August 2015,
Zillow filed an amended answer and counterclaim against Plaintiffs
that alleged, among other things, that Plaintiffs violated the
Washington Trade Secrets Act and aided and abetted a breach of the
duty of confidentiality through the public filing of a document
that included Zillow’s confidential information and trade
secrets. On January 8, 2016, Plaintiffs filed a motion seeking
sanctions against defendants for alleged evidence spoliation. The
court held a spoliation hearing in April and on May 17, 2016
denied Plaintiffs motion for sanctions as to Zillow and
Mr. Samuelson. With respect to Mr. Beardsley, the Court
denied the motion as to terminating sanctions but granted the
motion ordering a permissive adverse inference instruction with
respect to five devices. Defendants each filed multiple motions for
partial summary judgment against Plaintiffs regarding, among other
things, certain of their claims of alleged misappropriation of
trade secrets. Defendants also filed various motions seeking to
exclude or limit damages. The court entered various rulings
granting and denying these motions in 2016. On June 6, 2016,
the Company reached an amicable resolution by way of a settlement
agreement and release (the “Settlement Agreement”) with
Plaintiffs pursuant to which the Company agreed to pay Plaintiffs
$130.0 million in connection with a release of all claims. On
June 16, 2016, pursuant to the terms agreed to between the
parties, the court dismissed all claims and counterclaims asserted
in this matter with prejudice. The Settlement Agreement does not
contain any admission of liability, wrongdoing, or responsibility
by any of the parties. The settlement was paid in June 2016 and was
recorded in general and administrative expenses in our consolidated
statements of operations for the year ended December 31,
2016.
In August 2014, four purported class action lawsuits were filed by
plaintiffs against Trulia and its directors, Zillow, and Zebra
Holdco, Inc. in connection with Zillow’s proposed acquisition
of Trulia. One of those purported class actions, captioned Collier
et al. v. Trulia, Inc., et al., was brought in the Superior Court
of the State of California for the County of San Francisco, however
on October 7, 2014, plaintiff in the Collier action filed a
new complaint in the Delaware Court of Chancery alleging
substantially the same claims and seeking substantially the same
relief as the original complaint filed in California. On
October 8, 2014, plaintiff in the Collier action filed a
request for dismissal of the California case without prejudice. The
other three of the purported class action lawsuits, captioned Shue
et al. v. Trulia, Inc., et al., Sciabacucci et al. v. Trulia, Inc.,
et al., and Steinberg et al. v. Trulia, Inc. et al., were brought
in the Delaware Court of Chancery. All four lawsuits allege that
Trulia’s directors breached their fiduciary duties to Trulia
stockholders, and that the other defendants aided and abetted such
breaches, by seeking to sell Trulia through an allegedly unfair
process and for an unfair price and on unfair terms. All lawsuits
sought, among other things, equitable relief that would have
enjoined the consummation of Zillow’s proposed acquisition of
Trulia and attorneys’ fees and costs. The Delaware actions
also sought rescission of the Merger Agreement or rescissory
damages and orders directing the defendants to account for alleged
damages suffered by the plaintiffs and the purported class as a
result of the defendants’ alleged wrongdoing. On
September 24, 2014, plaintiff in the Sciabacucci action filed
(1) a motion for expedited proceedings, (2) a motion for
a preliminary injunction, (3) a request for production of
documents from defendants, and (4) notice of
depositions. On October 13, 2014, the Delaware Court of
Chancery issued an order consolidating all of the Delaware actions
into one matter captioned In re Trulia, Inc. Stockholder
Litigation. On October 13 and 14, 2014, the above-referenced
motions were refiled under the consolidated case number. On
November 14, 2014, plaintiffs again refiled their motion for a
preliminary injunction challenging the proposed acquisition. On
November 19, 2014, the parties entered into a Memorandum of
Understanding, documenting an agreement-in-principle for the
settlement of the consolidated litigation, pursuant to which Trulia
agreed to make certain supplemental disclosures in a Form 8-K. The
Memorandum of Understanding was filed with the Court of Chancery
that same day. Thereafter, the parties negotiated and agreed to a
stipulation of settlement, and after notice to the class, the Court
of Chancery held a settlement hearing on September 16, 2015
where the Court requested the parties to make further submission in
connection with the settlement. By an opinion dated
January 22, 2016, the Court denied approval of the settlement,
and on April 6, 2016, the Court dismissed the claims brought
in the consolidated lawsuit with prejudice.
In July 2015, two purported class action lawsuits were filed
against us and each of our directors in the Superior Court of the
State of Washington in King County, alleging, among other things,
that the directors breached their fiduciary duties in connection
with the approval of the issuance of non-voting Class C capital
stock as a dividend. The complaints seek, among other things,
injunctive relief and unspecified monetary damages. A hearing on
the plaintiffs’ motion seeking a preliminary injunction to
enjoin the August 2015 distribution of shares of our Class C
capital stock as a dividend to our Class A and Class B common
shareholders was held on August 5, 2015, and the court denied
plaintiffs’ motion for a preliminary injunction. Plaintiffs
filed a consolidated class action complaint on September 18,
2015 naming and seeking relief from only our co-founders as
defendants. On December 4, 2015, defendants filed a motion to
dismiss the consolidated class action complaint, and on
March 28, 2016, the consolidated class action complaint was
dismissed with prejudice.
In March 2015, the Wage and Hour Division of the U.S. Department of
Labor (“DOL”) notified the Company that it was
initiating a compliance review to determine the Company’s
compliance with one or more federal labor laws enforced by the DOL.
The Company understands that the scope of this review is limited to
the review of the Company’s compliance with certain wage and
hour laws with respect to Zillow, Inc. inside sales consultants
during a two-year period between 2013 and 2015. In October 2015,
the DOL orally informed us that the compliance review was ongoing
but that, based on its preliminary findings, it believed the
Company may have failed to pay overtime to such inside sales
consultants. As discussed below, on May 5, 2016, Zillow, Inc.
agreed to settle a class action lawsuit which alleged, among other
things, claims that we failed to provide meal and rest breaks,
failed to pay overtime, and failed to keep accurate records of
employees’ hours worked. The settlement of the class action
lawsuit was contingent on Zillow, Inc.’s complete resolution
of the DOL compliance review. On November 28, 2016, Zillow,
Inc. entered into a settlement agreement with the DOL that resolved
the DOL’s compliance review. Under the terms of the
settlement agreement, Zillow, Inc. agreed that it will make the
voluntary payments contemplated by the class action
lawsuit settlement and establish and maintain certain
procedures to promote future compliance with the Fair Labor
Standards Act. We expect to make the voluntary payments
contemplated by the settlement agreement during 2017. The
settlement agreement with the DOL does not require Zillow, Inc. to
make any payments which are in addition to those contemplated by
the class action lawsuit settlement. Zillow has not
admitted liability with respect to either the DOL settlement or
the class action lawsuit settlement.
In November 2014, a former employee filed a putative class action
lawsuit against us in the United States District Court, Central
District of California, with the caption Ian Freeman v. Zillow,
Inc.
In July 2015, VHT, Inc. (“VHT”) filed a complaint
against us in the U.S. District Court for the Western District of
Washington alleging copyright infringement of VHT’s images on
the Zillow Digs site. In January 2016, VHT filed an amended
complaint alleging copyright infringement of VHT’s images on
the Zillow Digs site as well as the Zillow listing site. In
December 2016, the court granted a motion for partial summary
judgment that dismissed VHT’s claims with respect to the
Zillow listing site. A federal jury trial began on
January 23, 2017 that is expected to conclude in February
2017. We have not recorded an accrual related to this complaint as
of December 31, 2016, as we do not believe a loss is probable.
There is a reasonable possibility that a loss may be incurred;
however, the possible loss or range of loss is not estimable.
In addition to the matters discussed above, from time to time, we
are involved in litigation and claims that arise in the ordinary
course of business. Although we cannot be certain of the outcome of
any such litigation or claims, nor the amount of damages and
exposure that we could incur, we currently believe that the final
disposition of such matters will not have a material effect on our
business, financial position, results of operations or cash flow.
Regardless of the outcome, litigation can have an adverse impact on
us because of defense and settlement costs, diversion of management
resources and other factors.
Indemnifications
In the ordinary course of business, we enter into contractual
arrangements under which we agree to provide indemnification of
varying scope and terms to business partners and other parties with
respect to certain matters, including, but not limited to, losses
arising out of the breach of such agreements and out of
intellectual property infringement claims made by third parties. In
addition, we have agreements that indemnify certain issuers of
surety bonds against losses that they may incur as a result of
executing surety bonds on our behalf. For our indemnification
arrangements, payment may be conditional on the other party making
a claim pursuant to the procedures specified in the particular
contract. Further, our obligations under these agreements may be
limited in terms of time and/or amount, and in some instances, we
may have recourse against third parties for certain payments. In
addition, we have indemnification agreements with certain of our
directors and executive officers that require us, among other
things, to indemnify them against certain liabilities that may
arise by reason of their status or service as directors or
officers. The terms of such obligations may vary. |
