Sunday, March 22, 2015

Within Days of Indianapolis Council Vote on $18.5 Million Subsidy, Angie's List Is Hit With New Lawsuit Alleging Consumer Fraud

Within days of the Indianapolis City-County Council voting to give Angie's List a second round of financial subsidies, this one worth $18.5 million, the Indianapolis company finds itself hit with yet another federal lawsuit, this time one alleging consumer fraud.

On March 11, 2015, a woman filed a class action federal lawsuit in the Eastern District  of Pennsylvania seeking monetary damages and injunctive relief from Angie's List based on the allegation that the company uses the "fraudulent, deceptive, and misleading practice of luring consumers to pay for access to purportedly unfiltered reviews, ratings, and search result rankings by consumers of local service providers."  To the contrary, the complaint says Angie's List "secretly manipulates reviews, ratings and serach results for the company's own economic gain."

The lawsuit's allegations continue:
3.  According to Angie’s List, a service provider’s position in a member’s search results "is determined by their recent grades and number of reviews. Companies with the best
ratings from members will appear first." 
4.  Angie’s List falsely assures consumers that "service providers cannot influence their ratings on Angie’s List,"2 "[b]usinesses don’t pay,"3 and "[c]ompanies can’t pay to be on Angie’s List."4 Instead, Angie’s List continuously emphasizes its unique "consumer-first philosophy," which manifests in the company’s "unwavering commitment to placing the interests of the consumer first[.]"5 By "always placing the interests of the consumer first," Angie’s List "help[s] [its] members find the best provider for their local service needs."   
5.  These and similar statements dupe potential and existing members into believing that Angie’s List reviews, ratings, and search results are valuable and trustworthy because they reflect unfiltered feedback of consumers, for consumers. Angie’s List’s standardized form membership agreement (the "Membership Agreement," Ex. A hereto) even declares that the company "simply acts a passive conduit" for reviews and ratings "based upon actual first-hand experiences other users have had[,]" and that Angie’s List "does not endorse" any service providers. But this is not the case.  
 6.   Angie’s List wrongfully conceals from consumers that service providers can and do pay to influence "the List" in at least three significant ways, in exchange for paying substantial "advertising" fees:
The complaint goes on to allege that 1) the company alters the search results so that companies that pay more can appear higher in the rankings; 2) suppress negative reviews for companies that pay Angie's List; and 3) threaten to suppress positive reviews for those companies that don't pay.

The lawsuit claims Angie's List "deceives, defrauds, and misleads its existing and potential member base" and that Angie's List does not help consumers find the 'best' service provider, but rather the one who paid the most money to Angie's List."  The lawsuit alleges that this was Plaintiff's experience with the company:
47.  In the Fall of 2014, Plaintiff hired a contractor she identified through the Angie’s List service to remodel her kitchen. At the time of her search, there were no visible reviews about the contractor on Unfortunately, the contractor did not finish the agreed-upon work and refused to return the $4,000 Plaintiff had paid to him.
48. Shortly thereafter, Plaintiff submitted a negative review of the contractor to Angie’s List. After doing so, Plaintiff was able to see, for the first time, a number of other negative reviews of the contractor written earlier by other members prior to Plaintiff’s hiring the same contractor. That is, up until Plaintiff submitted her own negative review, she was never aware that other members had written negative reviews about the same contractor. One newly-revealed negative review complained about the same exact issue that Plaintiff experienced with the contractor. Plaintiff would not have hired the contractor had she seen these negative reviews earlier.
49.  When Plaintiff confronted Angie’s List about this, an Angie’s List representative did not characterize the suppression of negative reviews as an oversight or a technological error. In fact, upon information and belief, it was because the service provider paid money to Angie’s List.  
50.  Had Plaintiff seen the previously written negative reviews, she would not have hired the contractor. After all, Plaintiff was paying for access to other consumers’ reviews. At a minimum, Plaintiff had a reasonable expectation she would have access to all reviews for a given service provider.  
51.  Meanwhile, Plaintiff discussed her ordeal with a different contractor, an electrician, whom she knew. The electrician told Plaintiff that he pays "to be at the top" of search results on Until this conversation, Plaintiff did not know, and had no reasonable way of knowing, that – contrary to Angie’s List’s advertising and other representations – service providers can and do pay to manipulate search results on
The lawsuit's legal theories are breach of contract, fraud and fraudulent inducement, unjust enrichment and a violation of Pennsylvania's unfair trade practices and consumer protection law.  The lawsuit ask that all paying members of Angie's List in the United States and Pennsylvania be certified as class action plaintiffs and that they be refunded their dues, awarded actual and punitive damages as well as attorney's fees.  Perhaps more importantly going forward, the Plaintiff asks that Angie's List be enjoined from its current business practices outlined in the complaint.
The Angie's List $18.5 million subsidy will be voted on by the Indianapolis City-County Council at its Monday, April 30th meeting.  Councilors might ask the company about this promise contained in the Financing Agreement between Angie's List and the City of Indianapolis:
There are no actions, suits or proceedings pending, or, to the knowledge of the Company, threatened, before any court, administrative agency or arbitrator which, individually or in the aggregate, might result in any material adverse change in the financial condition of the Company or might impair the ability of the Company to perform its obligations under this Financing Agreement.
This section was included despite the fact that there are other consumer and shareholder lawsuits pending against Angie's List.


Anonymous said...

Republicans love giving money away just as much as Democrats do. Instead of giving it to the poor, sick, and old; they give it to millionaires and billionaires. How can they claim to be for a free market when they help some businesses but not others? They line the pockets of the Simons, the Irsays and the George families while claiming the people on food stamps are bankrupting us. Lying, corrupt, racist hypocrites.

Anonymous said...

Well, well, well, no surprise that Angie's List is a leaking ship at sea and now tilting toward the bottom in Titanic fashion.

Let's see if that Municipal Economics 101 illiterate now representing Council District 16 by the vote of his Democrat Party marchine but not by the vote of his new District 16 constituents reiterates his incredible statement that by his voting for the acrid Angie's List umpteenth taxpayer dollar give-away he can make money with our Marion County taxpayer money. Zach Adamson, like Ricky Ricardo, now has a lot of 'splain' to do with the revelation that Angie's List is hit with a new lawsuit, this time centering about consumer fraud. I believe the lawsuit filed previous to this one is about allegations of securities fraud.

Adamson apparently believes that a company that has never made a profit and has seen its stock plummet from around $17 per share to only about $6.50 per share at weekend exchange close deserves our hard earned tax dollars. Is Zach Adamson really a fool or is he really Just Stupid? The recent news about the phony company that is Angie's List- possibly more accurately described as a Ponzi scheme- proves how wrong this guy is when it comes to stewardship of our tax dollars in this matter.

Not only liberal Democrat Adamson, but what say the other Councilors from both parties who seem to be literally aching to hand over our hard earned taxes to crony insiders like Angie Hicks and Bill Osterle?

Zach Adamson actually makes me want to vote for Sally Spiers and I've hardly met a more smug (without reason) or arrogant (without reason) candidate with a record losing streak (for a reason) than her.

If this deal passes the Council, foolish and phony "built in safe guards" or no, then we know just how corrupt is each Indianapolis City County Councilor who votes for this stinking scheme.

Anonymous said...

Great post, thank you Mr. Ogden!
The financing agreement states Angies is an Indiana corporation while their Sec filings say they are a Delaware corporation... Am I missing something? Does this have any legal consequence?
Also I noticed the Company is allowed to assign rights of this agreement to Company Parties- does that mean Angies List Inc can pass the money right on to another entity owning or developing the real estate on behalf on the Company? I take that to mean Osterle and friends can form another LLC, build and own the improvements, and lease the facility to Angies for whatever rate they see fit, essentially keeping the city money for themselves and never really pass along any benefit to the Company? Please tell me this is incorrect!! This appears to be a standard form agreement the city uses for similar deals/scams.

Paul K. Ogden said...
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Paul K. Ogden said...
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Paul K. Ogden said...

Anon 9:16, it's a bit confusing. Angie's List, as with many corporations, is organized under the laws of the state of Delaware. But the company's corporate office is located here. I looked into it a bit, and I don't think it matters that much.

I too noticed language in the Financing Agreement about assigning the rights of the agreement and selling the company. The language in the document frankly seems contradictory. I was hoping to get my hands on another document, probably called the operating agreement, that has all of Angie's List's promises spelled out. Although I have about 5 documents relating to the Angie's List subsidy deal, none of them are the legally-binding document with the Angie's List promises. Not only have I not seen it, I have yet to talk to anyone who has actually seen that critical document.

I want to see it because I suspect it's very one-sided deal, just like the ROC agreement.

Flogger said...

I suspect based upon past actions the City-County Council will vote for Angie's Corporate Welfare Scheme. The PA Lawsuit will be dismissed as somehow irrelevant by the City-County Council. The Closing Price for Angie's was $26.56 on June 3rd, 2013. The stock price has went steadily down hill since then, Yesterday it closed at $6.76 a share. As far as noticed they do not pay any Dividends.

According to Edgar Online Angie's List has had a Net Loss every since 2012.

I suppose the City-County Council will justify the Corporate Welfare by mumbling about this being Jobs Bill.