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Judge tosses Angie's List suit, but gives investors chance to refile

June 19, 2015

A federal judge on Thursday dismissed a class-action fraud lawsuit against Angie's List Inc., concluding plaintifs failed to show that sharp cuts to membership fees the company rolled out in 2013 demonstrated the inaccuracy of executives' prior claims about its business model and caused the stock price to fall.

Angie's List connects paying members with local service providers, many of which advertise on its platform. The plaintiffs, which filed suits in late 2013 and early 2014 that were later consolidated into one case, allege that its executives misled them by, among other things, touting the company's paid membership pool as a pillar of its business strategy and then slashing prices as much as 75 percent.

But U.S. District Court Judge William T. Lawrence sided with Angie's List, ruling the plaintiffs failed to show how the price cuts affected the company. He gave them until July 16 to file an amended complaint that attempts to address the lack of specificity.

"It may be true that decreasing the membership fee—from, for example $40 to $10—did indeed attract a 'lower quality' consumer thus making Angie’s List less attractive to advertisers," Lawrence wrote. "Unfortunately for the Plaintiffs, however, there is nothing to support that assumption in the Complaint."

Darren Check, a partner with Pennsylvania-based Kessler Topaz Meltzer & Check, LLP representing plaintiffs, declined to comment Thursday evening. A spokeswoman for Angie's List said the company doesn't comment on litigation.

The original lawsuit, filed in December 2013, alleged that false statements by executives artificially inflated the company's stock price between February 2013 and October 2013. Shares of Angie's List peaked in July of that year at $28. They now fetch around $6.35.

The suit said Angie's List executives often had noted that its paid membership model cultivated a large base of engaged, affluent members, which provided a superior advertising platform for service providers.

By cutting prices, the company impaired its "ability to offer service providers a 'qualified' and 'engaged' pool of potential customers—the very asset that the Company routinely touted as the critical feature in securing and maintaining advertising revenues and in differentiating itself from its competitors," the suit alleged.

Plaintiffs also alleged the price cuts compromised subscription revenue predictability—which Angie's List often touted—and undermined the company's assertions that its older, mature markets were exemplary models for newer markets.

But Lawrence said the suit left many questions unanswered, including whether service providers declined to renew or enter advertising contracts because the membership base was of a lower quality.

"In all, the Court finds that the assertions in the Plaintiffs’ Complaint are simply too vague and attenuated to withstand the heightened pleading requirements," Lawrence wrote. 

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