Morrison v. YTB International, Inc.
2011 U.S. App. LEXIS 15417
| 7th Cir. | 2011Background
- Plaintiffs allege YTB violates the Illinois Consumer Fraud Act by operating a purported pyramid scheme; district court never ruled on the pyramid claim but narrowed to Illinois-resident claims.
- Plaintiffs seek a nationwide class under CAFA §1332(d)(2); class includes more than 100 members and stakes exceed $5 million, with minimal diversity.
- District court dismissed non-Illinois claims under Rule 12(b)(6) applying Avery/Affirmative state-law analysis, treating them as merits-based rather than jurisdictional issues.
- District court held Illinois CFA does not apply to nonresidents, effectively depriving non-Illinois plaintiffs of standing to pursue CFA claims.
- Seventh Circuit held §1332(d)(4) does not govern because the proposed class is not predominantly Illinois; jurisdiction attaches to the entire class at filing.
- Court vacates the judgment and remands for proceedings consistent with its opinion, allowing the case to proceed under applicable law and merits.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether §1332(d)(4) applies to this nationwide class | Morrison argues the class is nationwide; §1332(d)(4) cannot require dismissal to state court. | YTB contends most members are Illinois residents, so §1332(d)(4) should require dismissal. | §1332(d)(4) does not apply. |
| Whether non-Illinois claims lack jurisdiction or standing | All class members have an Article III controversy; jurisdiction remains intact. | Nonresidents should be governed by non-Illinois law reducing claims under the CFA. | Subject-matter jurisdiction exists for all class members; dismissal on standing grounds was improper. |
| Whether Illinois CFA applies to nonresidents under Avery/Martin | Illinois law should apply due to direct dealings with YTB in Illinois and Illinois-based contracts. | Avery/Martin show uncertainty; choice-of-law cannot defeat jurisdiction; nonresidents may be governed by other states’ law. | Avery is not dispositive; Illinois law may apply depending on the circumstances; complaint survives 12(b)(6). |
| Whether the complaint survives Rule 12(b)(6) to proceed on the merits | Complaint plausibly alleges a CFA violation as to all class members. | Nonresidents’ CFA claims fail under Avery analysis as a merits issue. | Complaint survives 12(b)(6); merits and choice-of-law determinations remain for later proceedings. |
| Whether plaintiffs are properly characterized as consumers under CFA | Plaintiffs are consumers who purchased a program from YTB and were injured. | Plaintiffs are businesses seeking profit and thus outside CFA scope. | Plaintiffs are consumers for CFA purposes; not all plaintiffs are businesses barred by CFA. |
Key Cases Cited
- Johnson v. Wattenbarger, 361 F.3d 991 (7th Cir. 2004) (proposed class size governs CAFA jurisdiction at filing)
- Cunningham Charter Corp. v. Learjet, Inc., 592 F.3d 805 (7th Cir. 2010) (CAFA jurisdiction persists even if class not certified)
- Avery v. State Farm Mutual Automobile Insurance Co., 216 Ill.2d 100 (Ill. 2005) (Illinois CFA applicability depends on where circumstances occur)
- Martin v. Heinold Commodities, Inc., 117 Ill.2d 67 (Ill. 1987) (illustrative factors for applying Illinois law to CFA claims)
- Steel Co. v. Citizens for a Better Environment, 523 U.S. 83 (U.S. 1998) (standing requires actual injury redressable by court)
- Bell v. Hood, 327 U.S. 678 (U.S. 1946) (standing and jurisdictional questions are distinct)
- Hagans v. Lavine, 415 U.S. 528 (U.S. 1974) (standing and jurisdiction distinctions clarified)
- Midwest Title Loans, Inc. v. Mills, 593 F.3d 660 (7th Cir. 2010) (statutory scheme and cross-border considerations in multi-state actions)
- Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541 (U.S. Supreme Court 2011) (class action standards and commonality in nationwide suits)