In the
United States Court of Appeals
For the Seventh Circuit
No. 10-2529
F AYE M ORRISON, et al.,
Plaintiffs-Appellants,
v.
YTB INTERNATIONAL, INC., et al.,
Defendants-Appellees.
Appeal from the United States District Court
for the Southern District of Illinois.
No. 08-565-GPM—G. Patrick Murphy, Judge.
A RGUED F EBRUARY 25, 2011—D ECIDED JULY 27, 2011
Before E ASTERBROOK, Chief Judge, and F LAUM and
R OVNER, Circuit Judges.
E ASTERBROOK, Chief Judge. Plaintiffs allege that YTB
International, a firm based in Illinois and doing busi-
ness as both YTB and YourTravelBiz.com, is violating
the Illinois Consumer Fraud Act. That statute forbids
pyramid schemes, 815 ILCS 505/2A(2), which it defines
as any venture in which a participant’s profit “is pri-
marily based upon the inducement of additional
2 No. 10-2529
persons . . . to participate in the same plan or operation
and is not primarily contingent on the volume or
quantity of goods, services, or other property sold or
distributed . . . to consumers.” 815 ILCS 505/1(g). YTB
(as we call defendants collectively) denies that its opera-
tion, in which its customers sell each other the right to
act as travel agencies, as well as selling travel services
to the public, comes within this statutory ban. (In dis-
cussing the prohibition of pyramid schemes, we do not
imply that this is the entirety of plaintiffs’ complaint.
They also accuse YTB of lying to potential customers.
For simplicity we limit discussion to the complaint’s
reliance on §505/2A(2).)
The district court did not decide whether YTB operates
a pyramid scheme. First it ruled that YTB’s transactions
with residents of states other than Illinois do not occur
predominantly in Illinois and so are outside the Act. 641
F. Supp. 2d 768 (S.D. Ill. 2009), reconsideration denied,
2010 U.S. Dist. L EXIS 38405 (Apr. 19, 2010). Then the
court dismissed the claims of persons who do live in
Illinois, concluding that the suit—as pared down by the
first step—is an intra-state controversy that belongs in
state court under 28 U.S.C. §1332(d)(4). 2010 U.S. Dist.
L EXIS 51970 (S.D. Ill. May 26, 2010).
Plaintiffs—seven persons plus one corporation—want
to represent a class of everyone, in any state, who has
participated in YTB’s home-travel-agency program. The
proposed class has more than 100 members, the stakes
exceed $5 million, and at least one plaintiff is a citizen of
a different state from at least one defendant (minimal
No. 10-2529 3
diversity). Plaintiffs invoked federal jurisdiction under
§1332(d)(2), part of the Class Action Fairness Act of
2005. YTB acknowledged that the complaint meets the
statutory requirements but sought to trim the suit by
contending that class members from states other than
Illinois lack standing to seek relief under the Illinois
Consumer Fraud Act. After the district court agreed
with that contention, YTB argued that the remaining
controversy is centered in Illinois, so that §1332(d)(4)
requires the court to “decline to exercise jurisdiction
under” §1332(d)(2). The district judge agreed with this
argument too, which brought the suit to an end.
There is a problem with this two-step procedure. Sec-
tion 1332(d)(4) applies when at least two-thirds of the
members of “the proposed class” reside in the same
state as the principal defendant. Plaintiffs have never
proposed a class limited to residents of Illinois. The
class that plaintiffs propose is nationwide; that’s why
they filed suit in federal court. Subject-matter jurisdic-
tion depends on the state of things when suit is filed;
what happens later does not detract from jurisdic-
tion already established. Thus we held in Johnson v.
Wattenbarger, 361 F.3d 991 (7th Cir. 2004), that a district
court may not dispose of some claims on the merits,
then dismiss the suit for lack of jurisdiction because the
remaining claims fall short of the minimum amount
in controversy. And we applied this principle to the
Class Action Fairness Act in Cunningham Charter Corp. v.
Learjet, Inc., 592 F.3d 805 (7th Cir. 2010), which holds
that §1332(d) supplies jurisdiction even if the district
judge decides not to certify the proposed class. What
4 No. 10-2529
matters is the size of the proposed class, and the stakes,
on the date a suit is filed (or removed under §1453, if
it began in state court). The “proposed class” in this suit
is not centered in Illinois, and §1332(d)(4) therefore
does not govern.
YTB believes that the district judge was entitled
to apply §1332(d)(4) to the all-Illinois class that re-
sulted from the dismissal of other plaintiffs for lack of
standing. After all, standing is a jurisdictional require-
ment, derived from the case-or-controversy language
in Article III. If the non-Illinois class members lacked
standing, then the only claim that was ever within the
district court’s jurisdiction was one by persons who live
in Illinois—and, if that’s so, then §1332(d)(4) requires
the court to send the class to state court.
Yet although the district judge many times wrote that
the non-Illinois plaintiffs lack “standing,” the word is
not an accurate description of what the court held. YTB
moved to dismiss the complaint with respect to non-
Illinois class members under Fed. R. Civ. P. 12(b)(6),
contending that choice-of-law principles articulated
in Avery v. State Farm Mutual Automobile Insurance
Co., 216 Ill. 2d 100, 179–87 (2005), show that the Illinois
Consumer Fraud Act does not apply to its customers out-
side Illinois. That’s a contention that the non-Illinois
class members should lose on the merits—which is what
the district court held. It dismissed the complaint with
prejudice. A jurisdictional dismissal, by contrast, would
have been under Rule 12(b)(1) rather than 12(b)(6), and
without prejudice.
No. 10-2529 5
The district court’s language was imprecise. There’s no
problem with standing. Plaintiffs have standing if they
have been injured, the defendants caused that injury,
and the injury can be redressed by a judicial decision.
Steel Co. v. Citizens for a Better Environment, 523 U.S. 83,
102–04 (1998). Plaintiffs allege that they are victims of a
pyramid scheme that saddled them with financial loss,
which YTB caused. The judiciary can redress that injury
by ordering YTB to pay money to the victims. Nothing
more is required for standing. If the Illinois Consumer
Fraud Act law does not apply because events were cen-
tered outside Illinois, then plaintiffs must rely on some
other state’s law; this application of choice-of-law princi-
ples has nothing to do with standing, though it may
affect whether a class should be certified—for a class
action arising under the consumer-fraud laws of all 50
states may not be manageable, even though an action
under one state’s law could be. See In re Bridgestone/
Firestone, Inc., Tires Products Liability Litigation, 288 F.3d
1012 (7th Cir. 2002). Cf. Wal-Mart Stores, Inc. v. Dukes,
No. 10-277 (U.S. June 20, 2011). That a plaintiff’s claim
under his preferred legal theory fails has nothing to do
with subject-matter jurisdiction, see Bell v. Hood, 327
U.S. 678 (1946), unless the claim is so feeble as to be
“essentially fictitious”. Hagans v. Lavine, 415 U.S. 528,
537 (1974). Not even YTB contends that the claim by the
non-Illinois residents is that weak.
To put this differently, subject-matter jurisdiction is
a synonym for adjudicatory competence. Morrison v.
National Australia Bank Ltd., 130 S. Ct. 2869, 2876–77 (2010).
A federal court is the wrong forum when there is
6 No. 10-2529
no case or controversy, or when Congress has not autho-
rized it to resolve a particular kind of dispute. Other
deficiencies in a plaintiff’s claim concern the merits
rather than subject-matter jurisdiction. Cf. Bond v.
United States, 131 S. Ct. 2355 (2011). All class members (no
matter where they live) have an Article III controversy
with YTB, and §1332(d) authorizes federal judges to
resolve big-stakes, multi-state class actions. Most mem-
bers of the only “proposed class” live outside Illinois.
It follows that §1332(d)(4) does not apply. The jurisdic-
tion created by §1332(d) covers the case as a whole; re-
solving any part of it on the merits means that it is in
federal court until the job has been finished.
We recognize that §1332(d)(4) does not itself diminish
federal jurisdiction. It directs district judges to “decline
to exercise” jurisdiction otherwise present and thus is
akin to abstention. See Graphic Communications Union v.
CVS Caremark Corp., 636 F.3d 971, 973 (8th Cir. 2011). But
the language of §1332(d)(4) does not suggest that this
principle applies to a subset of the plaintiffs; it takes
the “proposed class” as a given. If the suit as a whole
is predominantly interstate, the district court must
resolve the whole.
This means that we also need to decide whether the
district court was right to think that the non-Illinois
plaintiffs lack a valid claim under the Consumer
Fraud Act. Avery concludes that the Act applies to non-
residents’ claims when “the circumstances that relate to
the disputed transaction occur primarily and substantially
in Illinois.” 216 Ill. 2d at 187. That’s a fuzzy standard.
No. 10-2529 7
The state court tried to curtail uncertainty by giving
one illustration of events that satisfy the standard, and
another that does not. It said that these circumstances
supported use of the Act in Martin v. Heinold Commodities,
Inc., 117 Ill. 2d 67 (1987), which Avery summarized this
way:
(1) the contracts containing the deceptive state-
ments were all executed in Illinois; (2) the defen-
dant’s principal place of business was in Illinois;
(3) the contract contained express choice-of-law
and forum-selection clauses specifying that any
litigation would be conducted in Illinois under
Illinois law; (4) complaints regarding the defen-
dant’s performance were to be directed to its
Chicago office; and (5) payments for the defen-
dant’s services were to be sent to its Chicago office.
Avery, 216 Ill. 2d at 189. In Avery, by contrast, the lead
plaintiff’s circumstances were:
Avery resides in Louisiana, not Illinois. His
car was garaged in Louisiana and his accident
occurred there as well. Avery’s estimate
was written in Louisiana and he received
his “Quality Replacement Parts” brochure in
Louisiana. The alleged deception in this case—the
failure to disclose the inferiority of non-OEM
parts [which State Farm uses to repair its cus-
tomers’ cars following accidents]—also occurred
in Louisiana. The repair of Avery’s car took place
in Louisiana. Damage to Avery, if any, occurred
in Louisiana. Moreover, there is no evidence
8 No. 10-2529
that Avery ever met or talked to a State Farm
employee who works in Illinois. Avery’s contact
with State Farm was through a Louisiana agent, a
Louisiana claims representative, and a Louisiana
adjustor. In sum, the overwhelming majority of
the circumstances which relate to Avery’s . . .
claims proceedings—the disputed transactions
in this case—occurred outside Illinois.
216 Ill. 2d at 188. The only fact favoring application of
Illinois law was that State Farm’s headquarters, where
the replacement-parts policy was adopted, is in Illinois.
Avery had no contacts with Illinois, and the policy was
applied to him entirely in Louisiana. The Supreme Court
of Illinois held that Louisiana rather than Illinois law
should govern his situation; after all, Louisiana might
have no problem with the use of non–OEM (“original
equipment manufacturer”) parts even if Illinois wants
its residents to get OEM parts and pay more for
insurance in order to cover the cost. Insurance policies
in Illinois and Louisiana could be priced differently
and carry different benefits.
Our plaintiffs maintain that their situation is like
Martin’s. Their complaint alleges that they dealt directly
with YTB, which does business in Illinois, and that all
of the travel-agency deals were executed in Illinois—or
at least “accepted” by YTB in Illinois after being placed
over the Internet. YTB required every plaintiff to sign a
contract that provides for litigation in Illinois under
Illinois law. Avery holds that a choice-of-law clause is not
dispositive, because a claim under the Consumer Fraud
No. 10-2529 9
Act is independent of the contract, see 216 Ill. 2d at 168–70,
but Martin says that it is nonetheless a mark in plaintiffs’
favor. Plaintiffs also allege that their payments were
sent to YTB in Illinois, and that any payments from
YTB when they secured other agents (a vital part of a
pyramid scheme) came from Illinois. They assert that
any complaints had to be sent to YTB in Illinois and
were resolved by it in Illinois. Unlike State Farm, YTB
does not have offices or representatives in other states;
the only way to deal with YTB is through its head-
quarters in Illinois. YTB also conducted training sessions,
regional meetings, and “red carpet days” for members
of the plaintiff class in Illinois.
Many things that plaintiffs say about their relations
with YTB could be inverted. If Faye Morrison (the lead
plaintiff) dealt with YTB in Illinois, it dealt with her in
Missouri. (Morrison and three other plaintiffs live
in Missouri; one lives in Georgia; one lives in Utah; one
lives in Illinois. The corporate plaintiff is a Missouri
firm with its principal place of business in Missouri.)
Morrison sent payments to Illinois, which means that any
loss occurred in Missouri. YTB and Morrison transacted
electronically through a network that is no more “in”
Illinois than it is in Thailand. This could be important
if applying Illinois law would frustrate some policy of
Missouri, Georgia, Utah, or another state. Some states
allow gambling; others don’t. Some allow fireworks;
others don’t. Perhaps some allow pyramid schemes.
Expanding Illinois law in a way that overrode the
domestic policy of other states would be problematic. See
10 No. 10-2529
Midwest Title Loans, Inc. v. Mills, 593 F.3d 660 (7th Cir.
2010).
Yet YTB does not contend that any state allows
pyramid schemes, or even that any state defines
a pyramid scheme differently from the way Illinois
does. It contends that its business is entirely lawful,
because it does not operate a pyramid scheme on any
understanding of that phrase. This argues for uniform
application of Illinois law—which is what plaintiffs
want, what YTB wants (or said it wants when it required
all plaintiffs to assent to the application of Illinois law),
and what will enable one court to resolve the controversy
under the law of the state in which YTB operates
its business.
Perhaps this is not enough to compel a conclusion that
Illinois law applies; Avery’s standard is not exactly self-
defining, and the Supreme Court of Illinois said that “each
case must be decided on its own facts” (216 Ill. 2d at 187),
a formula that gives the trier of fact substantial latitude
and implies deferential appellate review. But if we
can’t say that the complaint and answer contain enough
to point unerringly to Illinois law, we can say that the
complaint does not defeat application of Illinois law.
Recall that the district court dismissed the out-of-Illinois
plaintiffs’ claim under Rule 12(b)(6). It did not take evi-
dence, make findings of fact, or weigh the incommensura-
ble factors in Avery’s formula; it was not entitled to do
any of these things on a motion to dismiss the complaint.
Complaints need not do more than narrate a plausible
claim for relief. See Bell Atlantic Corp. v. Twombly, 550
No. 10-2529 11
U.S. 544 (2007); Ashcroft v. Iqbal, 129 S. Ct. 1937 (2009).
Plaintiffs may not be able to prove what they allege, or
the trier of fact eventually may characterize the facts in
a way that defeats the non-resident plaintiffs’ reliance
on Illinois law, but this complaint survives a motion to
dismiss under Rule 12(b)(6).
One last issue. YTB contends that some, maybe all, of
the plaintiffs are businesses and therefore cannot sue
under the Illinois Consumer Fraud Act. YTB calls the
plaintiffs businesses because they sought financial gain.
If this makes a person a “business,” however, then the
statutory ban on pyramid schemes is a dead letter. The
circumstances that define a venture as a pyramid
scheme also would define the participants as “busi-
nesses,” which would put them outside the Act.
A federal court should not read a state law in a way
that makes it self-defeating. Plaintiffs are consumers in
the sense that they purchased a product from YTB. That
YTB’s product is a (supposedly) money-making program
does not make plaintiffs “businesses” in their dealings
with YTB, even if they would be classified as businesses
in their dealings with people who want to get from
Los Angeles to Lahore. Many decisions hold that pur-
chasers of home-business packages are “consumers” for
the purpose of the Federal Trade Commission Act. See,
e.g., FTC v. Freecom Communications, Inc., 401 F.3d 1193
(10th Cir. 2005); FTC v. Medical Billers Network, Inc., 543
F. Supp. 2d 283 (S.D.N.Y. 2008). Federal courts have
reached the same conclusion for state laws similar to
the Illinois Consumer Fraud Act. See, e.g., Hofstetter v.
12 No. 10-2529
Fletcher, 905 F.2d 897 (6th Cir. 1988). No decision by an
Illinois court suggests that it would disagree with that
approach under the Consumer Fraud Act. The Illinois
judiciary has yet to address the subject one way or the
other, so we lack any basis for predicting that it would
agree with YTB rather than precedents in other jurisdic-
tions.
The judgment is vacated, and the case is remanded
for further proceedings consistent with this opinion.
7-27-11