In Morrison v. YTB International Inc., 649 F.3d 533 (7th Cir. 2011), the plaintiffs filed a nationwide class action in federal court on behalf of all those who had participated in the defendant’s home-travel-agency program. The plaintiffs alleged that the defendants operated a pyramid scheme in violation of the Illinois Consumer Fraud Act. In response to the complaint, the defendants sought to eliminate all non-Illinois residents from the putative class, arguing that out-of-state plaintiffs had no standing to seek relief under the Illinois Consumer Fraud Act. The district court agreed. The defendants then argued that the court should decline to exercise jurisdiction over the remainder of the case under 28 U.S.C. § 1332(d)(4), CAFA’s local controversy exception, because it was just an intra-state controversy. The district court dismissed the action with prejudice, and the plaintiffs appealed.
The Seventh Circuit rejected the district court’s two-step approach to determining jurisdiction. First, the Court observed that 28 U.S.C. §1332(d)(4) applies only when at least two thirds of the class are residents of the same state as the principle defendant. Jurisdiction is determined “on the state of things when suit is filed.” When this case was filed the proposed class was a nationwide class.
The Seventh Circuit also rejected the defendants’ argument that the non-resident proposed class members lacked “standing” to sue so the case as filed was subject to the local controversy exception. The Court noted that the defendants had argued in the district court that the non-resident’s claims should be dismissed on the merits under Rule 12(b)(6), not dismissed due to lack of standing under Rule 12(b)(1). Furthermore, the non-resident plaintiffs did not lack “standing” to sue if they had been injured by the defendants and the injury could be redressed by a judicial decision. If the non-resident plaintiffs’ claims arose under another state’s law, then choice of law principles were implicated, not “standing” issues.
The Seventh Circuit then looked at the district court’s choice of law analysis under the Illinois Consumer Fraud Act and concluded that on a motion to dismiss, where the court neither took evidence nor made findings of fact, and where the complaint only had to state a plausible claim for relief, the non-resident defendants had pleaded such a claim.