Morrison v. Ytb Intern., Inc.

• Decision Date: 05 June 2009
• Docket Number: Civil No. 08-579-GPM.,Civil No. 08-565-GPM.
• Citation: 641 F.Supp.2d 768
• Parties: Faye MORRISON, Kwame Thompson, John Stull, Jeffrey Hartman, Polly Hartman, JPH Development, Inc., Grace Perry, and Courtney Speed, individually and on behalf of similarly situated individuals, Plaintiffs, v. YTB INTERNATIONAL, INC., YourTravelBiz.com, YTB Travel Network, Inc., YTB Travel Network of Illinois, Inc., REZconnect Technologies, Inc., J. Lloyd Tomer, J. Scott Tomer, J. Kim Sorensen, Andrew Cauthen, and Michael Brent, Defendants.
• Court: U.S. District Court — Southern District of Illinois

641 F.Supp.2d 768

Faye MORRISON, Kwame Thompson, John Stull, Jeffrey Hartman, Polly Hartman, JPH Development, Inc., Grace Perry, and Courtney Speed, individually and on behalf of similarly situated individuals, Plaintiffs, v. YTB INTERNATIONAL, INC., YourTravelBiz.com, YTB Travel Network, Inc., YTB Travel Network of Illinois, Inc., REZconnect Technologies, Inc., J. Lloyd Tomer, J. Scott Tomer, J. Kim Sorensen, Andrew Cauthen, and Michael Brent, Defendants.

Civil No. 08-565-GPM.

Civil No. 08-579-GPM.

United States District Court, S.D. Illinois.

June 5, 2009.

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Christian G. Montroy, Montroy Law Offices, Brian J. Massimino, Witzel & Kanzler, LLC, St. Louis, IL, for Plaintiffs.

Jonathan S. Quinn, Max A. Stein, Michael D. Richman, Reed Smith, Chicago, IL, Judy L. Cates, Cates Law Firm, Swansea, IL, for Defendants.

MEMORANDUM AND ORDER

MURPHY, District Judge:

INTRODUCTION

The matter before the Court involves two putative class actions that have been consolidated. Plaintiffs Faye Morrison, Kwame Thompson, John Stull, Jeffrey Hartman, Polly Hartman, JPH Development, Inc., ("JPH") Grace Perry, and Courtney Speed assert two claims under the Illinois Consumer Fraud and Deceptive Business Practices Act, 815 ILCS 505/1 et seq., ("ICFA") on behalf of themselves and a proposed class of similarly situated persons against Defendants YTB International, Inc., ("YTB International") YourTravelBiz.com, ("YourTravelBiz") YTB Travel Network, Inc., ("YTBTN") YTB Travel Network of Illinois, Inc., ("YTBTNI"), REZconnect Technologies, Inc., ("REZconnect") J. Lloyd Tomer, J. Scott Tomer, J. Kim Sorensen, Andrew Cauthen, and Michael Brent. Federal subject matter jurisdiction is premised on diversity pursuant to 28 U.S.C. § 1332, as amended by the Class Action Fairness Act of 2005, Pub. L. No. 109-2, 119 Stat. 4 (codified in scattered sections of 28 U.S.C.) ("CAFA"). The consolidated cases currently are before the Court on Defendants' motion to dismiss for failure to state a claim (Doc. 43) and the motion to dismiss for lack of personal jurisdiction brought by REZconnect and Michael Brent (Doc. 41).

It appears from the Consolidated Complaint in this cause (Doc. 29) that Faye Morrison, Jeff Hartman, Polly Hartman, and Courtney Speed are Missouri citizens, Kwame Thompson is a Georgia citizen, John Stull is an Illinois citizen, and Grace Perry is a Utah citizen.¹ It likewise appears that YTB International, YourTravelBiz, and YTBTN are incorporated under the laws of the State of Delaware and have their principal places of business in Wood River, Illinois, while YTBTNI is incorporated under the laws of the State of Illinois and has its principal place of business in Wood River. REZconnect is incorporated under the laws of the State of Delaware and has its principal place of business in New Jersey. J. Lloyd Tomer is an Illinois citizen domiciled in Edwardsville, Illinois, and a founder of YTB International as well as the Chairman of its Board. J. Scott Tomer is an Illinois citizen domiciled in Edwardsville and a founder of YTB International as well as its Chief Executive Officer ("CEO"). J. Kim Sorensen is an Illinois citizen domiciled in Edwardsville and a founder and president of YTB International who also serves as the CEO of YTBTN. Andrew Cauthen is an Illinois citizen domiciled in Edwardsville and the president and chief executive of YourTravelBiz. Michael Brent is a New Jersey citizen and the CEO of REZconnect.

According to the Consolidated Complaint YTB International is the parent company of YourTravelBiz, YTBTN, and REZconnect, which are wholly owned subsidiaries of YTB International; YTBTNI is a subsidiary of YTBTN. The Consolidated Complaint alleges that YTB International and its subsidiaries earn substantial revenues by selling online travel agencies to persons like Plaintiffs who are interested in working part-time or full-time in the travel industry. According to the Consolidated Complaint, YourTravelBiz markets online travel agencies through a network of Independent Marketing Representatives ("IMRs"); the sales price for a travel agency is a one-time fee of as much as $449.95 and a monthly fee of $49.95 thereafter. The travel agencies are sold by IMRs to Referring Travel Agents ("RTAs"). The Consolidated Complaint alleges that Defendants provide incentives for IMRs to buy their own travel agencies by offering to reimburse travel agency fees to IMRs under certain circumstances. For example, an IMR/RTA who sells three travel agencies to RTAs who become certified qualifies for reimbursement of that IMR/RTA's initial one-time RTA fee. Similarly, an IMR/RTA who sells six travel agencies qualifies for reimbursement of that IMR/RTA's monthly RTA fee for every month during which the sold travel agencies remain active. The Consolidated Complaint alleges that IMRs receive "marketing commissions" based upon the sale of travel agencies, and that in addition to earning direct marketing commissions by personally recruiting RTAs to buy travel agencies, IMRs also earn marketing commissions based upon all "downline" travel agency sales made either by the original IMR's recruits or by subsequent generations of recruits. YTBTN along with its subsidiary YTBTNI oversees travel-related services provided by or through RTAs. REZconnect, according to the Consolidated Complaint, operates as a travel vendor relationship management company for travel agencies. The Consolidated Complaint alleges that RTAs are required to utilize the services provided by REZconnect including, but not limited to, online services.

Count I of the Consolidated Complaint alleges a violation of 815 ILCS 505/2A(2) in that Defendants' business constitutes an illegal pyramid sales scheme as defined by 815 ILCS 505/1(g).² Specifically, Plaintiffs allege, they paid money to YTB International and/or one or more of its subsidiaries in the form of fees for travel agencies and, in exchange, Plaintiffs received the opportunity to earn marketing commissions and rebates, or reimbursements, of RTA fees primarily based upon the inducement of additional persons to participate in the pyramid scheme by buying travel agencies and not primarily based upon the sale of travel or any other goods or services to consumers. Count II of the Consolidated Complaint alleges a violation of 815 ILCS 505/2A(1), in that Defendants' actions constitute an illegal chain referral sales technique.³ Specifically, Plaintiffs allege, YTB International, by and though its subsidiaries, induced Plaintiffs to buy travel agencies by promising to reimburse travel agency fees contingent upon the sale of additional travel agencies to the RTAs enrolled by the original IMR. Plaintiffs, all of whom are onetime RTAs and IMRs, seek $100,000,000 in actual and punitive damages as well as injunctive relief on behalf of themselves and a proposed class defined as "All IMRs who paid non-reimbursed RTA fees to YTB International, Inc. and/or any of its subsidiaries." Doc. 29 ¶ 40.

ANALYSIS

A. Motion to Dismiss for Failure to State a Claim

Turning first to Defendants' motion to dismiss for failure to state a claim, as an initial matter the Court notes the standard under which it must evaluate the instant motion. On a motion to dismiss for failure to state a claim upon which relief can be granted, the Court accepts all well-pleaded allegations in a plaintiff's complaint as true. See Fed.R.Civ.P. 12(b)(6); Cleveland v. Rotman, 297 F.3d 569, 571 (7th Cir.2002). The purpose of a Rule 12(b)(6) motion is to decide the adequacy of the complaint, not to determine the merits of the case. See Gibson v. City of Chicago, 910 F.2d 1510, 1520 (7th Cir.1990). A complaint should not be dismissed unless it either fails to provide adequate notice—as has been required consistently under Rule 8 of the Federal Rules of Civil Procedure—or does not contain "enough facts to state a claim to relief that is plausible on its face," that is, the claim has not been "nudged . . . across the line from conceivable to plausible[.]" Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). In other words, the Rule 12(b)(6) standard establishes two "easy-to-clear hurdles" for a valid complaint: (1) whether it contains enough detail to provide a defendant with "fair notice of what the . . . claim is and the grounds upon which it rests"; and (2) whether its allegations "plausibly suggest that the plaintiff has a right to relief, raising that possibility above a `speculative level.'" EEOC v. Concentra Health Servs., Inc., 496 F.3d 773, 776 (7th Cir. 2007) (quoting Twombly, 550 U.S. at 555, 127 S.Ct. 1955). "While a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual allegations, a plaintiff's obligation to provide the . . . grounds . . . of his . . . entitle[ment] to relief . . . requires more than labels and conclusions, and a formulaic recitation of a cause of action's elements will not do." Twombly, 550 U.S. at 555, 127 S.Ct. 1955 (citations omitted).

In this instance, Defendants argue that Plaintiffs have failed adequately to plead fraud, as well as proximate causation and damages. They argue also that Plaintiffs who are not Illinois residents cannot bring claims under the ICFA and that Plaintiffs are not consumers within the meaning of the ICFA and therefore lack standing to sue under the statute. With respect to the adequacy of Plaintiffs' pleading of fraud, proximate causation, and damages, it should be noted that Plaintiffs argue that their claims do not aver fraud. However, while it is true that the ICFA prohibits unfair trade practices as well as deceptive ones, Plaintiffs' Consolidated Complaint does contain incidental references to deceptive trade practices by Defendants and, taken as a whole, appears to allege deceit by Defendants, so that it is reasonable to suppose that the gravamen of Plaintiffs' claims is fraud. Assuming this is in...