Stull v. YTB Intern., Inc., No. CIV. 10-600-GPM (S.D. Ill. Oct. 13, 2010).

MEMO TO PLAINTIFFS: If you would like to limit the amount claimed in your complaint, please file a stipulation along with your complaint specifying the limitation. Thank you, Southern District of Illinois. 

In this case, the Southern District Court of Illinois, District Judge G. Patrick Murphy, declined to remand the action to state court holding that the language in a complaint that purports to limit recovery below a jurisdictional threshold amount is ineffective to actually to reduce damages below the jurisdictional threshold, unless the plaintiffs file stipulation or affidavit waiving a jurisdictionally-sufficient recovery.

The plaintiffs brought a class action in state court asserting claims under the Illinois Consumer Fraud and Deceptive Business Practices Act, and claims under the consumer protection statutes of Missouri, Georgia, and Utah, together with civil conspiracy claims under the laws of Illinois, Missouri, Georgia, and Utah. The plaintiffs also sought to certify both plaintiff classes and defendant classes under the laws of Illinois, Missouri, Georgia, and Utah. 

The plaintiffs purchased online travel agencies from the YTB Defendants, the affiliated persons and entities engaged in selling online agencies to persons interested in starting home businesses. The plaintiffs alleged that the YTB Defendants’ business in fact was in the nature of a pyramid scheme, as the only way purchasers of online agencies actually profit from their agencies was by inducing new persons to purchase agencies. Persons who induce new people to purchase agencies were rewarded with premiums of various kinds by the YTB Defendants. 

The YTB Defendants removed the action to federal court under CAFA. The plaintiffs moved to remand the case to state court on the grounds that the YTB Defendants failed to satisfy the $5 million amount in controversy for the purpose of CAFA’s jurisdictional requirement. 

The plaintiffs contended that the jurisdictional amount was not satisfied because the complaint pled for only $100,000 for each of the plaintiff classes proposed in the complaint. The Court remarked that the language in a complaint that purports to limit recovery below a jurisdictional threshold amount is ineffective actually to reduce damages below the jurisdictional threshold. Specifically, only a binding stipulation or affidavit that waives a jurisdictionally-sufficient recovery and is filed with a plaintiff’s complaint is effective to reduce the amount in controversy below the jurisdictional threshold. Thus, the Court looked to the actual value of the claims asserted in this case.

The YTB Defendants filed an affidavit of its current chief executive officer averring that the proposed Illinois class in this case contained 17,303 members, and pointed out that the damages of each class member were, at a minimum, $450, which was the price for the initial purchase of an online agency. Thereafter, class members were required to pay a monthly fee of $50 to own and operate their agencies. Thus, the Court observed that the class-wide damages for 17,303 members at the rate of $450 each amounted to $7,786,350, well in excess of CAFA’s jurisdictional minimum amount of $5 million, exclusive of interest and costs.

The Court also found that the punitive damages and the attorneys’ fees could be counted toward the amount in controversy. The Court stated that because punitive damages are available on the fraud act claims, the punitive damages plaintiffs sought could be considered in reasonable multiples of the plaintiffs actual damages. Further, the Court stated that it was well-settled in the Seventh Circuit that only attorneys’ fees incurred before a case is removed can be counted toward the amount in controversy. Consistent with the principle that a statute is presumed not to overrule existing law save to the extent it does so explicitly, the Court assumed that the CAFA does not overrule the Seventh Circuit’s traditional approach to the calculation of attorneys’ fees for purposes of the jurisdictional amount in removed cases.

The Court observed that because the YTB Defendants established that the damages sought by Illinois class alone exceeded the jurisdictional requirement of $5 million, it was not necessary to multiply the damages of the Illinois class by three times to reflect a possible award of punitive damages, or to determine a reasonable amount of pre-removal attorneys’ fees.