United States Court of Appeals for the Seventh Circuit in Illinois reinstated a class action lawsuit against YTB International, which offers booking websites and travel agent training. The class action is seeking $5 million in damages for more than 100 plaintiffs nationwide against Illinois-based YTB, also known as YourTravelBiz.com.

The class action suit alleges that while YTB does sell travel packages, the sale of travel does not represent a substantial portion of revenue. The suit claims that YTB relies on its users to bring more potential “travel agents” to the site, creating more selling opportunities for users, and more income for YTB.

“The defendant corporations have taken over half a billion dollars from their unsophisticated customers, selling them on the dream of cheap travel and million dollar pay-outs when the only way that plaintiffs and their class could make a net profit was by recruiting others to join the illegal pyramid scheme,” the complaint stated.

The complaint maintains that business model can only deliver profits to users if other persons continue to join the site, a business model that violates the Illinois Consumer Fraud Act. “While over half of the its customers received no travel commissions at all, the directors of YTB International, Inc. each paid themselves multi-million dollar salaries while also siphoning tens of millions of dollars from their publicly traded corporation to privately owned corporations that they owned and controlled,” the complaint said.

In his original ruling on the class action, U.S. District Judge Patrick Murphy declined to say whether YTB constituted a pyramid scheme, but he said YTB’s transactions with residents of states other than Illinois fall outside of the Illinois Consumer Fraud Act and dismissed those plaintiffs. He then dismissed the suit, saying it belonged in state court since there were no out-of-state defendants. A three-judge panel has now reversed that ruling, saying that the two-step process was improper for determining jurisdiction. “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,” Chief Judge Frank Easterbrook wrote.

The Court of Appeals said Judge Murphy's decision that the Illinois Consumer Fraud Act does not apply to customers outside of Illinois was also a misstep. Since the out-of-state plaintiffs had been injured, they had standing, the court said. And since their injury occurred in Illinois, they could be included in a federal class action under the Illinois Consumer Fraud Act. The court remanded the case to Judge Murphy for further proceedings.