Exchange Says Custom Recipient in dist. list not local

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I have a distribution list that has a few local names and a few custom recipients, all of which use the same foreign email server. Someone from the foreign domain tries to send to the distribution list and he gets an error back from the system administrator from my domain that all of the people from his domain aren't local. I have all of their people set up correctly and we haven't had any issues before with distribution lists (of course out of domain people weren't sending to them...could this have something to do with it?)

THanks in advance