United States District Court, N.D. Illinois, Eastern Division
DAMON TURNEY, Derivatively on Behalf of STERICYCLE, INC., Plaintiff,
MARK C. MILLER et al., Defendants, and STERICYCLE, INC. Nominal Defendant.
MEMORANDUM OPINION AND ORDER
JOHNSON COLEMAN JUDGE
Damon Turney brings this shareholder derivative complaint
against certain current and past members of the Board of
Directors (the defendants) on behalf of the nominal defendant
Stericycle, Inc. for breaches of fiduciary duty and unjust
enrichment. Currently before the Court is the defendants'
motion to dismiss pursuant to Rule 12(b)(6) of the Federal
Rules of Civil Procedure. For the reasons explained below,
the defendants' motion is granted.
following facts are taken from Turney's complaint and are
accepted as true for the purpose of deciding this motion.
Turney is a current shareholder of Stericycle common stock
and a citizen of New York. Stericycle is a waste disposal
corporation with its headquarters in Illinois. The defendants
in this case consist of: Charles Alutto, Frank J.M. ten
Brink, Daniel Ginnetti, Mark Miller, Jack Schuler, Thomas
Brown, Rodney Dammeyer, William Hall, Jonathan Lord, John
Patience, Mike Zafirovski, Lynn Bleil, Thomas Chen, Richard
Kogler, Joseph Arnold, and Ronald Spaeth. Each of the
defendants are either past or current Officers or members of
the Board of Directors.
provides medical waste disposal services to “large
quantity customers, ” such as hospitals, as well as
“small quantity customers, ” such as dental
offices and pharmacies. Stericycle has a standard service
agreement with its small quantity customers that provides for
fixed subscription fees for a period of one to five years.
Each contract allows for price increases only to account for
operational expenses in order to comply with changes in the
law; or to cover increased costs incurred by Stericycle.
to the complaint, Stericycle began to routinely increase the
rates without notice to its small quantity customers in order
to meet revenue projections. Turney alleges that
Stericycle's executives were aware of this due to the
Vice President urging the company to discontinue this
practice in 2006. This practice of “automated price
increases” led to a class action settlement as well as
a settlement with the Attorney General of New York in 2012
based on a qui tam lawsuit under the False Claims
of Stericycle's Financial Health
alleges that beginning in February 2013, the defendants made
false statements in its press releases about the financial
health of Stericycle. Specifically, the defendants released
information about revenue and profit growth, but, according
to Turney, did not disclose that this growth was due in large
part to its illegal automated price increases. Turney alleges
that the false statements and misinformation continued on its
“10-K” reports about revenue growth for 2013 and
October 2015, Stericycle management reported lower than
expected growth and revenue for the third quarter of 2015.
Although management attributed this to lower hazardous waste
volume from its customers, Turney asserts that the decrease
in revenue was the result of customer attrition following the
automated price increase “scheme.” This resulted
in a 19% decline in the price per share of Stericycle's
common stock. In February 2016, the defendants released
information concerning the 2015 fiscal year that reported
domestic as well as international revenue growth. The
defendants also announced that it agreed to pay 28.5 million
dollars to settle a whistleblower claim for government
customers. In April 2016, the defendants reported that the
first quarter of 2016 sales fell below expectations. This
resulted in the price per share declining 21.5%.
Turney alleges that defendants Alutto, ten Brink, Ginnetti,
Miller, Schuler, Dammeyer, Hall, Lord, Patience, Spaeth,
Kogler, and Arnold took advantage of non-public adverse
information about Stericycle's automated pricing systems
to sell a combined 986, 418 shares of Stericycle stock for
114 million dollars during the relevant period.
October 14, 2016, Turney submitted a derivative demand
(“Demand Letter”) to Stericycle's Board to
take legal action against the individual officers responsible
for damaging Stericycle. After the Board retained independent
counsel, it sent Turney a letter stating that it would not
proceed with a civil action against any of Stericycle's
current or former officers, employees, or directors as stated
in the Demand Letter.
then brought this suit against the defendants alleging bad
faith on the part of the Board. In Count I, Turney alleges
breach of fiduciary duty. In Count II, Turney asserts a claim
of unjust enrichment. In Count III, Turney alleges insider
trading and breach of fiduciary duty for insider trading.
motion to dismiss pursuant to Federal Rule of Civil Procedure
12(b)(6) tests the legal sufficiency of the complaint, not
the merits of the allegations. To overcome a motion to
dismiss, a complaint must contain sufficient factual
allegations to state a claim for relief that is plausible on
its face, Ashcroft v. Iqbal, 556 U.S. 662, 678, 129
S.Ct. 1937, 173 L.Ed.2d 868 (2009), and raises the right to
relief above a speculative level, Bell Atl. Corp. v.
Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d
929 (2007). When ruling on a motion to dismiss, the Court
must accept all well-pleaded factual ...