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Turney v. Miller

United States District Court, N.D. Illinois, Eastern Division

August 13, 2019

DAMON TURNEY, Derivatively on Behalf of STERICYCLE, INC., Plaintiff,
MARK C. MILLER et al., Defendants, and STERICYCLE, INC. Nominal Defendant.



         Plaintiff 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.


          The 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.

         Stericycle 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.

         According 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 Act.

         Statement of Stericycle's Financial Health

         Turney 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 2014.

         In 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%.

         Finally, 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.

         On 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.

         Turney 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.

         Legal Standard

          A 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 ...

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