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Judge: Class action OK vs Stericycle over medical waste disposal billing fraud accusations

By Scott Holland | Feb 21, 2017

A federal judge has cleared the way for a nationwide class action to proceed against Stericycle over allegations the Lake Forest-based regulated waste disposal giant for years used an automatic price-increasing scheme to defraud customers out of hundreds of millions of dollars. 

U.S. District Judge Milton I. Shadur certified the plaintiffs class in a memorandum opinion and order issued Feb. 16 in Chicago, more than a year after consumer-rights law firm Hagens Berman, of Chicago, lead counsel in the action, filed a motion to certify the class of customers alleging Stericycle violated contracts and committed fraud. The actions, which were filed in federal courtrooms in different federal judicial districts, landed in Shadur’s court in Chicago after a federal judicial panel consolidated the cases into a so-called multidistrict litigation. 

Stericycle collects and disposes of medical waste from jails, clinics, laboratories and other businesses. Seven customers joined to accuse Stericycle of violating “contracts by using an automated price increase to increase charges arbitrarily to ‘small-quantity’ customers without any notice or explanation,” as well as assessing “‘undisclosed fees’ that were hidden increases buried in invoices.” They assert Stericycle focused on smaller customers because larger businesses and government customers provided more barriers. 

While Stericycle did admit using APIs - some without notice or justification - and charging other fees, it said the wide variance in contract language and client treatment should negate class action. 

In granting class certification, Shadur also decided which expert witnesses to allow to weigh in on the question of just how potentially valuable the class action lawsuit may be. 

The request for certification, Shadur wrote, relied heavily on the opinions of expert witness, damages analyst Patrick Kilbourne. Stericycle asked the court to strike Kilbourne’s testimony, preferring that of their witness, Stericycle’s vice president of information technology application and delivery maintenance Jeremy Boiles. The plaintiffs then sought to have Boiles’ testimony declared inadmissible. 

Shadur reviewed Kilbourne’s professional and academic credentials, but placed primary importance on his methods to arrive at placing damages for class members at $608 million — $481 million for the price hikes at $146 million for the fees, less $19 million related to credits. He “identified 256,405 customers as class members subjected to a total of 1,945,530 price changes,” Shadur said. Of those, Stericycle identified 87.6 percent as APIs. 

Kilbourne asserted Stericycle’s price increases didn’t correlate to the company’s cost increases.

However, Stericycle asserted he didn’t review all the original contracts and made assumptions about APIs undermining his math.

The judge, however, sided with the plaintiffs, affording “little weight” to Boiles’ assertions, which plaintiffs had argued was improper opinion.

“According to Stericycle, its database does not adequately keep track of contracts over time for customers, so that manual review of each customer file would be necessary,” Shadur wrote. “But no precedent suggests that poor bookkeeping should shield a company from potential liability … this court rejects any argument that depends on Stericycle not adequately tracking its customer contracts. … There was a time when computers did not exist, yet class actions did, and if Stericycle has chosen to keep poor records of its contracts digitally that is not enough to bar class certification.” 

In addition to certifying the class, Shadur agreed to the plaintiffs’ requested definition: any of Stericycle’s small quantity customers that were charged and paid more than the contracted price dating back to March 8, 2003. Exceptions include customers in Washington and Alaska as well as governmental entities whose claims were asserted in a federal action against Stericycle.

Stericycle settled with 12 states in November 2015 for $26.75 million.

Shadur set a status hearing for Feb. 27.

Stericycle is represented in the action by attorneys with the firms of Duane Morris LLP, of Chicago, and Parsons Behle & Latimer, of Salt Lake City.

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Organizations in this Story

Duane Morris LLP Hagens Berman Sobol Shapiro, LLP Stericycle Inc. U.S. District Court for the Northern District of Illinois