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CHICAGO — A federal judge has dismissed a fraud lawsuit that accused a medical waste disposal company of improper price hikes.
Service Corporation International sued Stericycle in federal court in Chicago, saying, although its contract allowed the provider to raise prices, Stericycle did so for reasons not outlined in the agreement. Formal allegations included breach of contract, unjust enrichment and violation of the Illinois Consumer Fraud and Deceptive Business Practices Act.
Stericycle moved to dismiss SCI’s amended complaint. In an opinion filed Jan. 4, U.S. District Judge Virginia Kendall granted the motion because she agreed Service Corporation can't sue for its subsidiaries, and even if SCI could show standing, the complaint doesn't adequately state any claims.
Ryan Stephan | Stephan Zouras LLP
Lake Forest-based Stericycle has paid out more than $300 million to end other drawn out, high-profile lawsuits over similar allegations in recent years. In 2015 the company reached a $26.75 million settlement agreement with 12 states linked to allegations it overcharged for services. In early 2018 it entered a $295 million settlement agreement ending a 2013 multi-state class action over allegations it fixed prices.
The SCI complaint is focused more narrowly on its business, which is operating funeral homes in several states. According to Kendall’s opinion, between 2010 and 2016 SCI acquired Keystone America, Stewart Enterprises and Alderwood Group and all related subsidiaries. SCI alleged Stericycle operated outside the bounds of its contracts with those subsidiaries to periodically apply 18% price hikes for reasons not connected to escalating costs or changes in laws governing the funeral industry.
According to Kendall, SCI said Stericycle targeted these companies “because they were less sophisticated or had smaller (or no) legal or accounting departments.” SCI also said its subsidiaries opted out of a 2017 class settlement for companies who alleged they were overcharged between March 2003 and October 2017 before filing its own complaint.
Kendall said SCI’s argument it acquired the legal rights of the subsidiaries is inconclusive because of the role of the three parent organizations — Stewart, Keystone and Alderwood — and whether they had the right to assign their subsidiaries’ claims to SCI.
“While the court must accept the allegations of the complaint as true, all that has been alleged is that SCI has ‘taken’ or ‘acquired’ an assignment,” Kendall wrote. “This means nothing without knowledge of how the assignment was made and who made it.”
While Kendall allowed SCI may have “validly acquired the rights of the subsidiaries to sue Stericycle,” the evidence for that position is not present in the complaint, she said.
With respect to the fraud claim under state law, Stericycle argued SCI failed to plead an Illinois connection. Kendall agreed, saying although the complaint references Stericycle’s principal corporate offices in Illinois, among several other points, the contracts in question weren’t entered into or carried out in Illinois.
Kendall also agreed the ICFA claims are too similar to the breach of contract allegations to sustain a separate claim, and if SCI wants to continue to sue under state law it should “untangle (ICFA claims) from the underlying contract claim.” She also said a further amended complaint should contain allegations SCI is a consumer under the ICFA.
In analyzing the breach of contract claim, Kendall said the complaint lacks “crucial information about the existence of any contract between Stericycle and the subsidiaries.” She said the class settlement can’t be used to establish the subsidiaries’ contractual relationship with Stericycle, and also noted SCI’s unjust enrichment claim can’t incorporate the alleged contract.
Kendall granted SCI leave to amend its complaint within 21 days.
Stericycle has been represented by attorney Mark S. Mester, and others with the firm of Latham & Watkins LLP, of Chicago.
SCI and affiliated companies have been represented by attorneys Ryan F. Stephan, James B. Zouras and others with the firm of Stephan Zouras LLP, of Chicago.