CHICAGO (Legal Newsline) - An Illinois federal judge has preliminarily approved a $295 million settlement on behalf of Stericycle customers over allegations the medical waste disposal company violated contracts and defrauded them by hundreds of millions of dollars through an automatic price-increasing scheme.

According to the amended complaint, the company’s scheme automatically inflated customers’ bills up to 18 percent biannually. 

Senior Judge Milton I. Shadur for the U.S. District Court for the Northern District of Illinois, Eastern Division, praised the settlement in his eight-page order last week, saying it contained “an impeccable covering of all the necessary bases.”

“As the analysis here will reflect, in every instance the Settlement Agreement is clearly entitled to preliminary approval, with all relevant considerations having been anticipated by the parties and dealt with in totally responsible fashion,” Shadur wrote in his Oct. 26 order.

Under the settlement agreement, Stericycle also will discontinue the pricing practices at the center of the lawsuit within 60 days of preliminary approval by the court.

In addition, Stericycle’s compliance with the settlement terms will be monitored for three years by a retired federal district judge.

According to Shadur’s order, the settlement agreement also provides that the maximum fees awardable to Hagens Berman Sobol Shapiro LLP, the consumer-rights class action law firm leading the class of consumers -- subject to the court’s approval, of course -- may amount to $40 million, together with out-of-pocket costs up to a maximum of $2.8 million.

“Although this Court has not yet had the parties' input looking toward such a fee award, something that would take place only after final approval and the implementation of the Settlement Agreement, it is noteworthy that the $40 million potential maximum would amount to 13.6 percent of the $295 million Settlement Amount, which compares very favorably with the frequently approved fee awards in other class action matters ranging in the 30 percent through 33 percent range,” the judge wrote.

The settlement agreement affects Stericycle customers that had flat-fee “Steri-Safe” or variable “transactional” medical waste disposal contracts with Stericycle and were subjected to the disputed price increases.

These small businesses affected by the price increases were identified by Stericycle as “Small Quantity” or “SQ” customers. When these SQ customers called to complain about the price increases, the lawsuit states, they were given false reasons for the price increases by Stericycle’s customer service representatives.

According to the lawsuit, those accounts made up 97 percent of Stericycle’s customers worldwide.

In 2013, an investigation of Stericycle’s billing software found Steri-Safe customers’ price increases were programmed to occur regularly as often as every six months, which plaintiffs alleged was contrary to contract terms that Stericycle had agreed to.

The contracts state that increases can occur only when “operational changes” are implemented “to comply with documented changes in the law” or to “address cost escalation.”

According to the complaint, Stericycle’s billing software automatically boosted customers’ rates, regardless of any actual increases in Stericycle’s costs.

The original filing of Lyndon Veterinary Clinic v. Stericycle, in the Northern District of Illinois in April 2013, was consolidated with other similar individual actions by a Judicial Panel on Multidistrict Litigation, or MDL panel, in August 2013.

In February, Hagens Berman was appointed as plaintiffs’ class counsel and the Illinois federal court certified a nationwide -- except for the states of Washington and Alaska -- class of Small Quantity or SQ Stericycle customers.

In March, Stericycle filed a motion for reconsideration of the certification.

The fairness hearing for the settlement agreement’s final approval is scheduled for Feb. 21, 2018.

From Legal Newsline: Reach Jessica Karmasek by email at jessica@legalnewsline.com.

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