Janklow v. Alutto et al

Filing 37

MEMORANDUM ORDER granting 26 MOTION to Stay Litigation. Signed by Judge Colm F. Connolly on 12/11/2018. (nmf) (Main Document 37 replaced on 12/11/2018) (nmf, ).

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF DELAWARE
ALVIN JANK.LOW, Derivatively on
Behalf of STERICYCLE, INC.,
Plaintiff,
Civil Action No. 18-457-CFC

V.

CHARLES A. ALUTTO, DANIEL
V. GINNETTI, JOSEPH B.
ARNOLD, RICHARDT. KOGLER,
FRANK J.M. TEN BRINK, MARK
C. MILLER, JACK W. SCHULER,
JOHN PATIENCE, LYNN
DORSEY BLEIL, MIKE S.
ZAFIROVSKI, RODNEY F.
DAMMEYER, THOMAS D.
BROWN, THOMAS F. CHEN,
WILLIAM K. HALL, JONATHAN
T. LORD, and RONALD G.
SPAETH,
Defendants.
and,
STERICYCLE, INC., a Delaware
Corporation
Nominal Defendant.

Blake A. Bennett, COOCH AND TAYLOR, P.A., Wilmington, Delaware; Ashley
R. Rifkin, ROBBINS ARROYO LLP, San Diego, California
Counsel for Plaintiff

Lisa A. Schmidt, Kelly E. Farnan, RICHARDS, LAYTON and FINGER, P.A.,
Wilmington, Delaware
Counsel for Defendants

MEMORANDUM ORDER

At Wilmington this 11th day of December, 2018, having reviewed
Defendants' Motion to Temporarily Stay Litigation and the papers filed in
connection therewith;
IT IS ORDERED that said motion (D.I. 26) is GRANTED, for these reasons:
1.

Background. Nominal Defendant Stericycle, Inc. ("Stericycle") is a
company that specializes in the collection, processing, and disposal of
regulated waste. D.I. 27 at 3. In 2010, a Stericycle employee filed a qui tam
action against Stericycle, accusing Stericycle of improperly overcharging
customers by implementing automated price increases ("APis") in excess of
the flat rates Stericycle agreed to charge its customers. D.I. 31 at 3-4.
Stericycle settled the qui tam action for over $29 million, and Stericycle's
customers began to pursue litigation across the country, with approximately
twenty separate actions filed against Stericycle. Id. at 4. The various
actions were consolidated by the Panel on Multidistrict Litigation before the

United States District Court for the Northern District of Illinois, which
approved a settlement in March 2018 for $295 million. See In re Stericycle,
Inc. Steri-safe Contract Litig., MDL No. 2455, ECF No. 382 (N.D. Ill. Mar.

8, 2018).
2.

In addition to the customer class action, Stericycle' s shareholders filed
various derivative and direct claims arising out of the allegations that
Stericycle was improperly overcharging customers and failed to disclose
such overcharging to shareholders. The action furthest along is a federal
securities class action against Stericycle filed in the Northern District of
Illinois. See St. Lucie Cty. Fire Dist. Firefighters ' Pension Tr. Fund v.
Stericycle, Inc., No. 1:16-cv-07145 (N.D. Ill. filed July 11, 2016) (the

"Securities Class Action"). The Securities Class Action alleges violations of
Sections 11, 12(a), and 15 of the Securities Act of 1933 and Sections l0(b)
and 20(a) of the Securities Exchange Act of 1934 by Stericycle, current and
former officers and directors, and Stericycle's underwriters. Securities Class
Action, D.I. 84. The defendants in the Securities Class Action have filed a
motion to dismiss, which has been fully briefed as of July 13, 2018.
Securities Class Action, D.I. 91, 95.

3.

In addition to the Securities Class Action, there are two state court derivative
actions pending in the Circuit Court of Cook County, Illinois, Chancery
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Division, see Weinstein v. Alutto, No. 2017-CH-03062 (Ill. Cir. Ct., Cook
Cty. filed Mar. 1, 2017); Shah v. Alutto, No. 2016-CH-11636 (Ill. Cir. Ct.,
Cook Cty. filed Sept. 1, 2016), as well as a state court derivative action
pending in the Delaware Chancery Court. See Sui v. Miller, No. 2018-0273
(Del. Ch. filed Apr. 12, 2018). All three of these state court derivative
actions have been stayed pending the resolution of defendants' motion to
dismiss in the Securities Class Action. See D.I. 28, Ex. 1; Sui v. Miller, No.
2018-0273-JTL (Del. Ch. May 24, 2018) (granting joint motion to stay).
4.

On March 26, 2018 Plaintiff Alvin Janklow, derivatively on behalf of
Stericycle, Inc. ("Plaintiff'), initiated this action with the filing of his
Verified Shareholder Derivative Complaint alleging violations of Section
10(b) and 14(a) of the Securities Exchange Act of 1934 and common law
claims for breach of fiduciary duty, waste of corporate assets, and unjust
enrichment by Charles A. Alutto, Daniel V. Ginnetti, Joseph B. Arnold,
Richard T. Kogler, Frank J.M. Ten Brink, Mark C. Miller, Jack W. Schuler,
John Patience, Lynn Dorsey Bleil, Mike S. Zafirovski, Rodney F.
Dammeyer, Thomas D. Brown, Thomas F. Chen, William K. Hall, Jonathan
T. lord, and Ronald G. Speath (collectively, the "Individual Defendants")
and Stericycle (collectively, with the Individual Defendants, "Defendants").
D.I. 2. On April 18, 2018, Defendants filed the present motion to stay

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temporarily this litigation pending the resolution of the motion to dismiss in
the Securities Class Action. D.I. 26.

5.

Standard of Review. A court has discretionary authority to grant a motion
to stay. See Cost Bros., Inc. v. Travelers Indem. Co., 760 F.2d 58, 60 (3d
Cir. 1985). Courts should consider three factors in determining whether to
grant a motion to stay: "(1) whether a stay will unduly prejudice or present a
clear tactical disadvantage to the non-moving party, i.e., the balance of
harms; (2) whether a stay will simplify the issues in question and trial of the
case; and (3) whether a stay will promote judicial economy, e.g., how close
to trial has the litigation advanced." Husqvarna AB v. Toro Co., 2016 WL
5213904, at *1 (D. Del. Sept. 20, 2016) (citing Cheyney State Coll. Faculty
v. Hufstedler, 703 F.2d 732, 737-38 (3d Cir. 1983)).

6.

Analysis. With respect to the first factor, the balance of harms, the Court
finds that a stay will not unduly prejudice Plaintiff. Plaintiff argues that the
length of the requested stay is "indefinite," and that Plaintiff's derivative
action is not contingent on the Securities Class Action. D.I. 31 at 8-11.
Although Plaintiff is correct that stays of indefinite duration are disfavored,
see Structural Grp., Inc. v. Liberty Mut. Ins. Co., 2008 WL 4616843, at* 5
(M.D. Pa. July 13, 2009), Defendants only seek to stay temporarily the
present action until the United States District Court for the Northern District
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of Illinois resolves their motion to dismiss in the Securities Class Action.
D.I. 26. In contrast, Defendants are likely to suffer prejudice if the present
litigation is not stayed because Defendants may be forced to take
inconsistent positions if required to litigate simultaneously the Securities
Class Action and the present action. See Brenner v. Albrecht, 2012 WL
252286, at* 4 (Del. Ch. Jan. 27, 2012) (granting stay of derivative action
because derivative action "risk[ed] prejudicing the Company's defense" of a
securities class action).

7.

The second factor, simplifying the issues for trial, also weighs in favor of a
stay. Although Plaintiff, unlike the plaintiffs in the Securities Class Action,
has pied a Section 14 claim and common law claims for breach of fiduciary
duty, waste of corporate assets, and unjust enrichment, Plaintiff's allegations
arise out of the same underlying factual conduct alleged in the Securities
Class Action. Compare D.I. 2 ,r,r 72-73, 79 with Securities Class Action,
D.I. 84. §§ IV(B), (V)(A)(l), (V)(C). Furthermore, Plaintiff has pied the
same Section 10(b) claim alleged in the Securities Class Action.

8.

The final factor, promoting judicial economy, clearly weighs in favor of a
stay. The present derivative litigation is in its infancy, and the Court has not
yet directed its scarce resources to the merits of this dispute. In contrast, the
motion to dismiss in the Securities Class Action has been fully briefed.

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Even though the claims in the Securities Class Action are not entirely
identical to Plaintiffs claims, the Securities Class Action addresses many of
the factual and legal issues likely to arise in the present litigation. "Given
the duplicative nature of the facts at issue, staying the present case in favor
of the class action would preserve judicial resources and reduce the litigation
burden on the parties and the court." In re Groupon Derivative Litig., 882
F.Supp.2d 1043, 1051 (E.D. Ill. 2012). Accordingly, the Court concludes
that this action should be stayed until the Northern District of Illinois
completes the first substantive inquiry of any securities violations committed
by Stericycle.

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