JM Eagle faces PVC pipe suit

Comments Email Print

JM Eagle has been hit with a whistle-blower lawsuit, joined by four states and 43 California cities and water districts, charging that under the direction of President Walter Wang, the company knowingly made substandard PVC water and sewer pipe to increase its profit.

After Wang became president of JM Manufacturing Co. Inc., predecessor to JM Eagle, in 1990, he “implemented a series of cost-cutting measures that undermined the quality of JM's PVC pipe products,” the lawsuit alleges.

As a result, the suit charges that from 1997 through 2005, more than half of the PVC pipe made by JM had tensile strengths below the minimum required.

The suit charges that, under Wang's leadership, JM substituted cheaper, lower-viscosity resin — most of it made by its former parent, Taiwanese resin giant Formosa Plastics Group — and sped up extrusion rates, ultimately hurting the tensile strength of the pipe.

Formosa required JM to use its resins and compounds for much of the PVC pipe, the lawsuit claims.

Los Angeles-based JM Eagle denied the charges. Spokesman Marcus Galindo said the company's pipe “meets or exceeds all standards,” including for tensile strength.

“Obviously, at JM Eagle, we stand 100 percent by the quality of our products,” Galindo said. “We've grown over the past 20 years to become the largest manufacturer of PVC pipe in the world, and we wouldn't have been able to have that growth were it not for superior quality.”

Galindo said Formosa does not own JM Eagle. “At this time we are a completely independent company,” he said.

The Washington law firm of Phillips & Cohen LLP, which specializes in whistle-blower cases, issued a Feb. 11 news release announcing the sweeping lawsuit.

Originally filed by whistle-blower John Hendrix in 2006, the suit was unsealed Feb. 8 in Los Angeles in U.S. District Court, when the government entities formally joined the suit, according to Mary Inman, a lawyer at Phillips & Cohen. “They're throwing their hat in the ring,” she said.

The following governmental entities have joined the lawsuit: Nevada, Virginia, Delaware, Tennessee, and 42 localities in California, including San Diego, Sacramento, San Jose and the Los Angeles Department of Water and Power.

The lawsuit does not list any specific cases of water or sewer pipe failures. But Phillips & Cohen said pipe with tensile strength below the minimum required by standards could cause problems in the future. The lawsuit cites results for LTS, or longitudinal tensile strength, and a few other tests.

Galindo said some of the standards were not clear, and JM officials worked with standards bodies to improve them.

“The standards were written very ambiguously. It could have been interpreted in multiple ways,” he said.

Delaware has experienced “no known failures of the pipe,” said Jason Miller, spokesman for the Delaware Attorney General's office. Officials from other states and governmental agencies could not be reached for this story, but several states have issued news releases slamming JM.

Nevada Attorney General Catherine Cortez Masto issued a news release Feb. 11.

“We will hold anyone who cheats Nevada taxpayers accountable,” she said.

Virginia Attorney General Ken Cuccinelli said: “Dishonest companies who cheat the Virginia taxpayers will be held accountable.”

Phillips & Cohen said the life span of the JM pipe is an issue.

“As a result, those PVC pipes will have to be replaced sooner than expected — a budget nightmare for cash-strapped states, cities and local agencies. It is also more likely that the pipes will leak or break,” the firm said.

But Galindo said the Justice Department conducted a thorough investigation of JM Eagle and found no problems. “The federal government did investigate this for more than three years, and the federal government has decided not to move forward and intervene in this case,” he said.

The Justice Department did not return a telephone call asking about JM Eagle.

“It's frustrating to be accused of doing something wrong when we make it a fundamental practice daily to do the right thing,” Wang told Plastics News in a Feb. 12 e-mail. “But in my heart I am confident that when the states review the definitive proof that we have already provided to the federal government, they will come to the same conclusion and also drop their probes.”

Whistle-blower Hendrix was an engineer in product assurance for the company, formerly named JM Manufacturing. He worked out of JM headquarters in Livingston, N.J.

According to the law firm, JM fired Hendrix less than two weeks after he wrote a memo to management to say he was concerned that the tensile strength of JM's PVC pipe was below the level required by Underwriters Laboratories. Plastics News could not reach Hendrix, but he told The New York Times that JM trained him to look for ways to show that leaks were caused by people who installed and maintained the pipe, not in the pipe itself.

Now JM Eagle, a normally tight-lipped company, faces a tidal wave of bad publicity.

The New York Times ran the story on the front of its Feb. 12 business section.

“With government entities struggling to meet their budgets, it's particularly important for them to recover their losses from any fraud,” said Phillips & Cohen's Inman, who is based in San Francisco.

JM Eagle is by far the largest plastic pipe maker in North America, with annual sales estimated by Plastics News at $1.6 billion. Galindo said the company runs 23 pipe plants in North America.

JM Eagle was formed in 2007 when JM Manu- facturing merged with rival plastic pipe maker PW Eagle Inc., then moved its headquarters from Livingston to Los Angeles.

JM Manufacturing formed in 1982 when Formosa bought the pipe business from Johns Manville Inc. Formosa's owner, the late Y.C. Wang, installed his son Walter Wang as president of JM Manufacturing. Thanks to vertical integration — pipe plants integrated with resin supplied by Formosa — JM grew into a behemoth of PVC pipe, using large-scale, low-cost production as PVC pipe was becoming a commodity product. JM bought smaller competitors along the way.

The 70-page whistle-blower lawsuit is full of details about JM Eagle. The suit charges that Walter Wang replaced Johns Manville managers with inexperienced people, most of them Taiwanese nationals or recent college graduates, like Hendrix.

“Backed by this new crop of inexperienced managers, Mr. Wang shifted JM's focus away from product quality to a single-minded mission of gaining market share and improving the bottom line, irrespective of quality,” the suit charges.

Galindo strongly disputed accusations that JM sacrificed quality to boost its profit. He said JM has donated millions of dollars to charity, including Habitat for Humanity and the Earth Institute at Columbia University, and has given 350 miles of PVC pipe to help Africa improve its water infrastructure.

Copyright 2010 Crain Communications Inc. All Rights Reserved.