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Jury trial underway on JM Eagle whistle-blower lawsuit

By: Catherine Kavanaugh

September 19, 2013

A jury trial is underway in a federal courtroom in California to determine whether J-M Manufacturing Co. defrauded 45 cities, states and government entities by selling defective PVC pipe for sewer systems from at least 1996 through 2005.

The lawsuit alleges J-M, which became JM Eagle Co., violated the False Claims Act by knowingly selling pipe that would fail earlier than promised.

Formosa Plastics, JM Eagle's former parent company, had been a co-defendant. Los Angeles-based JM Eagle is the largest pipe extruder in North America, according to Plastics News' ranking.

Attorneys for J-M call the fraud allegations meritless, malicious and legally deficient. They contend a "dishonest and disgruntled" former employee cobbled together incorrect testing standards and baseless insinuations. They also say there is no proof the plaintiffs received substandard pipes.

The case stems from a 2006 whistle-blower lawsuit brought by John Hendrix, a former J-M quality assurance engineer at a New Jersey plant. Hendrix claims J-M lied about the quality of PVC pipes used all over the country and that the pipes will rupture earlier than expected.

Hendrix was fired in November 2005 after writing a memo that said J-M cherry-picked the product it subjected to tests, and that much of the PVC pipe sold did not meet Underwriters Laboratories Inc. standards, particularly for longitudinal tensile strength (LTS).

Hendrix is a plaintiff along with the states of Nevada, New Mexico and Virginia, 21 cities in California and 21 water districts in California.

The case is being argued before U.S. District Court Judge George H. Wu, who ruled in March that JM Eagle could be liable under the False Claims Act if it not only sold state and local governments faulty pipe but if it failed to conduct adequate testing on its pipes.

The lawsuit says when Walter Wang, the son of late Taiwanese billionaire Y.C. Wang, who controlled Formosa Plastics Corp., became president of J-M manufacturing, the company substituted cheaper and lower quality ingredients in its PVC compound and used shortcuts to speed up the manufacturing process, which hurt the pipes' tensile strength.

After the production changes, J-M failed to requalify its pipe as industry standards require and instead falsely represented that the pipes were unchanged, the lawsuit alleges.

In one of its court filings, defense attorneys contend Hendrix's allegations boil down to unsupported conclusions and disagreements over technical matters.

However, attorneys for the plaintiffs plan to call as many 30 witnesses to show otherwise.

The jury of six men and six women also could hear from as many as 40 defense witnesses before they begin deliberations. The case is scheduled to go to the jury on Nov. 6.

If the jurors find liability, a second phase of the trial will determine damages.