By: Catherine Kavanaugh
November 18, 2013
JM Eagle faces billions of dollars in damages following a federal jury’s decision that North America’s largest manufacturer of PVC pipe knowingly sold substandard product to government entities for water and sewer systems from 1996-2006.
During that period, three states and 42 cities and water districts named in the whistle-blower lawsuit spent $2.2 billion to buy plastic pipe from JM, which was formerly called J-M Manufacturing, according to Eric Havian, a lawyer with Phillips & Cohen LLP, who represented the plaintiffs.
“Those entities now are entitled to recover a substantial portion of that cost, plus the cost to replace the shoddy pipe much sooner than expected,” Havian said in a statement. “This likely will mean damages could total billions of dollars because it’s expensive and disruptive to replace water pipe.”
JM officials plan to appeal the unanimous verdict reached Nov. 14 in a seven-week trial before U.S District Court Judge George H. Wu. The appeal will be based on evidence the jury was not permitted to hear or see.
“We believe we have valid grounds for an appeal, which we will file as immediately as possible, and we look forward to having this verdict reviewed and set aside,” Neal Gordon, JM Eagle’s vice president of marketing and waterworks sales, said in a statement.
Havian said JM Eagle lied about whether its pipe met strength and durability standards required by government specifications and that it is liable the False Claims Act. The law encourages private citizens to sue companies that are defrauding the government and recover funds on its behalf.
A new jury will be seated for the second phase of the trial to determine the amount of damages owed. The whistle blower, John Hendrix, is entitled to 15-25 percent of the amount recovered.
Gordon describes Hendrix as a “disgruntled former employee who had been fired for attempting to solicit a kickback scheme from a JM Eagle customer” and then subjected the company to years of meritless allegations.
Hendrix, who worked as an engineer in JM Eagle’s product assurance division in New Jersey, did not take the stand. However, other witnesses testified that plant managers were under pressure to meet production quotas and they would remove “reject” tags from pipe that failed to meet quality standards and ship it to customers.
One of the plaintiffs, the Calleguas Municipal Water District in Thousand Oaks, Calif., spent $4 million to replace JM Eagle pipe that had broken and leaked seven times, according to Havian.
During the trial, five government entities were selected from the larger group as exemplar plaintiffs. The others are the cities of Reno, Nev., and Norfolk, Va., and the South Tahoe Public Utility District and Palmdale Water District, which are both in California.
However, dozens of other states, cities and water districts that bought JM Eagle pipe but did not join the lawsuit also could qualify to participate in the next phase of the trial addressing monetary damages.
In a related matter, a hearing on a joint motion for JM’s former parent company, Formosa Plastics Corp. USA, to settle with a long list of plaintiffs for $22.5 million has been pushed back from Dec. 2 to Dec. 19. Attorneys requested additional time for more than 300 cities, municipalities, water districts, and potential parties time to evaluate and respond to the proposal.
JM Eagle has offered a 50-year warranty on its thermal plastic pipe products since 2010, when the lawsuit that was filed in 2006, was unsealed. The company has 17 manufacturing plants and more than 1,000 employees.