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Formosa defends $22.5M settlement in PVC pipe case

By: Catherine Kavanaugh

December 17, 2013

Attorneys for Formosa Plastics Co. USA (FPC-USA) say PVC pipe maker JM Eagle has no legal standing to object to the proposed $22.5 million settlement Formosa reached with 45 government entities in a whistle-blower lawsuit.

U.S. District Judge George H. Wu is scheduled to rule Dec. 19 on the settlement between FPC-USA, the former parent company of JM Eagle, and the states, cities and water districts that bought questionable pipe for water and sewer systems from 1996-2006.

The settlement was reached with help from a mediator just before the start of a 7-week trial where JM and FPC-USA were co-defendants. The judge granted Formosa a conditional dismissal on Sept. 13 and the trial went forward against JM Eagle.

On Nov. 14, jurors found JM Eagle guilty of violating the False Claims Act by manufacturing pipes of questionable quality, representing that the pipe conformed to industry standards, and then selling it for municipal water and sewer systems. JM Eagle plans to appeal.

In the meantime, JM Eagle attorneys are calling the proposed FPC-USA settlement “paltry” compared to the plaintiffs’ statements that the pipe maker could owe billions of dollars of damages. On Dec. 6, they asked the federal judge to reject the proposal or delay approval.

Formosa attorneys question the timing of JM Eagle’s attempt to block or postpone the settlement in a legal brief they filed Dec. 13. They note that JM Eagle did not object when the court ordered the parties to participate in mediation or when the settlement was disclosed to the court or when Formosa was given a conditional dismissal from the first phase of the trial.

“Having decisively lost the phase one trial, J-M now objects to the settlement and seeks to hold FPC-USA hostage in this action,” says the brief submitted by Formosa’s legal team with Holland & Knight LLP.

The brief goes on to say JM Eagle has no standing to challenge the settlement because it doesn’t cause the pipe maker any kind of legal prejudice or strip the defendant of any legal right, claim or defense.

The settlement was achieved during lengthy negotiations mediated by retired Chief U.S. Magistrate Judge Edward A. Infante. FPC-USA and the attorney generals of Nevada, New Mexico and Virginia and dozens of local officials have agreed to it. The settlement awaits the judge’s ruling as to whether it is fair, reasonable and adequate.

Damages owed by JM Eagle to the plaintiffs are to be determined in a second phase of the trial.

“J-M may not look forward to ‘going it alone’ in this action, particularly in the aftermath of its recent and decisive trial loss; but J-M has no basis to prevent FPC-USA from settling the FCA claims against it,” Formosa’s Dec. 13 brief says.

Formosa officials admit no liability in the proposed settlement and agree to settle to avoid further legal expenses in the case, which dates back to 2006.

JM Eagle officials have vowed to appeal in a recent letter to customers reminding them about a 50-year warranty on their pipes. The appeal will be based on evidence not allowed during trial, including test results showing the company’s pipe passed tests commissioned by the plaintiffs and federal government, as well as the wording of a jury form.

JM Eagle attorneys say the jury form was phrased in such a way that the company was liable even if only a single piece of pipe was non-compliant out of billions of feet of pipe manufactured in the 10-year period.

JM Eagle officials also say real-life evidence shows the pipe in the ground performs well.