By: Catherine Kavanaugh
February 24, 2014
JM Eagle, the largest PVC pipe extruder in North America, is suing a whistle blower and the law firm representing him for the alleged theft of hundreds of confidential documents used to build a False Claims Act case against the Los Angeles-based company.
J-M Manufacturing Co., the former name of JM Eagle, is listed as the plaintiff in the nine-count lawsuit filed Feb. 21 against whistle blower John Hendrix, a fired product assurance engineer, and the law firm of Phillips & Cohen LLP.
In an email to Plastics News, Phillips & Cohen said: “This is just an effort to retaliate against us for our victory against them at trial. We are confident that the court will see this for what it is.”
The lawsuit comes three months after a federal jury in California found J-M violated the False Claims Act by selling PVC pipe of questionable quality to government entities for water and sewage systems.
Phillips & Cohen also represents the 45 water districts, cities and states and a dozen interveners that bought the company's pipes from 1996-2006. The amount of damages owed to the plaintiffs will be determined in a second phase of the trial.
However, J-M has raised issues about jury instructions and what it says were distortions of industry pipe standards that contributed to a "miscarriage of justice." J-M has asked for a new trial.
The company also is seeking a jury trial in its 23-page lawsuit filed against the whistle blower and P&C, which alleges that Hendrix breached a contract he signed in June 2002 not to divulge financial information, trade secrets, proprietary information and confidential data belonging to or relating to J-M.
The lawsuit says Hendrix violated the so-called "employee secrecy agreement" at the direction of the law firm from August through November 2005. That's when Hendrix allegedly searched J-M's AS400 database for protected information, emailed information, smuggled out paperwork to make copies then returned it, recorded conversations, wrote "set-up emails" with colleagues, attempted to obtain product test results from outside laboratories, and solicited a kickback from a customer.
J-M says Hendrix was fired after the alleged kickback incident. However, Hendrix says he was terminated for confronting management about quality control issues.
Hendrix contends JM employees cut corners to meet production quotas and much of the pipe sold in the 10-year period didn't meet industry standards and has shorter life spans than promised.
Hendrix did not testify during the seven-week trial but other witnesses said plant managers removed "reject" tags from pipe identified as substandard and shipped it to customers. If anyone complained, witnesses said they were told to blame improper installation or factors other than manufacturing defects.
The jury saw more than 300 JM documents during the trial before U.S. District Judge George Wu that ended in November.
In a related matter in January, the judge approved a $22.5 million settlement between the plaintiffs and resin supplier Formosa Plastics Co. USA, which is the former parent company of JM Eagle. Hendrix is entitled to 15-25 percent of the amount recovered.
Formosa admitted no liability and agreed to settle to avoid further legal costs. The settlement also included a separately negotiated $5.5 million payment to compensate Phillips & Cohen for attorney fees and costs.
The latest lawsuit related to the 8-year-old case was filed in New Jersey, where Hendrix worked. JM also alleges a breach of fiduciary duty, computer-related offenses, and trespassing against the whistle blower as well as conspiracy and racketeering against all defendants.
The lawsuit also alleges aiding and abetting against 1-50 John/Jane Does who recruited customers of JM products to be plaintiffs in the False Claims Act trial before Judge Wu in Los Angeles. The yet-to-be-named defendants also are accused of interference with contractual rights and prospective economic advantage.
As a result of all the allegations, JM says it "suffered great financial harm" due to the loss of business from existing and prospective customers who removed the company's pipes from their approved-products lists.
JM is seeking compensatory, punitive and exemplary damages, recovery of legal fees and any other relief the court proper.