By: Catherine Kavanaugh
February 25, 2014
JM Eagle is very litigious these days.
The same day it filed a lawsuit in New Jersey against a whistle blower and the law firm representing him for allegedly stealing documents, the largest PVC pipe extruder in North America accused the same law firm of libel in California for a news release it issued last year.
J-M Manufacturing Co., the former name of JM Eagle, is listed as the plaintiff in both lawsuits filed Feb. 21 against Phillips & Cohen, LLP, which has offices in San Francisco and Washington, D.C.
The latest legal actions in the case, which dates back to 2006, come 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.
Monetary damages will be determined in a second phase of the trial.
In an email to Plastics News, Phillips & Cohen said: “J-M is attacking our firm to retaliate for our victory against them at trial. We are confident the courts will see these lawsuits for what they are: a futile attempt to intimidate us as we move into the next phase of the whistleblower litigation. We strongly believe J-M’s lawsuits against Phillips & Cohen are frivolous and look forward to demonstrating that in court.
“J-M made the same accusations about stealing documents to the federal judge in the whistleblower case, and the judge repeatedly found that the firm and our client did nothing improper in providing copies of J-M’s documents to the government.”
Phillips & Cohen also represents 45 water districts, cities and states and a dozen interveners that bought the J-M pipes from 1996-2006. The law firm issued the controversial news release on Nov. 15, after the jury verdict came back in its favor.
J-M alleges the news release was false and defamatory because it referred to the company’s pipes as “faulty,” “substandard,” “weak” and “shoddy.”
The libel lawsuit says the jury verdict only applies to five public utilities that were selected as “exemplar plaintiffs” and no evidence was presented that anyone received and paid for J-M pipe that didn’t meet industry standards.
“In sum, the jury’s ‘uniform compliance’ finding established that, like all product manufacturers, J-M had not achieved absolute manufacturing perfection, but it did not establish that J-M sold substandard or defective pipe to any qui tam plaintiff or any other identified J-M customer,” the libel lawsuit says.
The Phillips & Cohen news release issued to media outlets across the country was not a fair or accurate portrayal of the trial proceedings, according to the libel lawsuit.
“The press release’s gross misrepresentations captured neither the sting nor the gist of the jury’s findings,’ it continues. “Contrary to P&C’s press release, the trial did not determine whether J-M’s pipe was substandard or defective, which it is not.”
J-M also 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 is asking for a new trial and a court hearing is scheduled for March 13 in California on the request.
In the New Jersey lawsuit, J-M is suing Phillips & Cohen and the whistle blower for the alleged theft of hundreds of confidential documents used to build a False Claims Act case against the Los Angeles-based company.
This nine-count lawsuit says the whistle blower, John Hendrix, a product assurance engineer fired from J-M’s plant in New Jersey, 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 the company.
The 23-page 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.
A transcript of court proceedings from July 18, 2013, indicates Judge Wu considered the employee secrecy agreement signed by Hendrix, who is also referred to as a “relator” in the original whistle blower case.
The judge says in the transcript, “… if the relater even with the advice of counsel obtains evidence which would not be otherwise privileged or anything but simply is a violation of let’s say a confidentiality agreement or something of that sort, I would agree with the plaintiffs’ position in this case that a confidentiality agreement cannot trump the production of relevant information so long as the relevant information is not otherwise obtained illegally or does not otherwise overlap with privileged documents or something of that sort.”
The lawsuit 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.
In addition, the lawsuit 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.
In a related matter in January, Judge Wu 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.