Updated: The second phase of the 12-year-old whistleblower case against plastic pipe manufacturer JM Eagle has resulted in a mistrial.
On Nov. 14, the jury deadlocked over awarding monetary damages to the first group of cities and water districts claiming to have received PVC products of questionable quality.
The five exemplar plaintiffs weren't awarded any money by the second jury, but they could, at some point, with motions still pending in Los Angeles before U.S. District Judge George Wu and appeals always a possibility.
“JM Eagle said from the start that the arguments made by plaintiffs' counsel during the trial were not supported by evidence presented at the trial,” JM's General Counsel Frank Fletcher said in a news statement issued late Nov. 16. “JM Eagle delivered high quality pipe to the plaintiffs in the period covered by the allegations and none of the plaintiffs received anything less than the quality pipe they were promised.”
The whistleblower, a fired product assurance engineer, had said JM employees cut corners to meet production quotas, which raised questions about the lifespan of the products.
The first five plaintiffs — the cities of Reno, Nevada, and Norfolk, Va., and the water utilities of Palmdale, Calleguas and South Tahoe, Calif. — were seeking at least $58 million to remove old pipe, install new pipe and pay insurance premiums after a jury in the first phase of the bifurcated trial determined that JM Eagle violated the federal False Claims Act.
The first jury found the manufacturer falsely represented uniform compliance with pipe standards set by the American Water Works Association and UL in order to receive government payments from 1996 to 2006. Without uniform compliance to standards, the plaintiffs successfully argued they got “the luck of the draw” with JM pipes purchased in that 10-year period.
The second jury was to determine what, if any, actual damages the plaintiffs should recover. However, the judge made a legal determination that damages would be measured by the “benefit of the bargain.”
“When I say that plaintiffs must prove that JM's failure to manufacture or test its pipe to assure that it uniformly had the quality, strength, or durability the AWWA or UL standards required must have ‘caused' the physical properties of each plaintiff's pipe to be different from and less valuable than the pipe JM promised,” the judge said in his written instructions to the jury.
“If you conclude that any plaintiff has not proven that JM's conduct caused any loss of physical properties in that plaintiff's pipe or that JM caused any loss of value for the pipe it received for each project, then you should not award that plaintiff any damages for that project.”
Judge Wu essentially limited the amount of money the plaintiffs could recover in damages to the costs of the pipe, which other testimony in this phase of the trial indicated amounts to about $2 million.
“The jury was not prepared even to award that sum,” Fletcher said. “The plaintiffs' evidence was unable to convince them.”
The plaintiffs were represented by Elizabeth Sher of Day Pitney LLP, Kirk Dillman of McKool Smith Hennigan PC, and Eric Havian and Harry Litman of Constantine Cannon LLP. Sher referred comment to Havian and Plastics News has reached out to him for comment.
The JM Eagle statement says the plaintiffs' witnesses testified that their pipes are performing with no problems and they have “only a speculative concern” that the pipes will fail prematurely.
The plaintiffs also admitted that the pipe that JM sold them might be fully compliant with industry standards and they had no plans to test or replace it, the company's statement says.
“JM Eagle believes this case should never have been brought,” Fletcher said. “We have always been determined to see this matter through to its just conclusion as a matter of principle and to defend the reputation of our company.”
In another move to defend its reputation, JM Eagle started offering a retroactive 50-year warranty to show its confidence in its products.
The outcome of the damages phase of the trial validates what the company has argued all along, according to Fletcher.
“The accusations of the plaintiffs' attorney were baseless, and none of the pipe at issue purchased by the five plaintiffs has failed since being placed in service in-ground between 12 and 22 years ago,” Fletcher said.
JM Eagle was represented by David Bernick and Jaren Janghorbani of Paul Weiss Rifkind Wharton & Garrison LLP, and Paul Chan and Ekwon Rhow of Bird Marella Boxer Wolpert Nessim Drooks Lincenberg & Rhow PC.
The case is scheduled for a Nov. 29 status conference. Another trial of the case before a new jury is possible.
With an estimated $2.8 billion in annual sales. Los Angeles-based JM Eagle is the largest pipe, profile and tubing extruder in North America, according to Plastics News' latest ranking.