JM Eagle Potentially Liable for Billions

Last month, a federal jury unanimously ruled that JM Eagle, which claims to be the largest pipe manufacturer in the world, knowingly manufactured and sold to government entities substandard plastic pipe that was used in water and sewer systems in various states around the country. The ruling could open JM Eagle up to potentially billions of dollars in damages.

As a result of the decision, JM Eagle, formerly known as J-M Mfg., will have to pay an as yet-undetermined amount of damages to three states ? Nevada, New Mexico and Virginia ? and 42 cities and water districts that joined a whistleblower lawsuit, as well as dozens of other states, cities and water districts that bought JM Eagle pipe but did not join the lawsuit. The trial exposed JM Eagle?s deliberate efforts to cut costs by using substandard manufacturing practices to make weaker but more profitable polyvinyl chloride (PVC) pipe.

According to Eric Havian, an attorney with Phillips & Cohen LLP, who argued the case on behalf of the plaintiffs, the states and water districts covered by this lawsuit spent $2.2 billion to buy JM Eagle [products] during the 10-year period JM was lying about the long-term strength of the pipe. Those entities now are entitled to recover a substantial portion of that cost, plus the costs to replace the substandard pipe much sooner than expected. This likely will mean damages could total billions of dollars because it?s expensive and disruptive to replace water pipe.

For instance, Calleguas Municipal Water District in Thousand Oaks, Calif., had to spend $4 million to replace JM Eagle pipe after the water pipe that was part of one project broke and leaked seven times. JM Eagle defrauded its customers for 10 years, Havian continued. The jury obviously decided that JM Eagle management cared only about the amount of pipe JM produced, not the quality of that pipe, and deceived outside inspection agencies and ignored over a decade of failing test results, he said.

Meanwhile, Formosa Plastics, which was formerly the owner of JM Eagle, has agreed to pay $22.5 million to those same government entities to settle claims in the qui tam lawsuit about its role in the fraud. The settlement was reached shortly before the JM Eagle trial began in September but wasn’t announced at that time. The court must approve the settlement before it is final.

JM Eagle reportedly plans to appeal the verdict, stating in a press release that ?we believe we have valid grounds for an appeal, which we will file as immediately as possible.?

During the seven-week civil trial in federal district court in Los Angeles, more than 30 witnesses testified, many of them current and former JM Eagle employees, including JM Eagle President and sole owner Walter Wang. The jury also saw more than 300 JM Eagle documents, including emails and internal test reports.

The support of Nevada Attorney General Catherine Cortez Masto, Virginia Attorney General Ken Cuccinelli and New Mexico Attorney General Gary King was important to the success of this case and has made a big difference for their taxpayers, said attorney Havian. Nevada was one of the largest purchasers of JM Eagle pipe and experienced many failures.
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The false claims lawsuit against JM Eagle was first filed in 2006 when former JM Eagle engineer John Hendrix raised concerns about the quality of the company?s widely used PVC water pipe.

According to a report in The New York Times, Hendrix accused the company of falsifying test results about the quality of its products. According to Hendrix, pipes that should last 50 years had, in some cases, ruptured in their very first year.

Officials from JM Eagle disputed the allegations and said tests were done correctly. According to The New York Times, Hendrix said he uncovered the problem after he was asked to oversee the certification of a new manufacturing process that put the pipes through a prescribed battery of tests. He had concluded that JM Eagle had been selling substandard plastic pipe since 1996, and that it had consequently manipulated test results. The dispute has been ongoing ever since.?

The lawsuit was filed under a statute that allows any citizen to bring a claim on behalf of the government. As the whistleblower in a qui tam lawsuit, Hendrix stands to receive a percentage of damages awarded, ranging from 15 to 30 percent depending on the individual claim.
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