A California federal jury determined last month that pipe maker J-M Manufacturing Co. Inc. knowingly made and sold substandard plastic pipe that was later used to build water and sewer systems in several states. The ruling made J&M liable to pay damages in a whistleblower False Claims Act (FCA) suit. Meanwhile, the company’s former owner, Formosa Plastics Corp. USA, has agreed to pay $23 million to settle its part of the FCA suit. That settlement was reached in September, but it was not announced until Nov. 14. The jury found that the pipe maker, which now does business as JM Eagle, will have to pay damages to Nevada, New Mexico, Virginia and 42 cities and water districts that joined in the suit. One of the Plaintiffs’ lawyers, Eric Havian, said in a statement:
The jury obviously decided that JM Eagle management cared only about the amount of pipe JM produced, not the quality of that pipe. JM Eagle deceived outside inspection agencies and ignored over a decade of failing test results. The jury’s conclusion that JM Eagle committed fraud was based on a lot of evidence.
The case arose from a qui tam whistleblower suit brought in 2006 by former JM quality assurance engineer John Hendrix, who alleged that PVC pipes used across the country will rupture far earlier than expected because JM used shoddy manufacturing processes and substandard materials to produce the pipes.
According to the complaint, the company lied about the quality of JM pipe and failed to make improvements despite knowing the pipes didn’t meet government standards. The suit also accused JM’s previous owner, Formosa, of having explicit knowledge of the pipes’ shortcomings. According to the complaint, Formosa’s director of finance and risk management received reports and test results showing that the JM pipe failed tensile strength test requirements mandated by the government. But JM was allowed to continue claiming that its pipe qualified for the necessary Underwriter Laboratories Inc. marking, according to allegations in the suit. Without the UL mark, it’s alleged that the pipe wouldn’t have been eligible for government purchase.
JM says it will appeal the decision, calling the suit part of a “smear campaign” brought on by a disgruntled former employee. The Plaintiffs are represented by Eric R. Havian and Mary A. Inman of Phillips & Cohen; Kirk D. Dillman of McKool Smith Hennigan; and Elizabeth J. Sher of Day Pitney. The case is U.S. et al. v. J-M Manufacturing Co. et al. in the U.S. District Court for the Central District of California.
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