LOS ANGELES — Nevada, Virginia, Delaware, Tennessee, San Diego, Sacramento, San Jose, the Los Angeles Department of Water and Power and 39 other California municipalities and water districts have joined a whistleblower lawsuit seeking millions of dollars in damages from JM Eagle and its former parent company, Formosa Plastics Corp. (USA), for supplying PVC water and sewer pipes that the suit alleges the manufacturer knew were substandard.
The whistleblower lawsuit was unsealed in February after the states and other government entities investigated the allegations and elected to intervene in the case, which is filed in federal district court in Los Angeles.
The pipe is used in water and sewer systems that, for the most part, are owned and operated by municipalities and public water districts.
“The decisions by so many states, cities and water districts to join this case show just how serious these allegations are,” said Mary A. Inman, a San Francisco attorney with Phillips & Cohen LLP, which represents the whistleblower, the Commonwealth of Virginia, the State of Tennessee and 25 California cities and water districts. “With government entities struggling to meet their budgets, it's particularly important for them to recover their losses from any fraud.”
As a result of the investigation into the quality of PVC pipe that JM Eagle has provided, the Nevada Department of Public Works, the cities of San Diego and Sparks, Nevada, as well as at least three water districts in Nevada and California (Truckee Meadows Water Authority, North Marin Water District and Alameda County Water District) have removed JM products from their approved-products lists for purchases.
On Feb. 12, the New York Times reported that the whistleblower, John Hendrix, claimed that his former employer had falsified test reports on the pipe. Hendrix said he believed that less than half of the pipe produced would have been released for sale if it had been properly tested. Hendrix said he was fired when he pressed his concerns with his supervisors.
The whistleblower, John Hendrix, was an engineer in J-M's product assurance division in New Jersey. J-M fired him less than two weeks after he wrote a memo to company management with concerns that the tensile strength of J-M's PVC pipe was below that required by UL to qualify for the UL mark stamped on its pipes.
Hendrix, a New Jersey resident, filed his qui tam lawsuit in 2006. Federal and state false claims laws allow private individuals to sue companies that are defrauding government entities and recover damages on the government's behalf. Under those laws, liable companies may be required to pay as much as three times damages plus penalties.
A JM Eagle spokesman did not return phone calls from CONTRACTOR.
Attorneys general said they would seek damages from JM Eagle for the cost to dig up and replace failing PVC pipe.
Nevada Attorney General Catherine Cortez Masto said, “We will hold anyone who cheats Nevada taxpayers accountable. For safety, economic and health reasons, water and sewer lines need to be reliable and sustainable to meet the needs of Nevada's citizens.”
Los Angeles City Attorney Carmen Trutanich stated he looks forward to recovering damages from the manufacturer for the City of Los Angeles. “If you are going to misrepresent your product standards, you should expect that the City Attorney's Office will seek the appropriate remedy from the responsible parties,” Trutanich said.
Added San Diego City Attorney Jan Goldsmith, “Millions of dollars of substandard PVC pipe has been sold and installed in San Diego. We have to hold manufacturers who fail to meet their standards and UL obligations accountable.”
From at least 1996 through 2005, the whistleblower lawsuit says, the majority of the PVC pipe JM Eagle's corporate predecessor, J-M Manufacturing, manufactured and sold to distributors and contractors had tensile strength below the minimum required by applicable industry standards and J-M's contracts.
The tensile strength of the pipe is the limit at which stress or pressure on the material will cause the pipe to break. The lawsuit alleges J-M deceived its customers by cherry-picking the pipe samples tested by outside certification agencies such as Underwriters Laboratories, International Association of Plumbing and Mechanical Officials and NSF International, while continuing in its day-to-day operations to use a cheaper manufacturing process that produced weaker pipes but enabled the company to increase its profits.
JM Eagle claims to be the world's largest manufacturer of plastic pipe. Formosa Plastics USA is part of Taiwan's Formosa Plastics Corp., one of the world's largest PVC suppliers.
Those two companies are largely controlled by the family of the late Taiwanese billionaire Y.C. Wang. The case is entitled United States and States of California et al. ex rel. John Hendrix v. J-M Manufacturing Company, Inc. and Formosa Plastics U.S.A., Case No. ED CV-06-0055-GW (C.D. of CA).