A federal jury in California found on Thursday last week that the US’ largest maker of plastic pipe defrauded states and municipalities over a decade by knowingly selling them defective pipes for use in their drinking water, firefighting, irrigation and other public systems.
The jury’s decision entitles the states and municipalities to be compensated for their losses by the manufacturer, JM Eagle, a private company based in Los Angeles that has 20 plants in the US and Mexico.
The amounts are to be determined in the next phase of the proceedings, a second trial under the same judge, but with a different jury.
The case was brought under a law that calls for triple damages, plus additional penalties for each false claim submitted to a body of government.
Three states and 42 municipalities participated in the seven-week trial, and hundreds more qualify to participate in the second one because they also bought the affected pipes.
“This pipe is buried under the streets of every major city in the country,” said Eric Havian, a lawyer with Phillips & Cohen who represented the states and municipalities.
In some places, pipes made of PVC (polyvinyl chloride) that were supposed to last 50 years or more, exploded in their first year, causing injuries, floods and other dangers.
“JM sold billions and billions of this pipe over those 10 years,” Havian said. “It is enormously disruptive and terribly expensive to replace these pipes.”
JM Eagle said in a statement that it would appeal the verdict “because the jury was not permitted to see all of the evidence.”
JM Eagle’s former corporate parent, Formosa Plastics Group (台塑集團) of Taiwan, was a co-defendant, but it has offered to settle its part of the case for US$22.5 million, the parties disclosed on Thursday.
The settlement still requires approval from the US District Court in Los Angeles.
The case was brought under the False Claims Act, a law that allows private citizens to sue on behalf of government agencies that they believe have been defrauded. Such cases are typically brought on behalf of a federal agency, like the Pentagon or the Medicare program.
The case against JM Eagle was unusual because it was joined by dozens of local governments.
They were on the frontlines because water is generally supplied at the municipal level in the US.
The lawsuit was filed in 2006 by John Hendrix, a former engineer for JM Eagle, whose duties included handling customer complaints.
He said the company trained him to look for ways to attribute pipe failures to construction errors, rather than flaws in the pipe itself.
Later, when he was assigned to oversee the certification of a new manufacturing process, he came to the conclusion that the company had been selling substandard pipe since 1996 and had manipulated test results to make it look stronger than it really was.
After he told his superiors about his concerns, he was fired, Hendrix said. The company said he was dismissed because of unethical behavior. The complaint against JM Eagle did not accuse it of any wrongdoing after 2006.