Ten Years of Defective PVC Pipe May Cost Government Billions

A federal jury unanimously agreed 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—opening 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 "qui tam" (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 efforts to cut costs by using shoddy manufacturing practices to make weaker but more profitable polyvinyl chloride (PVC) pipe.

"States and water districts that are covered by this lawsuit spent $2.2 billion to buy JM Eagle during the 10-year period JM was lying about the long-term strength of the pipe," said Eric Havian, an attorney with Phillips & Cohen LLP who argued the case on behalf of the plaintiffs. "Those entities now are entitled to recover a substantial portion of that cost plus the cost to replace the shoddy 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."

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 was not announced at that time. The court must approve the settlement before it is final. A hearing is scheduled for Dec. 19.

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.

Source: Phillips & Cohen LLP