Jury Finds Pipe Maker JM Eagle Liable in Fraud Suit

A federal jury unanimously agreed Nov. 14 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 deliberate 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.”

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. 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.”

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.

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. “I particularly want to thank Nevada Attorney General Masto and Nevada Deputy Attorney General Susan Stewart for the huge efforts they have made in this matter to recover funds for Nevada taxpayers.”

Nevada was one of the largest purchasers of JM Eagle pipe and experienced many failures of that pipe.