LOS ANGELES (Legal Newsline) -- A federal jury on Thursday found JM Eagle, one of the largest pipe manufacturers in the world, liable for knowingly manufacturing and selling to government entities substandard plastic pipe that was used in water and sewer systems in various states.
As a result of the decision, JM Eagle, formerly known as J-M Manufacturing, will have to pay out an undetermined amount of damages to Nevada, New Mexico and Virginia and 42 cities and water districts that joined the whistleblower lawsuit, and dozens of other states, cities and water districts that bought JM Eagle pipe but didn't join the suit.
The seven-week civil trial, held in a federal district court in Los Angeles, focused on the company's efforts to cut costs by using shoddy manufacturing practices to make weaker, albeit more profitable, polyvinyl chloride, or PVC, pipe.
"The jury obviously decided that JM Eagle management cared only about the amount of pipe JM produced, not the quality of that pipe," said Eric Havian, an attorney with Phillips & Cohen LLP, who argued the case on behalf of the plaintiffs.
"JM Eagle deceived outside inspection agencies and ignored over a decade of failing test results."
Nevada Attorney General Catherine Cortez Masto, in a statement Thursday, called the situation a "budget nightmare." The state was one of the largest purchasers of JM Eagle pipe and experienced many failures because of it.
"We know from firsthand experience that this PVC pipe will prematurely leak or break and can jeopardize lives," Masto said.
"Today's verdict demonstrates that manufacturers cannot get away with fraud that puts lives at risk."
New Mexico Attorney General Gary King agreed.
"JM defrauded New Mexico taxpayers when they sold us sub-standard products that jeopardize our citizens' access to clean drinking water," he said. "By joining in this suit, we are sending a message to JM and other would-be fraudsters that they will be held accountable."
Virginia Attorney General Ken Cuccinelli said the company must be held accountable for misleading his state's localities.
"The trial showed the company's attempt to cut costs with shoddy manufacturing practices resulted in weaker PVC pipes, which ended up leaking and costing Virginia localities millions to repair or replace," he said.
"The jury's decision affirmed that JM Eagle is liable for falsely representing the quality and durability of its product."
Formosa Plastics, 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 trial began in September but wasn't announced at that time. The court must approve the settlement before it is final.
Meanwhile, JM Eagle said Thursday it would immediately appeal the jury verdict.
"While we respect and thank the jury members for their service, we disagree strongly with the verdict," said Neal Gordon, JM Eagle's vice president of marketing and waterworks sales.
"We believe we have valid grounds for an appeal, which we will file as immediately as possible, and we look forward to having this verdict reviewed and set aside."
The company argues that it presented "irrefutable evidence" that its products meet and even exceed national standards.
In fact, JM Eagle retained the former head of the U.S. Army Corps of Engineers to review its quality control and quality assurance systems.
"Based on everything I personally observed and learned while conducting my review, I do not believe that any allegations of poor quality products from JM Eagle could be credible or have merit," Major General (Ret.) Merdith W.B. Temple concluded in his report.
Gordon noted that JM Eagle has received claims from its customer base on less than 0.1 percent of 11.4 billion feet of pipe sold in the last 10 years, saying the fact is "clear and convincing evidence that our pipe meets industry standards."
"But we are determined to see this matter through to its just conclusion as a matter of principle and to defend the reputation of our company," he said.
"JM Eagle has been subjected to years of false and scurrilous allegations by a disgruntled former employee who had been fired for attempting to solicit a kickback scheme from a JM Eagle customer and to years of smear attacks that are meritless."
The company said the whistleblower has demonstrated an "unquestionable lack of integrity."
It noted that the plaintiffs' attorneys didn't call him to the witness stand during the trial, speaking volumes to the "fundamental weakness" of their case.
JM Eagle argues that the case should never have been brought in the first place, and described it as an example of the "legal gold rush" that critics said would result from the expansions of the False Claims Act in recent years.
From Legal Newsline: Reach Jessica Karmasek by email at jessica@legalnewsline.com.
Federal jury finds JM Eagle liable for fraud for making, selling faulty pipes
