LOS ANGELES (Legal Newsline) - A federal judge is allowing the whistleblower lawsuit against pipemaker JM Eagle to continue, but won't let the plaintiff states and municipalities expand their claims.
U.S. District Judge George Wu denied most of JM Eagle's arguments from its motion to dismiss in an order entered Wednesday, but won't allow the intervening states and municipalities to file their own complaints that contain state common law causes of action.
Those complaints, if they were to be filed, must be filed in state court.
"(T)he court declines to permit the intervenors to file the currently proposed complaints-in-intervention because it would decline to exercise supplemental jurisdiction over the claims raised in them, all of which are based on state common law," Wu wrote.
"What started as a complicated qui tam matter based upon the federal (False Claims Act) and certain state law equivalents threatens, given the proposed complaints-in-intervention, to morph into a massive overwhelmingly state law-based litigation."
Both sides disagreed over the meaning of Wu's order. Phillips & Cohen, the law firm representing the whistleblower, said Wu "clearly... rejected JM Eagle's spin on the case," while JM Eagle called it "a major victory."
The company also said the intervenors only sought to add common law claims to "make their baseless lawsuit against JM Eagle appear more credible."
In a 2006 complaint filed under seal, 11 states were named as parties of interest. Only three are currently intervenors, and California and the federal government are among the notables that have decided not to intervene.
The state of Delaware was once an intervenor -- along with Nevada, Virginia and Tennessee -- but state Attorney General Beau Biden dropped out of the case.
Phillips & Cohen is representing whistleblower John Hendrix, who was an engineer for J-M Manufacturing's product assurance division in New Jersey. J-M was JM Eagle's corporate predeccessor.
Hendrix was fired less than two weeks after writing a memo that said the pipes' tensile strength was substandard, Phillips & Cohen said.
JM Eagle attorney Lanny Davis has said that none of the states put much time into investigating the claims. Nevada Attorney General Caroline Cortez Masto was the only attorney general with whom the company interacted.
Jason Miller, a spokesman for Biden, has said the state has experienced "no known failures of the pipe."
The U.S. Attorney's Office in Los Angeles subpoenaed tens of thousands of documents and conducted what attorney Davis called a "mini-trial" in which expert testimony was given.
"I'd never seen that before," said Davis, former special counsel to President Bill Clinton. "At the very end of the process, they sent in people to take samples of the pipes, going over several years.
"They told us they were going to test the pipe, then we didn't hear from them anymore."
Phillips & Cohen says the company is issuing press releases to hide its guilt.
"But clear away the smoke, and the fraud remains," Eric R. Havian, a San Francisco attorney with Phillips & Cohen.
"Numerous witnesses interviewed by federal agents and the company's own documents confirm what our client has said: JM lied to its customers and sold substandard pipe."
From Legal Newsline: Reach John O'Brien by e-mail at jobrienwv@gmail.com.