LOS ANGELES (Legal Newsline) - Lawyers who spent more than a decade pursuing a whistleblower case that was almost entirely obliterated by a judge’s ruling earlier this year are now chasing after the real payoff: Tens of millions of dollars in fees for a lawsuit that has yielded their clients $192,000.
In a filing in federal court in California, law firms that specialize in qui tam litigation – fraud suits by private citizens in the name of the government – have asked U.S. District Judge George H. Wu to award them fees for winning the long-running case against JM Eagle, the world’s largest manufacturer of plastic pipe.
There’s only one problem with their request: They lost. In a July order, Judge Wu dismissed damages claims against JM Eagle, finding the plaintiffs failed to present any evidence they had lost money and their experts couldn’t prove the company’s pipe was defective. In a confusing move, the judge left intact an earlier jury verdict finding the company liable for selling an unspecified amount of pipe that didn’t meet industry standards and ordered the company to pay statutory penalties to five plaintiffs.
JM Eagle argues that verdict is illogical, since no company can guarantee 100% compliance on every product it makes, and the judge’s ruling throwing out any possibility of damages has decided the case in its favor.
“This case was gone when Judge Wu issued his order dismissing it,” said JM Eagle’s attorney David Bernick of Paul Weiss, a veteran of numerous high-profile mass tort cases including breast implants and tobacco. “And for a case where the plaintiffs got zero, we feel the plaintiffs’ lawyers shouldn’t get anything more.”
Attorney Elizabeth Sher with Day Pitney, one of several law firms representing government plaintiffs in the case, said the judge’s award of statutory penalties means they won.
“There is no question that plaintiffs prevailed,” plaintiff lawyers said in a Nov. 4 filing requesting fees. The judge refused to set aside a jury finding of liability, they argue, and his award of statutory penalties constitute “proceeds” of the lawsuit, triggering provisions of state and federal whistleblower laws requiring the defendant to pay the other side’s legal costs. Given JM Eagle says it has spent more than $50 million on the case so far, fees could easily be in the tens of millions of dollars.
The fight over legal fees comes after a draining, 14-year legal war that began when John W. Hendrix, an engineer with JM Eagle, accused the company of manufacturing shoddy PVC pipe that had been installed in municipal water systems all over the country. JM Eagle is owned by Walter Wang, the youngest son of the late Taiwanese billionaire Y.C. Wang, who built that nation’s plastics industry and controlled giant Formosa Plastics. Walter bought JM, a spinout from bankrupt asbestos manufacturer Johns-Manville, from Formosa in 2007 and built it into the world’s largest manufacturer of PVC pipe through acquisitions and internal growth.
Hendrix launched his suit with what has a typical publicity tool for qui tam lawyers: A flattering profile in the New York Times presenting his side of the case. Not mentioned in that story was the fact the federal government had taken a pass on the lawsuit after testing JM Eagle pipe and finding it wasn’t defective. Later, JM Eagle alleged in a lawsuit against Hendrix and his lawyers that Hendrix stole thousands of internal documents and had been fired not for whistleblowing, but for seeking a shakedown from a customer who supplied an affidavit describing the alleged attempt. Hendrix denied wrongdoing.
The case initially was pursued by Phillips & Cohen, whose founder John Phillips literally helped write the 1986 law that made it easier for whistleblowers to win large damages and legal fees in qui tam suits. Phillips & Cohen dropped out in 2016 after the lead attorney on the JM Eagle case, Eric Havian, moved to Constantine Cannon.
Plaintiff lawyers sought unsuccessfully to block JM Eagle from obtaining the results of government testing on its pipe, claiming the attorney-client privilege. Despite this evidence, Judge Wu allowed the case to proceed, splitting it into two phases. In Phase One the jury would decide liability on behalf of five representative plaintiffs. In Phase Two another jury would determine damages owed thousands of other government entities that bought JM Eagle pipe.
Phase One ended in 2013 with the puzzling verdict that JM Eagle was liable for saying its pipe complied with industry standards when testimony by former employees and expert witnesses suggested that due to slipshod manufacturing processes, not every piece actually met those standards. The verdict was unusual because manufacturers offer warranties for the specific reason that not every product coming out of the factory can be in compliance. The jury apparently disregarded the fact plaintiffs couldn’t point to any pipe failures except for a single occurrence JM Eagle said was due to an incorrectly performed pressure test before the line was installed.
At a hearing after Phase One ended, Judge Wu acknowledged he had lost control of the proceedings. He limited the liability finding to the five plaintiffs in that trial.
“Given what happened in the first phase of the trial, it is – you know, the dust settled, but I don’t know what happened,” he said then. The judge nevertheless allowed the case to proceed to Phase Two, which ended with a mistrial in November 2018 after the jury couldn’t come to a verdict. JM Eagle moved for a judgment in its favor, saying the plaintiffs failed to present any evidence they bought defective pipe or had suffered losses because of it.
The judge granted their motion in July, saying the plaintiffs’ expert witnesses incorrectly linked results from short-term strength tests JM Eagle performed on raw PVC and finished pipes to the expected lifetime of the pipe. There was no engineering basis for that conclusion, the judge said. Plaintiffs had failed to provide evidence “from which a reasonable jury could make a finding of an award of actual damages,” the judge wrote.
That ruling, combined with Judge Wu’s earlier decision that the Phase One liability finding applies only to five plaintiffs, leaves plaintiff lawyers back at the beginning with a highly unfavorable decision working against them. Other law firms have brought a class action on behalf of municipal pipe buyers, but Bernick said no additional evidence has been presented in that case so far. To restart the litigation, plaintiff lawyers will have to bring new cases, presumably with new evidence.
Those efforts could get a big financial assist if Judge Wu orders JM Eagle to pay the legal fees of the lawyers it has been fighting for 14 years. Plaintiff lawyers argue the federal False Claims Act and nearly identical laws in California, Nevada and Virginia all allow fees “if the action results in any relief.” The provision was designed to encourage private citizens to pursue claims that could recover money for the government.
Judge Wu, in an Oct. 1 order, agreed with JM Eagle that the plaintiffs had failed to present evidence of any losses. But he criticized the company for continuing to insist it had done nothing wrong. The company’s allegedly shoddy practices “spanned roughly a decade and potentially impacted a huge swath of the country, including critical infrastructure and water systems,” the judge wrote. He ordered “mid-range” penalties of $132,000 for 22 California water projects and $30,000 for projects in Virginia and Nevada.
Plaintiff lawyers have asked to bump those penalties to $260,000 – plus what will likely be millions of dollars in fees spent obtaining that result. JM Eagle, meanwhile, vows to keep fighting. Wang, who grew up with his single mother in relative poverty in California after his billionaire father cut them off, acknowledged to the Los Angeles Times earlier this year that he may have been foolish to fight the well-funded qui tam bar for so long instead of settling, like Formosa did years ago.
He said settling the case would admit fault, and that would inevitably hurt the company’s ability to sell pipe in the future.
“I could not possibly settle, so I fought on and fought on,” he told the LA Times. “Even my sister and brother-in-law told me, ‘Walter, you have to have an exit strategy.’”