PVC pipe manufacturer defrauded states and cities, jury in whistleblower lawsuit finds

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by John Chapman

JM Eagle is the largest manufacturer of plastic pipe in the world. The company sold billions of dollars’ worth of plastic pipe that was used in water and sewer systems in various states around the country.

John Hendrix was an engineer at the company whose duties included handling customer complaints. Hendrix said the company trained him to blame pipe failures on construction errors rather than flaws in the pipe itself. When he was later assigned to oversee the certification of a new manufacturing process, he came to the conclusion that the company had been selling substandard pipe since 1996 and had manipulated test results to make the pipe appear stronger than it really was.

According to Hendrix, when he raised his concerns with his superiors, he was fired. Hendrix ultimately brought a qui tam lawsuit against the company on behalf of the government. The whistleblower lawsuit was brought under the federal False Claims Act and similar state and local false claims laws. The False Claims Act and similar state laws allow private citizens to sue on behalf of government agencies that they believe have been defrauded. Eventually, dozens of local governments joined the qui tam lawsuit filed by Hendrix.

The suit alleged that the company cut costs by using shoddy manufacturing practices to make weaker but more profitable polyvinyl chloride (PVC) pipe. The plaintiffs claimed that JM Eagle deceived outside inspection agencies and ignored over a decade of failing test results.

A federal jury in California has now determined that JM Eagle did defraud states and municipalities for years by knowingly selling defective pipe for use in drinking water, firefighting, irrigation and other public systems. The jury’s decision entitles the states and municipalities to be compensated for their losses. Three states and 42 municipalities participated in the seven-week trial, but hundreds more qualify to participate in the second phase because they also bought the pipe in question.

The first trial was limited to determining whether from 1996 to 2006 JM Eagle lied about whether its pipe met strength and durability standards required by government specifications. The amounts to be awarded to the sates and municipalities will be determined in a second trial with a different jury. Given the amount of pipe involved, damages may reach into the billions. The terms of the federal False Claims Act provide that the whistleblower bringing the action is entitled to receive as much as 30% of the total amount recovered.

JM Eagle’s former corporate parent, the Formosa Plastics Group of Taiwan, was also a defendant in the lawsuit. However, Formasa Plastics has offered to settle its part of the case for $22.5 million. The proposed settlement requires approval from the court.

Have you witnessed fraud against the government?

Anyone who has information that a business or person has knowingly submitted or caused the submission of false or fraudulent claims to any branch of the United States government can potentially help file and pursue a lawsuit under the False Claims Act. The “whistleblower” (called a “relator”) does not have to have been personally harmed at all. The relator just needs to be aware of the false or fraudulent conduct. If money is recovered—whether from a settlement between the parties or a court judgment—the whistleblower who helped initiate the lawsuit can potentially recover 15% to 30% of the total amount recovered.

The lawyers at Heygood, Orr & Pearson represent clients who have witnessed fraud first-hand and wish to file a “qui tam” or whistleblower lawsuit against the corporations or individuals who were responsible. For example, our lawyers successfully negotiated a $1.75 million award for a whistleblower in a large tax fraud case.

In addition, Heygood, Orr & Pearson is AV-rated, the highest legal and ethical rating available from the leading law firm rating service. Our partners Michael Heygood, Jim Orr, and Eric Pearson are all Board Certified in Personal Injury Trial Law by the Texas Board of Legal Specialization. Mr. Heygood and Mr. Orr are additionally Board Certified in Civil Trial Advocacy Law by the National Board of Trial Advocacy. Our partners been voted by their peers as “Super Lawyers” in the state of Texas for several years in a row.*

The government has recovered billions as a result of False Claims Act lawsuits, and hundreds of millions have been paid to the private whistleblowers that made the lawsuits possible. If you have questions about how to pursue a claim under the False Claims Act, please let us know. You can reach us by calling our toll-free hotline at 1-877-446-9001, or by filling out our free legal consultation form on this page.

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Michael Heygood, James Craig Orr, Jr. and Eric Pearson were selected to the Super Lawyers List, a Thomson Reuters publication, for the years 2003 through 2013.