New Mexico Joins Whistleblower Lawsuit Against JM Eagle Alleging Substandard PVC Pipe

Mar 08, 2011, 15:39 ET from Phillips & Cohen LLP

LOS ANGELES, March 8, 2011 /PRNewswire/ -- The state of New Mexico has joined a whistleblower lawsuit against JM Eagle that alleges the plastics pipe manufacturer defrauded its customers by selling substandard polyvinyl chloride (PVC) pipe for water and sewer systems.

"We believe this manufacturer knowingly sold the State substandard PVC pipe, and the Fraud Against Taxpayers Act provides a powerful vehicle for righting this wrong," said Attorney General King in a statement issued today. "The merits of this case are strong; we intervened to make clear that we will stand up against those who attempt to defraud New Mexico taxpayers."

New Mexico is the latest of a number of government entities that have joined the "qui tam" (whistleblower) lawsuit against JM Eagle to recover damages caused by the company's sale of PVC pipe that allegedly doesn't conform to industry standards. The State of Nevada, the Commonwealth of Virginia and 47 municipalities and water districts in California previously filed notice with the court that they are joining the case.

The trial of the whistleblower case is scheduled to begin in December in federal district court in Los Angeles.

"After weighing the evidence, the state of New Mexico decided to support the case against JM Eagle," said Eric R. Havian, a San Francisco attorney with Phillips & Cohen LLP, which represents the whistleblower and the government entities that have joined the case. "We think the court will make the same decision once we go to trial."

Underground sewer and water pipes are expected to last decades. PVC pipe that doesn't conform to industry standards is more likely to leak or break and have to be replaced, which causes a major financial hardship for cash-strapped states, municipalities and water districts.

The whistleblower, John Hendrix, was an engineer in JM's product assurance division in New Jersey. JM fired him less than two weeks after he wrote a memo to company management with concerns that the tensile strength of JM's PVC pipe was below industry standards and has launched vicious personal attacks against him.

"JM Eagle continues to attack the messenger to distract attention from the evidence of fraud that proves our allegations, which are supported by interviews of former JM employees conducted by federal investigators as well as the company's own documents," said Mary A. Inman, a San Francisco attorney with Phillips & Cohen. "We are ready to prove in court that JM Eagle's pipe was neither made nor tested in conformity with industry standards."

The U.S. Attorney's Office in 2008 made a presentation to JM Eagle that included statements from witnesses, including JM's former head of research and development. He told agents, "From 1991 through 2002, between 50-80% of the pipe produced by JM was non-conforming. From 2002 through 2005, 100% of the pipe was non-conforming." (Presentation at p. 46).

He also told federal investigators that JM "lived by the motto, 'There is no shame in lying but there is shame in getting caught lying.'" (Presentation at p. 66.)

The federal government and a few other states decided not to join the lawsuit, but all reserve their rights to join the case at a later time to recover funds they are owed.

Qui tam lawsuits are brought under the False Claims Act and similar state statutes. Those laws allow private citizens to sue companies that are defrauding the government or state or local government entities to recover funds on behalf of those entities and receive a reward. The whistleblower may proceed with the qui tam case even if the government doesn't join.

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SOURCE Phillips & Cohen LLP