LA water department joins whistleblower lawsuit against supplier of water system parts

Dec. 9, 1998 -- The Los Angeles Department of Water and Power (DWP) today joined a whistleblower lawsuit brought by Phillips & Cohen LLP that charges a southern California company deliberately provided inferior valves and other parts for water supply systems that could cost Los Angeles alone $150 million to replace. The price tag for San Francisco and more than a dozen other California municipalities could be significantly higher.

In addition, some of the substandard parts contained 40 percent more lead than allowed under national drinking water supply standards, according to the whistleblower, or "qui tam," case.

In court papers asking to intervene in the lawsuit, the DWP stated that as a result of the defendants' fraud, DWP "may become obligated to replace approximately 300,000 parts in order to protect the water supply, and therefore the health and welfare of the citizens of the City of Los Angeles . . . ."

The lawsuit was filed in Los Angeles Superior Court against the James Jones Company ("Jones"), of El Monte, which manufactured and supplied the parts; Watts Industries, Inc. ("Watts"), its former parent company; Tyco International (US) Inc., its current owner; and the Mueller Co., a wholly owned subsidiary of Tyco under which Jones operates.

A superior court judge today granted the DWP's motion to join the lawsuit. Other water districts in California are expected to join the case.

According to the complaint, the allegations are supported by an investigation the DWP conducted earlier this year after it was informed of the lawsuit. The agency dug up and had tested 195 parts that the Jones company had supplied and found that 68 percent of them failed to meet water industry standards and contract specifications. In addition, records from Jones' outside testing laboratory show that from 1992-1998 the company's products failed to meet water industry standards over 50 percent of the time.

The case was brought by a long-time Jones employee, Nora Armenta, who first voiced concerns within the company about selling the substandard parts but was rebuffed by senior management.

Jones used cheaper metal to manufacture water system supply valves and other parts as a way to cut its costs and increase its profits, the lawsuit charges. Valves using lower grade metal will wear out much sooner than those that meet the manufacturing standards required under municipal water contracts and national drinking water standards.

Normally, valves don't have to be replaced for more than 50 years. The substandard valves are expected to last only about 10 years because the metal will wear out faster, the lawsuit says. The cost of replacing just one defective valve is about $2,000; substantial excavation is required to remove and replace them.

The lawsuit also charges that the Jones company falsely certified that the products made with substandard metal conformed to industry standards.

The lawsuits alleges inferior products were installed in the branch water lines leading to hundreds of thousands of homes serviced by water districts and municipalities around the state. These include: the Los Angeles Department of Water and Power, East Bay Municipal Utility District and San Gabriel Valley Municipal Water District, and the cities of San Francisco, Santa Barbara, Long Beach, Santa Monica, Pasadena, Beverly Hills, Rancho Cucamonga, El Monte, La Habra, La Verne, Newport Beach, Ontario, Pomona, Torrance, El Segundo, Buena Park, Burbank, Ventura, Arcadia, Manhattan Beach, Monrovia, Calexico, La Canada-UC Flintridge, Alhambra, Azusa, Paramount, Pico Rivera, Pismo Beach, Temecula, South Gate and San Marcos.

Jones was founded in 1891 and had a long-standing reputation for manufacturing and selling quality components for municipal water systems. Armenta, who brought the qui tam case, was hired by Jones in 1983 as a senior buyer and later was promoted to purchasing manager. After 15 years as a Jones employee, she left the company last January as a result of her objections to the fraudulent practices alleged in the complaint.

The company was a family-owned and -operated business for 95 years, until it was purchased by the huge conglomerate Watts in 1986. Shortly after Watts acquired the company, Watts installed its own management, which directed the company to use cheaper metal as a cost-saving measure even though it didn't meet regulatory and contract standards, the lawsuit says. Jones purchased parts from its suppliers knowing that those parts were made of substandard metal, and it manufactured parts at its foundry from substandard metal, according to the complaint.

The lawsuit was filed under the California False Claims Act in 1997. As required by the statute, it was kept under seal to give municipalities time to investigate without alerting the defendants. The seal was lifted earlier this year.

The California False Claims Act allows anyone who knows of a company defrauding the state or a municipality to file a qui tam lawsuit to recover damages and fines on the government's behalf. The whistleblower, or "relator," is entitled to 15 percent to 50 percent of whatever the government recovers if the government joins the case. The state law is similar to the federal False Claims Act.

For more information about this case, see the following news story:

  • Water-system gear suit draws attention," Andy Pasztor, The Wall Street Journal, 12/22/98.