Court supports whistleblower in fraud case against JM Eagle

Federal government's evidence against JM Eagle revealed

Los Angeles, Dec. 7, 2010 - A federal judge has rejected an attempt by plastics manufacturer JM Eagle to convince the court to dismiss a whistleblower lawsuit that alleges the company defrauded its customers by selling substandard pipe used in water and sewer systems. The case will proceed to trial next year, he said.

After reviewing documents filed by both sides, Los Angeles District Court Judge George H. Wu said in an order filed yesterday there is sufficient legal basis for most of the fraud claims in the "qui tam" (whistleblower) lawsuit against JM Eagle to proceed. In a procedural ruling, the federal judge said claims brought under state "common law" would need to proceed in state court, rather than federal court. That decision doesn't affect the claims central to the case brought under the False Claims Act and similar state false claims laws, however, which make up the bulk of the case against JM Eagle.

"Clearly, the judge rejected JM Eagle's spin on the case,", a San Francisco attorney for Phillips & Cohen LLP, which is representing the whistleblower and most of the states and municipalities that have joined the case. "In making his decision that the case may go forward, not only did the judge review our evidence but also the strong evidence of fraud by JM Eagle that the federal government found in its own investigation."

Judge Wu issued the order in response to a motion by JM Eagle to dismiss the case. He set a trial date of Dec. 6, 2011 for the fraud case.

"JM Eagle's claim that the judge's decision is a victory is ridiculous, We look forward to the trial, where we will present evidence that JM Eagle's pipe was neither made nor tested in conformity with industry standards."

The State of Nevada, the Commonwealth of Virginia, and 47 municipalities and water districts in California have joined the whistleblower lawsuit to recover damages caused by the alleged fraud.

A photo of a JM Eagle pipe that cracked and broke in the Calleguas Municipal Water District in Thousand Oaks, California, shows one example of problems with JM Eagle pipe. Calleguas Municipal Water District suffered eight separate failures in a recycled water line manufactured by JM Eagle (including the one pictured), which caused it to incur costs totaling nearly $3 million to replace sections of the failed line.

"JM Eagle has tried to divert attention from the fraud charges by issuing an onslaught of press releases attacking our client and our law firm, another San Francisco attorney with Phillips & Cohen LLP. "But clear away the smoke, and the fraud remains. 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."

The results of the federal government's investigation of JM Eagle

In 2008, the U.S. Attorney's Office in Los Angeles presented to JM Eagle information it had gathered from numerous former employees who were interviewed by federal agents.

According to the federal agents' notes, quoted in the U.S. Attorney's Office presentation:

  • JM's former head of R&D 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 them that JM "lived by the motto, 'There is no shame in lying but there is shame in getting caught lying.'" (p. 66).
  • A former plant quality control supervisor told the agents, "Changes in the quality of the compound caused test failures on a regular basis. The compound ingredients were changed because management did everything 'on the cheap.'" He also said he "was instructed to falsify inspection and test records." (pp. 7 and 47).
  • JM's former corporate quality assurance supervisor at HQ told agents that he "quit because management would not let him do his job and only cared about profit, not whether the pipe that was shipped was non-conforming. Those employees who brought issues of pipe quality to management's attention were labeled as 'trouble-makers.'" (p. 66).
  • A former research and development department employee told the agents that "JM far exceeded the life expectancy of the [equipment]. Management overruled plant managers who tried to replace the units." (p. 13).

"JM Eagle's senior managers in charge of maintaining product quality told government agents that the company ignored their complaints in order to boost profits. The reason is simple: Shoddy pipe is cheaper to make."

[NOTE: The government's presentation is available through PACER (subscription required), US District Court for the Central District of California. Case No. 5:06-cv-00055-GW. See No. 128 on docket sheet (Memorandum In Opposition To Ex Parte Application To Expedite Discovery), item no. 7 (exhibit 6).]

The federal government provided a letter to JM's lawyers explaining that its decision not to join the lawsuit at this time "should not be construed as a statement about the merits of the case. Indeed, the Government retains the right to intervene at a later date upon a showing of good cause."

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

For more information about Phillips & Cohen's record, see P&C's Successful Whistleblower Cases.