PVC pipe maker JM Eagle extends warranty amid lawsuit
JM Eagle, fighting a whistle-blower’s claim that it delivered defective PVC pipes to government utilities across the nation, said Monday that it would extend one-year warranties on its products to 50 years, retroactively.
The Los Angeles company, the world’s largest manufacturer of plastic pipe, decided to match the warranty to the advertised life of its pipes after four states and 43 California cities, towns and water districts joined the whistle-blower’s lawsuit, which was unsealed two months ago.
The lawsuit by former JM Eagle engineer John Hendrix contended that the company violated industry production standards and used low-grade ingredients to produce its PVC pipe, resulting in reduced tensile strength and costly ruptures even on year-old pipes that are advertised to last 50 years.
“Billions of dollars of this pipe is now in the nation’s infrastructure, and it’s going to last a fraction of the time it was supposed to last,” said Mary Inman, part of that plaintiff’s team of lawyers at San Francisco law firm Phillips & Cohen.
JM Eagle Chief Executive Walter Wang said his privately held company was being falsely maligned by a disgruntled former employee in cahoots with an aggressive litigation firm.
Although the Hendrix case is far from a trial date, the eventual ruling could have consequences for much of the country. Billions of dollars in federal construction has included JM Eagle pipe, as have thousands of local public works projects nationwide. In California, 171 utility districts are known to have purchased pipe from JM Eagle.
With annual revenue of $1.6 billion on sales of 1.2 billion feet of plastic pipe, the company accounts for 27% of the global market and as much as 60% in the United States, JM Eagle officials said. The company’s new warranty runs from the date of installation going back as far as 1982, when it was acquired out of the bankruptcy of Johns Manville Corp.
Inman, who represents Hendrix and the local governments, dismissed JM Eagle’s offer of a retroactive guarantee as insufficient to compensate what could amount to billions of dollars in unanticipated costs to local governments.
“The guarantee is pretty worthless. When you read the fine print, all they are guaranteeing is to replace the pipe if it is determined by an independent lab to be defective,” she said.
Ventura County’s Calleguas Municipal Water District, for instance, has had to spend $4 million in repairs on a stretch of JM Eagle pipe running less than two miles along busy Kanan Road near Thousand Oaks, district engineering manager Susan Mulligan said.
Hendrix claims in his 2006 lawsuit, unsealed in February, that at least half the plastic pipe produced over the previous decade didn’t meet industry standards because the company switched to using lower-grade resins and accelerated manufacturing beyond what the aging equipment in its 23 factories could handle.
The Los Angeles Department of Water and Power joined the lawsuit, but like many of the California local government plaintiffs did so to protect taxpayers’ interests in the event of premature pipe failures.
“We are in the preliminary stages of evaluating the impact of the PVC pipes purchased,” said Frank T. Mateljan, spokesman for the city attorney’s office.
Hendrix was fired in November 2005, Wang of JM Eagle said, after company officials learned that he had allegedly encouraged a customer to inflate his claim and kick back part of it to the engineer. The customer, William Sheldon, said in a sworn statement to JM Eagle lawyers that Hendrix urged him to seek at least three times his claimed loss of $30,000 on leaky pipe he bought for a San Diego apartment project.
“The only way I can stick it to JM is to help out guys like you,” Hendrix said, according to Sheldon’s statement. Once JM settled, Hendrix said, Sheldon could “compensate me for my efforts on your behalf,” according to the statement.
Hendrix, in a phone interview, said the kickback accusation is “100% untrue.” He was fired, he said, because he bucked what he described as a company policy of deflecting complaints by blaming customers for improper installation.
“On numerous occasions throughout my career at JM, from the first year there, I was given instructions that if you can find some way to push fault off on the customer, do it,” Hendrix said.
Hendrix’s action under the federal False Claims Act entitles him to 15% of any damages awarded by a court, a potentially massive sum as companies found to have defrauded governments have to reimburse at three times the costs incurred.
Four states -- Nevada, Virginia, Delaware and Tennessee -- joined the California local governments in the lawsuit, most financing their share of the action by ceding part of their potential recovery to Phillips & Cohen.
California Atty. Gen. Jerry Brown declined to intervene after conducting an independent investigation, spokesman Evan Westrup said. He described the decision as “a neutral act,” neither discounting nor validating the quality of the complaints. The federal government also declined to join the suit.
Legal analysts say the merit of the False Claims Act is that it allows the legal community to assume the costs and risks of lengthy litigation that are beyond the resources of the small public entities allegedly cheated.
“These are very, very important lawsuits for our society,” said John Nockleby, a professor of civil law at Loyola Law School. “They serve as a foundational check to protect government, to protect our society from shoddy products.”
From the local governments’ standpoint, “This is a freebie,” Nockleby said. “If the case is effectively represented, they can tag along and recover money without having to put in the energy and resources.”
Hendrix’s complaint alleges that Wang began substituting lower-grade materials from a Taiwanese sister company and speeding up production to feed the building boom.
The suit claims Wang, the CEO, replaced experienced managers and engineers inherited from Johns Manville with recent college graduates from Taiwan who were paid so little that they had to live in a company boarding house near its former headquarters in Livingston, N.J.
Wang brandishes quality claim statistics that show complaints never exceeded 1% of sales in any year except 2006, and then just barely at 1.13% of the 1.1 billion line feet of pipe sold that year. In the three years since, failure claims were 0.21% of product sold or less.