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Dispute Flares, Accusations Fly Over Claims in Pipe Lawsuit

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The wheels of justice may grind slowly, but the battle in the court of public opinion was joined in full force on Feb. 18, 10 days after a U.S. District Court unsealed a three-year-old whistleblower claim against a major manufacturer of PVC pipe for utilities.

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The claim alleges the company sold to municipal water districts substandard pipe that did not meet industry certifications stamped upon it, from 1997 to 2005, and that the pipe may be prone to breakage and premature failure.

Attorneys for JM Eagle, Los Angeles, the current incarnation of the pipe manufacturing company named in the complaint (http://www.jmeagle.com/), along with its parent company at the time, Formosa Plastics Corp., Livingston, N.J., and those representing the whistleblower, a former company product assurance engineer named John Hendrix, of Clifton, N.J., traded complaints, claims and statements through the day.

“Totally and utterly baseless,” is the characterization of the lawsuit by Lanny J. Davis, an attorney with McDermott Will & Emery who, together with colleagues in Washington, D.C., Los Angeles and New York City, presented evidence to support his defense in a teleconference. “There were no false claims, and a court of law—and presumably a judge or jury—will end up vindicating my claim,” he says.

Davis said the contents of the three-year-old Qui tam complaint filed by Phillips & Cohen LLP, San Francisco, in October, 2006, were not revealed to JM Eagle until the complaint was unsealed on Feb. 8, even though Davis says the company had been responding to investigators from the U.S. Dept of Justice and the office of the California attorney general for three years.

“We never saw it or read it, and we could only try to figure out what we were be charged with by inference.  We never read what we were being charged with until just recently,” Davis says.

Davis says JM Eagle produced “tens of thousands” of electronic documents and submitted samples of products for testing, as directed by investigators. He could not say, however, whether the samples had been tested by investigators for the defects Hendrix alleged or whether they had come from the production period in question.

The suit was filed under a statute that allows any citizen to bring a claim on behalf of the government. Qui tam complaints are then sealed for a period while the government has a chance to investigate and decide whether to take the case over, or leave it to the plaintiffs to pursue on their own. If the government takes the case the plaintiff’s potential share of damages is limited to 15%. If the government does not take it over, the plaintiff stands to gain up to 30%, Davis says.

JM Eagle’s attorneys are seizing upon the decision of the U.S. Dept. of Justice—whose filing of notice that it would not intervene in the case at this time triggered the Feb. 8 unsealing—as evidence that the U.S. investigators have concluded that the claims are without merit.

“The investigators did their job well, thoroughly inspecting every aspect of our operation, and came to the correct conclusion—that we have always operated with the highest principles and standards, and that all of the products we manufacture exceeded quality standards,” reads a statement from JM Eagle CEO Walter Wang that is now posted on the company website.

But the retort from the other side distributed in an e-mail statement by counsel for the plaintiff, Phillips & Cohen LLP, is that “the federal investigation never came to any such conclusion. That characterization is totally JM Eagle’s and never was made by the federal government.”

“The [Federal] Government’s decision to decline intervention at this time should not be construed as a statement about the merits of the case,” the statement continued. “Indeed, the Government retains the right to intervene at a later date upon a showing of good cause.  Moreover, although the Government is not currently a litigant, it remains the real party in interest, and is entitled to the majority of any damages and penalties recovered on its behalf.”

Phillips & Cohen represents that other government bodies are pursuing the action, and names Delaware, Nevada, Tennessee, Virginia and 43 water districts and municipalities—39 of them in California—as plaintiffs.

In his comments at the press conference, Davis claimed to have received private word from a source he could not name that the attorney general for the state of California intends to file a notice that it will not intervene in the case. He displayed a copy of a page from a website about politics in Florida, reporting on Feb. 17 that the attorney general of Florida also has decided not to intervene in the suit.

But he emphasized that JM Eagle’s attorneys had only been approached for information by investigators from the U.S. Dept. of Justice and the California attorney general and not from any of the other municipalities or water and sewer authorities Phillips and Cohen says are still in the case.

Davis’ sharpest attack, however, was circulation of a copy of a sworn affidavit obtained Feb. 15 from William Sheldon, president of Sheldon Site Utilities, Poway, Calif., which describes an alleged series of conversations he had with the Hendrix, the whistleblower at the heart of the case. In it, Sheldon says Hendrix urged him to inflate a claim for $30,000 to recover the cost of replacing leaking pipe he had installed on a project, “to between $95,000 and $103,000.”

He says Hendrix explained that “the only way I can stick it to JM is to help out guys like you.”

In a subsequent conversation Sheldon’s statement reports that Hendrix said he would send Sheldon his address after he had his money and cashed his check, “so you can compensate me for my efforts on your behalf.”

“We are referring this letter and sending it to federal, state and local criminal prosecutors and will leave it to them to decide whether any crime has been committed,” Davis says.

An allegation of solicitation of kickbacks was cited by JM Eagle when it dismissed Hendrix in November, 2005, according to the original complaint made by Hendrix in 2006. Hendrix also is claiming wrongful termination.

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