November 14, 2013
World's Largest PVC Pipe Manufacturing Company Found Liable for Fraudulently Making, Selling Faulty Water System Pipe
Carson City, NV – Nevada Attorney General Catherine Cortez Masto announced today that a federal jury unanimously agreed that J-M Manufacturing knowingly manufactured and sold to the State of Nevada and other Nev. municipalities and local water districts substandard plastic polyvinyl chloride pipe (PVC) used in water and sewer systems.
“We have been fighting this case for seven years," said Masto. “It’s been a hard fought victory but in the end, what we believed was true - J-M Manufacturing produced and sold dangerously defective PVC pipe to the State of Nevada and other local governmental entities throughout the Silver State. We know from firsthand experience that this PVC pipe will prematurely leak or break and can jeopardize lives. Today’s verdict demonstrates that manufacturers cannot get away with fraud that puts lives at risk. I will continue to fight to protect the State of Nevada and taxpayers against big manufacturers who fail to meet key standards."
As a result of the decision, J-M, now known as JM Eagle, will have to pay an as yet-undetermined amount of damages to three states – Nev., N.M. and Va. -- and 42 cities and water districts that joined a whistleblower lawsuit, as well as dozens of other states, cities and water districts that did not join the lawsuit. The trial exposed JM’s deliberate efforts to cut costs by using shoddy manufacturing practices to make weaker but more profitable PVC pipe.
During the seven-week civil trial in federal district court in Los Angeles, more than 30 witnesses testified, many of them current and former JM employees, including JM President and sole owner Walter Wang.
Calif. District Court Judge George H. Wu divided the case into two phases.
- The first trial determined whether JM lied from 1996 to 2006 about whether its pipe met strength and durability standards specified in its government contracts, thereby making it liable for damages under state and local false claims laws.
- The second phase of trial will be held to determine the amount of damages. The date for that phase has not been set. The damages are intended to cover the costs to replace water pipes that already have failed, plus the significant costs government entities will be forced to pay to replace the PVC pipes sooner than expected.
Many of the witnesses testified that JM plant managers were under intense pressure to meet production quotas that were impossible to fulfill without cutting corners. Those who failed to meet the quotas had their pay docked, and some lost their jobs. If they met the quotas, they could double their monthly salaries. The quotas created strong incentives to ship bad pipe. The jury heard many witnesses testify that plant managers routinely removed “reject” tags from pipe that quality control personnel had identified as failing to meet quality standards and shipped that pipe to unknowing customers.
Witness testimony also exposed that JM deceived outside certification agencies about the quality of its pipes, cherry-picking samples for the agencies to test. Testing samples are supposed to be picked at random.
Impact on Nevada:
There are over 600 miles of JM PVC pipe in the water and sewer systems in Nevada. The State of Nevada has already spent millions to replace fairly new JM water pipes that failed, despite being considered ‘hundred-year pipe.’
The Nevada AG’s investigation uncovered 16 failures of JM pipe at various locations with several entities experiencing numerous failures, including the Nevada State Public Works’ project at the High Desert Prison, City of Reno, Las Vegas Valley Water District, and Truckee Meadows Water Authority. JM Eagle pipe exploded twice on two Truckee Meadows Water Authority installation workers. The City of Reno also experienced multiple failures during the installation of JM pipe in 2002. The issue of failed pipes was featured on CBS This Morning in 2012 and the New York Times in 2010.
Entities represented by the Nevada AG’s Office include: Boulder City, Carson City, Churchill County, Clark County Reclamation District, Douglas County, Elko County, Eureka County, Fallon, Fernley, Henderson, Las Vegas Valley Water District, Lyon County, Mesquite, Moapa Valley Water District, North Las Vegas, Reno, Sparks, Truckee Meadows Water Authority, Virgin Valley Water District, and Washoe County.
The government entities that intervened in the whistleblower case are Nev., N.M., Va., and 21 separate Calif. municipalities and 21 water districts. Although the trial involved just five plaintiffs, all the states, cities and water districts named in the case and other governmental entities that bought certain sizes of JM PVC pipe could share in the damages recovered.
Read the complaint and Nevada’s complaint in intervention. The case was prosecuted by Susan K. Stewart, Deputy Attorney General and Construction Law Counsel for the State Public Works Division.