Dozens of Cities Accuse World’s Biggest PVC|Manufacturer of ‘Massive Fraud’ for Decades

LOS ANGELES (CN) - Three states and dozens of California cities and water districts claim the world's largest PVC manufacturer and the Los Angeles man who runs it perpetrated a "massive fraud" by selling, and misrepresenting, PVC pipes for decades. As a result, city water and sewage systems will need to be replaced years early, "in a fraction of the time that defendants represented it would last," the cities say.

Walter Wang, J-M Manufacturing dba JM Eagle, and Formosa Plastics Corp. are the defendants in the 158-page Superior Court complaint.

"(T)he fraud perpetrated by these defendants has caused these plaintiffs to acquire, purchase, and/or install J-M pipe that has only a fraction of the strength and endurance defendants represented it to have," the complaint states. "This, in turn, has resulted in J-M pipe in the ground, usually as part of a municipal water supply or sewage collection system, that has a diminished life span and will need to be replaced in a fraction of the time that defendants represented it would last, and that the plaintiffs, relying on those representations, expected it to last. Defendants perpetrated this fraud through the following actions, among others:

"a) using cheap, poor-quality materials in the formula for J-M pipe, in place of better materials that were used previously;

"b) running the manufacturing process, called extrusion, at speeds that damaged the quality of J-M pipe while failing to properly maintain the manufacturing equipment;

"c) cherry-picking, rather than randomly selecting, J-M pipe for testing, thus ensuring that the tests provided no results representative of the quality and strength of J-M pipe sold to the plaintiffs;

"d) consistently misrepresenting the quality and strength of J-M pipe on the pipe itself, as well as in corporate and sales literature; and

"e) causing contractors, installers, suppliers, distributors, vendors, developers, and/or other third parties to pass on those misrepresentations, through the stream of commerce, to the plaintiffs."

The plaintiffs seek compensatory and punitive damages. Plaintiffs include Nevada, New Mexico and Virginia, the California cities of Antioch, Benicia, Carlsbad, Chino, Chula Vista, Livermore, Oceanside, Oxnard, Pomona, San Ciego, San Jose, Santa Cruz, Santa Rosa, and others, and water and irrigation districts and agencies from Castaic Lake, East Bay Municipal Utility District, Elsinore, Irvine, Padre Dam, Palmdale, Rancho California, South Tahoe, Valley Center and others.

The cities, states and water districts say the defendants misrepresented the quality and strength of their pipes "on every single stick of pipe at issue in this case," and that they did it willingly, and duplicitously, and "have never taken action to correct the intentional and negligent misrepresentations they made."

They say the "defendants also engaged in a willful scheme to conceal their fraud," and that they "began knowingly to manufacture substandard PVC pipe ... starting in at least 1990".

The plaintiffs are also intervenors and real parties in interest in a False Claims Act lawsuit that was filed under seal in January 2006 by qui tam plaintiff John Hendriz, an engineer who worked in J-M's Product Assurance Department from 2002 to 2005. That federal lawsuit, unsealed in February 2010, is set for trial on Dec. 6, in Los Angeles.

Defendant J-M is a Delaware corporation that was based in Stockton, Calif., before 1990, then moved to Livingston, N.J., until 2008, when it moved to Los Angeles. It made its PVC pipe in at least 11 plants across the country.

J-M bought PW Eagle, North America's second-biggest producer of PVC pipe, for $400 million in 2007. The merged company is known as HM Eagle. "With billions of dollars in annual sales, J-M was an remains the largest manufacturer of PVC pipe in the United States and the world at all times relevant hereto," according to the complaint.

Formosa Plastics Corp. is a privately held corporation, also based in Livingston, N.J., and a subsidiary of Taiwan-based Formosa Plastics Group.

Walter Wang is chairman of the board and CEO of J-M, and he and his wife are its controlling stockholders. Wang operated out of Livingston, N.J., until he moved to Los Angeles in 2008.

The 40-count complaint alleges fraud, conspiracy, unjust enrichment, breach of contract, intentional misrepresentation, liability for defective products, fraudulent concealment, and other charges.

Counsel includes more than 20 city, state, water district and private attorneys. The lead attorney is Brent Rushforth with Day Pitney of Washington, D.C.

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