JM Eagle's Pipes Burst With Fraud Ruling (2013)

Controversy

JM Eagle logo and slogan

JM Eagle is the world’s largest plastic pipe manufacturer. They manufacture some of the pipes used by states, municipalities and companies alike on a daily basis. One such pipe offered by them is PVC piping used for city and town water and sewage. Since these pipes are expensive to install, usually under roadways, JM Eagle claims the pipes last around 50 years to prevent the need to often replace them.
Originally, Formosa Plastics before 1982, the company became J-M Manufacturing after purchasing plastic-pipe operations of Johns Manville. In 2007, the company expanded and acquired the second largest pipe-plastic manufacturer PW Eagle. With this acquired company, they changed their name again to JM Eagle and relocated its headquarters to Los Angeles, CA. Because of their long history, size and standards, they continue to be the leader in plastic piping.

However, these very standards were recently brought into question. On November 10th, 2013, a federal jury in California found JM Eagle guilty of knowingly selling “defective pipe for use in their drinking water, irrigation and other essential public systems” (NY Times). The pipes were supposed to last up to 50 years, as guaranteed and listed as the standard from JM Eagle. However, the pipes sold in the last decade had been prematurely bursting or failing, some as early as within the first year of installation.

This particular case is actually not a problem of selling defective products, but of defrauding customers. The pipes that JM Eagle sell are stamped with a certain standard that they have to reach. Since the time JM Eagle acquired this stamp and set this standard, they had cut costs. The new pipes they were selling under their previous standards did not hold up to what the pipes were graded to do. This caused massive failures of multiple pipes in multiple states, and lead to a class action suit filing in 2006. 

John Hendrix, former JM Eagle engineer

In the suit, a former engineer of the company, John Hendrix, brought forth testimony to help bring to light JM Eagle’s practices. With him, “the states of Nevada, New Mexico and Virginia, 21 cities in California and 21 water districts in California” (Plastics News) joined the plaintiffs. Hendrix claimed that the piping was substandard and that JM Eagle was manipulating the test results to make them appear within standards. Hendrix was let go for “unethical behavior” following reporting this to his superiors (NY Times). Hendrix’s claims were backed up when “JM Eagle plant managers told the court they were under pressure to meet production quotas and that lead to cutting corners” (Plastic News). Other witnesses called also recounted that “reject” stickers were removed from pipes identified as substandard and shipped them to customers.

The damages are currently outstanding and to be determined at a later date. However, when considering how far reaching this type of fraud can be, a large number of stakeholders are affected. First and foremost, JM Eagle’s staff and shareholders will likely lose money. The damages will not be cheap, and it will serve to tarnish the name JM Eagle has worked hard to build. There are also the multiple customers that have faulty piping they will have to replace, whether large cities or entire states. Finally, all of the people who depend on the piping will be affected, as the pipes have to be dug up and replaced.

When trying to determine how ethical these actions were, it’s helpful to look at them in light of four ethical theories: Individualism, Utilitarianism, Kantianism and Virtue Theory. In each, the actions JM Eagle took would be considered unethical.

Individualism
To expand, let’s first look at Individualism. The idea behind this theory is to value making money and pleasing stockholders, while still staying within the laws of society and human rights to do so. Immediately JM Eagle fails this. Their actions may have saved money in the short term and pleased stockholders. This is point number one of Individualism. However, they simultaneously committed fraud, which is a violation of the second portion of Individualism. As such, the actions JM Eagle took would be considered unethical to an Individualist.

JM Eagle pipes

Utilitarianism
Considering Utilitarianism, the general idea is that happiness is the only value that matters when determining the ethic ground of an action. This measurement of happiness includes everyone, not just shareholders. There was some happiness gained in the short-term by shareholders at JM Eagle, and likely the higher management was happier to meet their quota. However, the consequences involved with shipping substandard piping affect a much larger portion of people. This includes entire cities and states that have been negatively impacted by having pipes burst or having to replace the faulty piping. As such, the overall happiness was lowered due to JM Eagle’s actions, and by Utilitarian standards would be unethical.

Kantianism

For Kantianism, the idea of each action should be that it is done because it is the “right thing to do”. It does not look to simply obey laws or to only measure how much happiness something causes. One thing Kantianism implicitly forbids is any action that relies on others not knowing what is being done. This includes lying, which the fraud JM Eagle committed is exactly. Right away, one can see that these actions would be unethical to Kantian ideas.

Virtue Theory

Finally, we can take a look at Virtue Theory, which is based on four virtue characteristics of courage, honesty, temperance and justice. All four of these characteristics are violated by JM Eagle. Courage, which represents taking chances and doing or standing up for what is right, is violated by making and selling substandard piping for a profit. Honesty, which represents being truthful with anyone involved and the public, is violated by the fraud that JM Eagle commits in lying about the strength of the pipes they sold. Temperance, or the setting of realistic expectations and practicing restraint, is violated by the testimony of JM Eagle plant managers, who were pressured to meet their quotas. Finally, Justice, which represents moral right within the law, was violated by the act of fraud itself.

Conclusion
JM Eagle managed to violate the principles of each of the four principles. With that in mind, unless courts overturn their judgment from an appeal, JM Eagle’s concealment of substandard pipes and selling of them is unethical.



References

"JM Eagle." Wikipedia. N.p., 12 July 2013. Web. 15 Feb. 2014. <http://en.wikipedia.org/wiki/JM_Eagle>.

"Jury Finds Pipe Maker Defrauded Governments." The New York Times. N.p., 15 Nov. 2013. Web. 14 Feb. 2014. <http://dealbook.nytimes.com/2013/11/15/jury-finds-pipe-maker-defrauded-governments/>.

"Jury Finds Pipemaker JM Eagle Liable in False Claims Suit." Engineering News-Record. N.p., 19 Nov. 2013. Web. 17 Feb. 2014. <http://enr.construction.com/products/materials/2013/1119-jury-finds-pipemaker-jm-eagle-liable-in-false-claims-suit.asp>.

"JM Eagle Found Liable for Faulty PVC Pipes." Plastics News. N.p., 15 Nov. 2013. Web. 19 Feb. 2014. <http://www.plasticsnews.com/article/20131115/NEWS/131119942/jm-eagle-found-liable-for-faulty-pvc-pipes>.

Salazar, Heather, Western New England University. Spring Semester 2014. Class notes and materials.