JOHN HENDRIX, ET AL V. J-M MANUFACTURING CO., INC., ET AL, No. 21-56276 (9th Cir. 2023)
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Relator John Hendrix and five public-agency exemplar plaintiffs claim that J-M Manufacturing Co. (“J-M”) violated the federal and various state False Claims Acts (“FCAs”) by representing that its polyvinyl chloride (“PVC”) pipes were compliant with industry standards. In Phase One of a bifurcated trial, a jury found that J-M knowingly made false claims that were material to the public agencies’ decisions to purchase J-M pipe. After the jury was unable to reach a verdict in Phase Two, the district court granted J-M judgment as a matter of law (“JMOL”) on actual damages and awarded one statutory penalty for each project involved in plaintiffs’ claims.
The Ninth Circuit affirmed. The panel held that sufficient evidence of falsity, materiality, and scienter supported the Phase One verdict. A reasonable jury could conclude that plaintiffs received some pipe not meeting industry standards. Further, the jury reasonably found that plaintiffs would not have purchased or installed J-M pipe had they been told the truth that J-M knew it had stopped producing pipes through processes materially similar to those used at the time of compliance testing and also knew that a significant amount of the pipe later produced did not meet industry standards. Plaintiffs’ failure to prove that any individual stick of pipe that they received was non-compliant did not mean that they failed to establish scienter. The panel held that the district court properly awarded JM judgment as a matter of law on actual damages under the federal False Claims Act. Plaintiffs did not establish actual damages by showing that they would not have bought the pipe had they known the truth.
Court Description: False Claims Act. The panel affirmed the district court’s judgment after a bifurcated jury trial in a qui tam action brought under the federal False Claims Act and various state False Claims Acts by relator John Hendrix and five public-agency exemplar plaintiffs against J-M Manufacturing Co.
Relator and plaintiffs alleged that J-M violated the False Claims Acts by representing that its polyvinyl chloride pipes were compliant with industry standards. In Phase One of the bifurcated trial, the jury found that J-M knowingly made false claims that were material to the public agencies’ decisions to purchase J-M pipe for use in water and sewer systems, and thus violated the False Claims Acts. After the jury was unable to reach a verdict in Phase Two, the district court granted J-M judgment as a matter of law on actual damages and awarded one statutory penalty for each of the twenty-six projects at issue.
The panel held that sufficient evidence of falsity, materiality, and scienter supported the Phase One verdict. A reasonable jury could conclude that plaintiffs received some pipe not meeting industry standards. Further, the jury reasonably found that plaintiffs would not have purchased or installed J-M pipe had they been told the truth that J-M knew it had stopped producing pipes through processes materially similar to those used at the time of compliance testing and also knew that a significant amount of the pipe later produced did not meet industry standards. Plaintiffs’ failure to prove that any individual stick of pipe that they received was non-compliant did not mean that they failed to establish scienter.
As to statutory penalties, plaintiffs conceded that the California False Claims Act allows only one penalty per project. The panel held that the district court also properly awarded only one penalty per project under the Nevada and Virginia False Claims Acts, which, like the federal Act, impose a penalty for each act in violation of the statute. The panel concluded that the Phase One jury’s finding of falsity and materiality did not mean that every stick of pipe was non- compliant, and plaintiffs therefore did not establish that the stamp on each piece of pipe indicating compliance should give rise to a separate penalty. The panel held that the district court properly awarded J- M judgment as a matter of law on actual damages under the federal False Claims Act. Plaintiffs did not establish actual damages by showing that they would not have bought the pipe had they known the truth. Further, plaintiffs’ pipe had not failed to operate as promised, and there was no evidence that an actual failure was imminent or even likely. Even if the testimony of plaintiffs’ experts were credited, the experts did not provide evidence from which a jury could reasonably determine the value of the pipe they received. And there was no evidence that noncompliance with industry standards calculably correlated to a loss of longevity.
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