Judge Andrew S. Hanen of the United States District Court for the Southern District of Texas, Houston Division has issued a permanent injunction and ordered a recall of flanges made by Spanish company, Ulma Forja – part of the Mondragon Corporation – and its U.S. subsidiary, Ulma Piping. The Court found that Ulma, which provides flanges for use in American pipelines, refineries and chemical plants, "intended to deceive customers by mislabeling the flanges" and even did so after 2017, when the original lawsuit was filed.
In ordering the permanent injunction, Judge Hanen stated that "an injunction would greatly benefit the public" and that "[m]islabeling the qualities and characteristics of a product like the flanges in question which are used throughout the petroleum industry, is a dangerous practice." He added that the "public deserves truthful product information especially on products as critical as these flanges potentially are."
The ruling also ordered Ulma to "recall any product which purports to be normalized," which has not been normalized per ASTM international standards. It follows a jury verdict in September 2019 in favor of Boltex and Weldbend on all counts in a lawsuit by the American carbon steel flange manufacturers against Ulma for false advertising and unfair competition.
"Judge Hanen's permanent injunction and recall order send an important message that Ulma's deceit not only harmed two American flange companies and our workers, but more importantly put communities and the environment at risk from their substandard products being used by those in the oil and gas industry who relied on Ulma's false claims," said Frank Bernobich, Chairman and President of Boltex.
Boltex, based in Houston, and Weldbend, headquartered outside of Chicago, became suspicious several years ago when Ulma began offering supposedly heat-treated ("normalized") flanges to U.S. customers undercutting prices. Plaintiffs sued Ulma in 2017, after metallurgical testing showed that Ulma's flanges had not been normalized and were not in conformance with industry standards as claimed by Ulma's advertising.
Ulma advertised the carbon steel A105 flanges it produced and sold into the United States as normalized and compliant with ASTM A105. According to Judge Hanen, Ulma did so in multiple ways: brochures and presentations they provided to actual and potential customers; email communications to actual and potential customers; responses to customer requests for quote; engravings (markings) on the flanges themselves; signed certificates of inspection, and Mill Test Reports. Despite these claims, the court found that "during the relevant time period, at least 95 percent of the flanges Ulma advertised and sold into the United States which purported to be normalized and ASTM-compliant were not normalized in compliance with the ASTM standards. Thus, most of their advertising was false."
Iosu Bastida, sales director of Ulma USA, acknowledged in court that company communications and marketing materials stating that they did normalize their flanges were incorrect and that Ulma knew it was not normalizing flanges consistent with ATSM standards. Nerea Villar, CFO of Ulma Forja, then admitted under oath that Ulma's decision to "not heat treat and properly normalize all the flanges sold as A105N" had "always" been the process at Ulma "probably" dating back to 1994.
"Ulma's intentional acts and cover-up regarding their substandard flanges were outrageous," said Weldbend President James Coulas, Jr. "We remain extremely concerned about the more than 3.7 million substandard flanges - valued over $100 million – that Ulma sold into the United States. Engineers design refineries, pipelines, pressure vessels and other piping systems based on the product fully complying with the standard. It is not up to Ulma to determine what parts of the standards they comply with."
Judge Hanen's order permanently enjoins Ulma from manufacturing, selling or otherwise distributing, directly or indirectly through distributors, any flange that is marked, engraved, advertised or labeled as complying with ATSM A105 and ATSM A105N or as being normalized that does not comply with ASTM standards.
Date: Feb 10, 2020