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Fraudulent Concealment: What Remains of the Statute of Limitations in Section 1 Cases?

By Daniel R. Gravelyn

The most serious violations of Section 1 of the Sherman Act are always or almost always committed in secret. A successful bid-rigging conspiracy requires an antecedent agreement on which party will submit the winning bid and the submission of complementary "high" bids to make the bidding appear competitive. New York v. Hendrickson Bros., Inc., 840 F.2d 1065, 1083-84 (2d Cir.), cert. den., 488 U.S. 848 (1988). Similarly, although deception may not be an element of price-fixing, secrecy is often instrumental to a successful price-fixing conspiracy. Texas v. Allan Constr. Co., Inc., 851 F.2d 1526, 1530-31 (5th Cir. 1988). The weight of federal authority, however, now holds that acts of concealment in furtherance of such conspiracies toll the running of the statute of limitations in private antitrust actions until the conspiracy has been, or through the exercise of due diligence should have been, discovered. These holdings eviscerate the statute of limitations defense in most bid-rigging and price-fixing cases, even if the underlying conspiracies allegedly occurred many years before a complaint was filed.

The Doctrine of Fraudulent Concealment

    Section 4B of the Clayton Act establishes a four year statute of limitations for private antitrust actions. 15 U.S.C. § 15b (1988). The limitations period generally begins to run when a claim accrues, or when a defendant commits an antitrust violation that injures a plaintiff's business. Zenith Radio Corp. v. Hazeltine Research, Inc., 401 U.S. 321, 338-39 (1971). The running of the statute of limitations, however, may be tolled by the commencement of a government enforcement action or by the application of the doctrine of fraudulent concealment. 15 U.S.C. § 16(i) (1988); see Holmberg v. Armbrecht, 327 U.S. 392, 397 (1946) (the doctrine of fraudulent concealment is to be read into every federal statute of limitations). Although federal courts have uniformly held that the doctrine of fraudulent concealment may toll the statute of limitations under the Clayton Act, they have differed on what showing a plaintiff must make to invoke the doctrine.

    To invoke the doctrine of fraudulent concealment, a plaintiff must generally plead and prove that:

    (1) defendants concealed the conduct that constitutes the cause of action,

    (2) defendants' concealment prevented plaintiff from discovering the cause of action within the limitations period, and

    (3) plaintiff exercised due diligence in attempting to discover the cause of action.

    Supermarket of Marlington, Inc. v. Meadowgold Dairies, Inc., 1995 WL 707403, p. 2 (4th Cir. 1995); Pinney Dock & Transport Co. v. Penn Central Corp., 838 F.2d 1445, 1465 (6th Cir. 1988). Furthermore, allegations of fraudulent concealment must be stated with particularity under Fed. R. Civ. P. 9(b). Pinney Dock, 838 F.2d at n. 18.

    Federal courts have developed different standards for determining whether the first element of the fraudulent concealment doctrine has been satisfied. The Second Circuit, in Hendrickson Bros., supra, held that bid-rigging was a self-concealing wrong because concealment is instrumental to the success of the conspiracy. 840 F.2d at 1083-84. Accordingly, a plaintiff satisfies the first element of the doctrine of fraudulent concealment simply by proving the existence of the bid-rigging conspiracy. Id. at 1085; see also Colorado v. Western Paving Constr. Co., 833 F.2d 867, 879-80 (10th Cir. 1987), vacated, 841 F.2d 1025 (1988) (en banc).

    Most other federal courts have required affirmative acts of concealment to satisfy the first element of the fraudulent concealment doctrine. These courts, however, have differed over whether the affirmative acts of concealment may be acts in furtherance of the antitrust conspiracy, such as a submission of complementary bids, or whether the affirmative acts must be "separate and apart" from the antitrust conspiracy itself. In Colorado v. Western Paving Constr. Co., 630 F. Supp. 206 (D. Colo. 1986), aff'd, 841 F.2d 1025 (1988) (en banc), a case arising from alleged bid-rigging in the paving industry, the district court held that the affirmative acts of concealment must be acts separate from and independent of the underlying conspiracy. Acts such as conducting secret meetings, submitting false affidavits of non-collusion and submitting complementary bids are not affirmative acts of concealment but rather acts "taken in carrying out the conspiracy itself." Western Paving, 630 F. Supp at 210; see also Pennsylvania v. Lake Asphalt & Petroleum Co., 610 F. Supp. 885, 888 (M. D. Penn. 1984); In Re Fertilizer Antitrust Litigation, 1979-2 Trade Cases (CCH) ¶ 62,894, p. 79,178 (E.D. Wash. 1979).

    Most federal courts have steered a middle course between the "self-concealing" standard and the "separate and apart standard." In Allan Construction, supra, the court held that, to invoke the doctrine of fraudulent concealment, a plaintiff must allege affirmative acts of concealment but these acts may include conduct in furtherance of the underlying conspiracy. The court reasoned that there was no principled basis for distinguishing between acts of perpetration and acts of concealment, and that wrongdoers who concealed their misconduct were not entitled to the benefits of the statute of limitations. Allan Construction, 851 F.2d at 1532. Several other federal courts have adopted this rationale. See Supermarket of Marlington, 1995 WL 707403, p. 8; Conmar Corp. v. Mitsui & Co., 858 F.2d 499, 505 (9th Cir. 1988), cert. den., 488 U.S. 1010 (1989). The effect of these rulings is to eliminate the statute of limitations as a defense in most bid-rigging and price-fixing cases.

    The rationale of these decisions is open to question. Distinguishing between acts of perpetration and acts of concealment is no more difficult than any number of distinctions that federal courts regularly draw each day. See Western Paving, 630 F. Supp. at 210. Furthermore, as the Sixth Circuit recognized in Pinney Dock, supra, the Clayton Act reflects a strong congressional policy in favor of statutes of limitations in antitrust cases:

    Statutes of limitations are vital to the welfare of society and are favored in the law. Stale conflicts should be allowed to rest undisturbed after the passage of time has made their origins obscure and the evidence uncertain. The policies of protecting defendants and courts from stale claims counsel against a broad interpretation of tolling doctrines, and the reasons for that approach are particularly persuasive when viewed against the strong congressional policy in favor of repose in antitrust suits.

    838 F.2d at 1469. Because conspiratorial agreements are seldom documented and circumstantial evidence in an antitrust case is often subject to conflicting interpretations, the litigation will often turn on the nuanced recollections of alleged co-conspirators. When the events in issue occurred many years before the litigation was filed, such evidence is particularly unreliable and the risk of an erroneous outcome is increased. See id. The statute of limitations exists to protect antitrust defendants from this increased risk. By holding, in effect, that defendants accused of bid-rigging and price-fixing are not entitled to the benefits of the statute of limitations, federal courts have assumed the very question in issue, namely, that the defendants are liable.

    A plaintiff invoking the fraudulent concealment doctrine must, in addition to showing acts of concealment, demonstrate the absence of notice of the cause of action and due diligence in attempting to discover the claim before the commencement of the limitations period. In bid-rigging and price-fixing cases, plaintiffs typically attempt to satisfy the absence of notice element with a simple plea of ignorance until the occurrence of some identified event, often the receipt of a grand jury subpoena, within the limitations period. Federal courts have repeatedly held that such allegations are sufficient and that even the receipt of a grand jury subpoena may not constitute notice of an alleged conspiracy. Allan Constr., 851 F.2d at 1534; Michigan v. McDonald Dairy Co., 1995 WL 628483 (W.D. Mich. 1995). In fact, these courts have suggested that the limitations period does not begin to run until a plaintiff has or should have become aware of sufficient operative facts for the filing of an antitrust complaint consistent with the requirements of Fed. R. Civ. P. 11. Id.

    In bid-rigging cases, a plaintiff will attempt to satisfy the due diligence requirement by alleging the use of a sealed bid system, the receipt of affidavits of non-collusion and the careful examination of bid documents and contracts. Federal courts have also found these allegations to be sufficient. Id.; see also Ohio v. Louis Trauth Dairy, 856 F. Supp. 1229, 1237 (S.D. Ohio 1994). Inasmuch as computer software is now available for analyzing bidding patterns and identifying potential collusion, one might argue that a sealed bid system and the use of non-collusion affidavits alone are inadequate to satisfy the due diligence requirement of the fraudulent concealment doctrine.

Conclusion

    The weight of federal authority holds that acts in furtherance of an antitrust conspiracy may be relied upon to establish the "affirmative acts" requirement of the fraudulent concealment doctrine. This development may lead to more intensive litigation over the notice and the due diligence elements of the fraudulent concealment doctrine. A table showing the leading antitrust cases in which the doctrine of fraudulent concealment has been addressed by each circuit follows this article.

Table of Leading Cases by Circuit

    1st Circuit
    Berkson v. Del Monte Corp., 743 F.2d 53 (1st Cir. 1984). cert. den., 470 U.S. 1056 (1985) (defendant's silence not an affirmative act of concealment where defendant had no duty to speak)

    Massachusetts v. Ashland Warren, Inc., 1983 WL 1891, 1983-2 Trade Cas. (CCH) ¶ 65,682 (D. Mass. 1983) (Submission of rigged bids sufficient to establish fraudulent concealment)

    2nd Circuit
    New York v. Hendrickson Bros., Inc., 840 F.2d 1065 (2nd Cir. 1988), cert. den., 488 U.S. 848 (1988) (existence of self-concealing conspiracy sufficient to establish fraudulent concealment)

    New York v. Salem Sanitary Carting Corp., 1989 WL 111597, 1989-2 Trade Cas. (CCH) ¶ 68,730 (E.D.N.Y. 1989) (inherently self-concealing nature of conspiracy and submission of noncollusion affidavits raises jury question as to fraudulent concealment)

    3rd Circuit
    Pennsylvania v. Milk Indus. Mgment. Corp., 812 F.Supp. 500 (E.D. Pa. 1992) (bid rigging may establish affirmative act of concealment)

    Bethlehem Steel Corp. v. Fishbach & Moore, Inc., 641 F.Supp. 271 (E.D. Pa. 1986) (allegation of self-concealing conspiracy sufficient)

    Pennsylvania v. Lake Asphalt & Petroleum Co., 610 F.Supp. 885 (M.D. Pa. 1985) (fraudulent concealment requires affirmative acts independent of the underlying conspiracy)

    4th Circuit
    Supermarket of Marlington, Inc., v. Meadow Gold Dairies, Inc., 1995

    WL 707403, 1995-2 Trade Cas. (CCH) ¶ 71,191 (4th Cir. 1995) (affirmative acts of concealment may include acts involved in conspiracy itself)

    5th Circuit
    Texas v. Allan Construction Co., 851 F.2d 1526 (5th Cir. 1988) (affirmative acts of concealment need not be independent of underlying price fixing conspiracy)

    6th Circuit
    Pinney Dock & Transport Company v. Penn Central Corp., 838 F.2d 1445 (6th Cir. 1988), cert. den., 488 U.S. 880 (1988) (acts committed as part of conspiracy may constitute affirmative acts necessary to establish fraudulent concealment)

    State of Michigan v. C.R. Equipment Sales, Inc., 898 F.Supp. 509 (W.D. Mich. 1995)(bid rigging conspiracy constituted affirmative act of concealment)

    Louis Trauth Dairy, 856 F.Supp. 1229 (S.D. Ohio 1994) (submission of prearranged rigged bids is affirmative act of concealment)

    7th Circuit
    Baker v. F&F Investment, 420 F.2d 1191 (7th Cir. 1970), cert. den., 400 U.S. 821 (1970) (self-concealing conspiracy demonstrates fraudulent concealment) (dictum)

    United National Records, Inc. v. MCA, Inc., 609 F.Supp. 33 (N.D. Ill. 1984) (denial of wrongdoing and false statements regarding price increase sufficient to establish fraudulent concealment)

    8th Circuit
    In re Wirebound Boxes Antitrust Litigation, 128 F.R.D. 262 (D. Minn. 1989) (secret communications and submission of rigged bids sufficient to constitute fraudulent concealment)

    9th Circuit
    Conmar Corp. v. Mitsui & Co. (U.S.A.), Inc., 858 F.2d 499 (9th Cir. 1988), cert. den., 488 U.S. 1010 (1989) (denial of wrongdoing is affirmative act of concealment sufficient to toll statute)

    10th Circuit
    Colorado v. Western Paving Construction Co., 630 F.Supp. 206 (D. Colo. 1986), aff'd 841 F.2d 1025 (10th Cir. 1988) cert. den., 488 U.S. 870 (1988) (affirmative acts independent of the conspiracy itself are necessary to establish fraudulent concealment; mere denial of wrongdoing not concealment)

    Colorado v. Goodell Bros., Inc., 1986 WL 5073 (D. Colo. 1986) (denial of wrongdoing to authorities insufficient to establish fraudulent concealment)

    11th Circuit
    Hill v. Texaco, Inc., 825 F.2d 333 (11th Cir. 1987).

    D.C. Circuit
    Hobson v. Wilson, 737 F.2d 1 (D.C. Cir. 1984), cert. den., 470 U.S. 1084 (1985)

    General Aircraft Corp. v. Air America, Inc., 482 F.Supp. 3 (D.D.C. 1979)

     

 

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