Antitrust Law Daily Wrap Up, ANTITRUST—4th Cir.: Dismissal of alleged no-poach scheme for recruiting naval engineers reversed, (May 12, 2025)

By Sara Cracau, J.D.

Companies’ agreement that is kept “non-ink-to-paper” to avoid detection can be regarded as an affirmative act of concealment thereby triggering tolling the statute of limitations.

The 4th Circuit reversed a decision by a federal district court which had dismissed as time-barred a putative class action alleging a wide-ranging “no-poach” conspiracy among the largest companies in the nation’s shipbuilding industry arising from a gentleman’s agreement not to recruit competitor employees to drive down wages finding that the action was not time-barred. The court found it appropriate to apply a “relaxed rule 9(b) standard” in cases such as this one alleging fraud by omission or concealment, e.g. a non-ink-to-paper agreement as pleading the necessary facts with particularity is near impossible when the facts are in the sole possession of the defendant. An agreement that is kept “non-ink-to-paper” to avoid detection can be regarded as an affirmative act of concealment. Because the plaintiff employees adequately alleged fraudulent concealment, dismissal based upon the Sherman Act’s four-year statute of limitations was reversed (Scharpf v. General Dynamics Corp., No. 24-1465 (4th Cir. May 9, 2025)).

Plaintiffs, two naval architects and marine engineers (naval engineers) brought a putative class action against the nation’s largest shipbuilders and naval-engineering consultancies, alleging a wide-ranging “no-poach” conspiracy in which the companies formed a “gentleman’s agreement” not to recruit each other’s employees in order to drive down wages. The district court dismissed the action as time-barred by the Sherman Act’s four-year statute of limitations because there was no named plaintiff who had worked for the defendant shipbuilding companies since 2013. Furthermore, the court declined to toll the statute of limitations finding that the conclusory allegations were insufficient to constitute affirmative acts that the shipbuilding companies had fraudulently concealed facts that were the basis of the claim.

Tolling the statute of limitations. If a defendant engages in fraudulent concealment, the limitation period begins only after the plaintiff discovers the violation. The first element of fraudulent concealment is met by providing evidence of affirmative acts of concealment. Here, the court held that an agreement that is kept “non-ink-to-paper” to avoid detection may be considered an affirmative act of concealment. This conclusion preserves the balance between statutes of limitation and the doctrine of fraudulent concealment. When the U.S. Supreme Court adopted the fraudulent-concealment doctrine, it did not establish how to evaluate whether a defendant has engaged in fraudulent concealment. The series that decisions that ensued centered on three standards: the separate-and-apart standard, the self-concealing standard, and the affirmative acts standard. Today, circuits have generally adopted the affirmative-acts standard and the majority approach supported the court’s conclusion that unwritten agreements can constitute fraudulent concealment. The court noted that the doctrine of fraudulent concealment was designed to prevent conspirators who attempt to avoid detection from taking cover behind the statute of limitations.

Affirmative acts of fraudulent concealment. The court found that the plaintiffs pleaded affirmative acts of fraudulent concealment with particularity under a relaxed Rule 9(b) standard. They adequately alleged that the defendants had engaged in affirmative acts that created a no-poach agreement which they deliberately concealed by not reducing it to ink and paper. The complaint quoted multiple industry insiders who acknowledged the existence of the no-poach agreement. The plaintiffs further alleged that the defendants took care to avoid putting anything in writing in order to conceal their unlawful conduct.

The majority disagreed with the dissent’s argument that it had applied the self-concealing standard, noting that a self-concealing violation occurs only when “deception or concealment is a necessary element of the antitrust violation.” That was not the case here. Although facts must still be alleged to demonstrate intent to conceal, courts may infer intent from circumstantial evidence. In making this determination, courts look at whether the underlying violation is obviously illegal. Here, the coded language allegedly used by the defendants to refer to their conspiracy could also indicate that they were aware of their illegal conduct. The allegedly obvious illegality of the no-poach agreement weighed in favor of finding that the defendants’ affirmative acts were intended to conceal or deceive.

The court also concluded that the plaintiffs sufficiently alleged due diligence. The pleadings indicated that the plaintiffs did not believe they were harmed until they discovered the no-poach conspiracy through interviews with industry insiders in April 2023. The court did not find that the plaintiffs were on notice inquiry before they learned of the no-poach agreement.

Dissent: The dissenting judge disagreed with the majority, arguing that although the majority purported to apply the affirmative-acts standard, it, in effect, applied the self-concealing standard, reducing the analysis to the sole question of whether a conspiracy existed.

The Case is No. 24-1465.

Judge: Wynn, J.

Attorneys: Steve W. Berman (Hagens Berman Sobol Shapiro LLP) for Susan Scharpf and Anthony D'Armiento. David G. Barger (Greenberg Traurig, LLP) for General Dynamics Corp.

Companies: General Dynamics Corp.

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