When Does Fraudulent Concealment Toll the Antitrust Statute of Limitations?


Authors: Aaron Gott and Nick McNamara

Antitrust conspiracies, like most conspiracies, are typically carried out in secret and often actively concealed by their participants for many years. But the statute of limitations for antitrust claims is only four years. So what happens if you discover that you were harmed by an antitrust conspiracy years after the fact? The answer could depend on which of the U.S. Court of Appeals has jurisdiction in your case.

Imagine you’re a retail grocer in the business of selling farm-fresh produce. Your store sources all of its carrots from local farms, many of which belong to a trade association of carrot growers (these carrot growers weren’t organized as a farm cooperative, which could provide them with a limited antitrust exemption you can read about here). Since you opened your grocery store several years ago, the price of carrots sold by these farms has been stable and reasonable. Then, all of a sudden, you notice that the price of locally farmed carrots has increased by 10%—overnight and for no apparent reason. Soon after you learn of the price hike, you receive an explanatory letter from the farm that sold the store its most recent batch of carrots. The letter apologizes for the increased price, which it attributes to a virus which has been harming local carrot crops. According to the letter, the farm hired plant biologists who confirmed the presence of the virus in the area.

You have never heard of a virus affecting carrots, but you have little reason to doubt the explanation provided by the farm. You review the scientific documentation attached to the letter and read up about the virus on Wikipedia; it turns out it is indeed a real virus that does affect carrots. You also hear that other grocers in the area have also received similar letters from other local carrot growers (but you didn’t talk to them directly because your antitrust compliance program forbids it). On top of it all, you have always had very cordial business relations with the sales representatives of the carrot farms. You decide to eat the lost profits, knowing that discontinuing the sale of locally farmed carrots would disappoint many loyal customers.

Five years later, you are tipped off by a former employee of one of the local carrot growers that the presence of the virus in the area was a complete fabrication, as was the supporting documentation submitted by the purported scientists. The ex-employee further informs you that the plan was hatched by the carrot growers’ trade association. Feeling cheated, you search the web for the antitrust statute of limitations, which you learn is four years.

But the good news is that the statute of limitations is not necessarily fatal to a claim involving an antitrust conspiracy. In fact, courts have long recognized that the distinguishing feature of illegal conspiracies is that they are almost always hidden from public view by design—and as a result, they often harm unwitting victims unaware they are being harmed. And, in some cases, courts have applied the equitable doctrine of fraudulent concealment to “toll” the statute of limitations in cases where the statute of limitations otherwise would have barred the claim.

You may have heard of a similar doctrine called the “discovery rule.” Under the discovery rule, a claim does not accrue—and the statute of limitations does not begin to run—until a reasonably diligent plaintiff discovers or should have discovered its injury. But there is a key difference: the discovery rule is a legal doctrine governing the point at which a statute of limitations begins to run, while tolling for fraudulent concealment is an equitable doctrine that assumes that the claim has already accrued and the statute of limitations has already run. In practice, the two doctrines have a nearly identical effect, so an antitrust plaintiff can typically plead both in the alternative. Both doctrines also have a due diligence requirement, so you can’t rely on them if, under the circumstances, a reasonable person would have investigated potential claims (for example, an unexplained, sudden price hike could give rise to a duty to investigate).

When a plaintiff invokes the court’s equitable powers to toll the statute of limitations on a claim, she is asking the court to waive the statute of limitations in order to avoid injustice under the particular circumstances of the case. In our grocery store example, the simple argument for equitable tolling is that the grocer was deceived by the representations of the carrot growers despite having reasonably inquired into the cause of the price hike, leading to the delayed discovery of his claim.

But there is a catch: federal courts do not apply a uniform standard of what constitutes “fraudulent concealment” sufficient to invoke the doctrine. In fact, there are three different approaches: the relatively lax “self-concealing” conspiracy approach, the intermediate “affirmative acts” approach, and the relatively strict “separate-and-apart” approach.

  1. The “Self-Concealing” Conspiracy Approach

The most liberal test for fraudulent concealment only requires a showing that the defendants’ conspiracy was carried out in a manner intended to deceive the plaintiff. Since antitrust conspiracies are typically self-concealing, the plaintiff need not show additional specific acts of concealment by the defendants beyond the acts constituting the conspiracy itself.

This approach is exemplified by the case of New York v. Hendrickson Bros., Inc., 840 F.2d 1065 (2d Cir. 1988). The case involved an alleged bid-rigging conspiracy among highway construction companies. The plaintiff, the State of New York, argued equitable tolling for fraudulent concealment should apply because of the self-concealing nature of the conspiracy itself. The Second Circuit agreed, holding that “proof of the conspiracy itself sufficed to prove concealment by the coconspirators.” Id. at 1084. The self-concealing conspiracy approach is thus distinguishable from the other two approaches to fraudulent concealment, which both require a plaintiff to plead explicit acts of concealment carried out by the defendant.

Suppose that you, the produce grocer, never received a phony explanatory letter from your carrot grower. Under the self-concealing standard, you would still have an argument for equitable tolling—you wouldn’t need an independent, specific act of concealment to prevail on equitable tolling (although the lack of an explanation for an unusual price hike may factor into the question of whether you performed your due diligence in uncovering the reason for the hike).

The self-concealing standard applies in the Second and DC Circuits, and possibly in the Eleventh Circuit, where both this standard and the affirmative acts standard have been endorsed in dicta.

  1. The “Affirmative Acts” Approach

The “affirmative acts” test is the intermediate approach. Under this standard, a plaintiff pleading fraudulent concealment must show that the defendant committed an “affirmative act” to conceal the existence of the conspiracy. Such an affirmative act may either form a part of the conspiracy itself or it may have been committed apart from the acts constituting the conspiracy. This standard was adopted by the Fourth Circuit in the case of Supermarket of Marlinton, Inc. v. Meadow Gold Dairies, Inc., 71 F.3d 119 (4th Cir. 1995), which involved a group of grocers that alleged a price-fixing conspiracy by their dairy suppliers.

The dairies argued that the strict “separate-and-apart” standard applied to the grocers’ fraudulent concealment claim, while the grocers argued that the lax self-concealing conspiracy standard applied. The Fourth Circuit instead took a middle-of-the road approach. On one hand, the court was concerned that applying the lax standard would lead to the evisceration of the statute of limitations in conspiracy cases. On the other hand, it was concerned that adoption of the separate-and-apart standard would simply incentivize conspirators to construct their schemes in such a manner that additional concealment beyond the constituent acts of the conspiracy would be unnecessary.

The court settled on an intermediate standard: asking whether there was an explicit act of concealment without delving into the further question of whether the act of concealment formed part of the conspiracy. Thus, as our produce grocer, you would not need not argue the letter was somehow separate from the price-fixing conspiracy itself.

The First, Third, Fourth, Fifth, Sixth, Seventh, Eighth, and Ninth Circuits apply the affirmative acts standard, and the Eleventh Circuit possibly would apply it (according to dicta).

  1. The “Separate-and-Apart” Approach

The strictest approach to fraudulent concealment, the “separate-and-apart” standard, requires that a plaintiff show not only that the defendant committed an affirmative act of concealment, but that this act of concealment was an act completely separate from the specific acts constituting the illegal conspiracy. This standard is difficult to administer because the exercise of delineating which acts are part of a conspiracy and which are not invite drawn-out exercises in hairsplitting and arbitrary line-drawing.

The standard is exemplified by the case of State of Colo. ex rel. Woodard v. Western Paving Const. Co., 630 F.Supp. 206 (D. Colo. 1986), which involved an alleged bid-rigging conspiracy among highway construction companies. The court explicitly drew a line between “acts of concealment” and “acts taken in carrying out the conspiracy itself,” holding that fraudulent concealment requires that the defendant “[take] affirmative steps in addition to the original wrongdoing.” Id. at 210. (Emphasis added).

The court listed several acts that it considered to be part of the conspiracy itself: an executive’s nondisclosure of the existence of the conspiracy to employees not involved with the conspiracy, the submission of a bid giving the appearance of regularity in the bidding process, and the creation by an employee of a secret competitor contact list for purposes of coordinating bidding.

How would you, our produce grocer, fare under the separate-and-apart standard? Therein lies the difficulty: on one hand the growers went out of their way to fraudulently conceal their price-fixing conspiracy; on the other, it is hard to say whether a customer price-increase letter is any less a part of a price-fixing conspiracy than the submission of a bid is a part of a bid-rigging conspiracy.

This standard has not been expressly adopted by any court of appeal, but it has been applied by district courts.

As the above demonstrates, the court in which you bring your antitrust case could make or break your claim because the courts of appeal are split between different standards and the Supreme Court has not weighed in. If you have an antitrust claim, even involving conduct that began more than four years ago, give us a call.

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