4th Circuit Reinstates No-Poach Lawsuit Against Shipbuilders

Strategic Insights -

The nation's largest shipbuilders and naval engineering consultancies formed a "gentlemen's agreement" not to recruit each other's employees to drive down wages, a putative class action alleged. The 4th U.S. Circuit Court of Appeals reinstated the lawsuit, ruling that the alleged secret agreement was sufficient to survive dismissal, despite the defendants' argument that it was kept "non-ink-to-paper" to avoid detection.

The plaintiffs, Anthony D'Armiento and Susan Scharpf, both naval engineers, brought the action against the nation's largest shipbuilders and naval engineering consultancies, alleging a wide-ranging "no-poach" conspiracy. The district court had dismissed the case as barred by the Sherman Act's four-year statute of limitations and concluded that a "non-ink-to-paper" agreement was not an affirmative act of fraudulent concealment that could toll the limitations period. However, the 4th Circuit reversed and remanded the case, holding that an agreement kept "non-ink-to-paper" can qualify as an affirmative act of concealment.

Key Takeaways:

  • The 4th Circuit ruled that an alleged secret agreement not to poach each other's employees, which was kept "non-ink-to-paper" to avoid detection, can qualify as an affirmative act of concealment.
  • The panel rejected the defendants' argument that a secret agreement was not an affirmative act of concealment, finding that this would "encourage[] [wrongdoers] to take advantage of the limitations period to commit secret illegal conduct without penalty."
  • The court also rejected the defendants' reliance on Pocahontas Supreme Coal Co. v. Bethlehem Steel Corp., finding that it was unclear to what extent Pocahontas was based on the fact that the plaintiff had constructive notice of the antitrust violations or failed to provide evidence of due diligence.
  • The plaintiffs alleged that the shipbuilders' creation of an illicit no-poach agreement, which they deliberately kept non-ink-to-paper, were affirmative acts of fraudulent concealment.
  • The court found that the plaintiffs adequately alleged affirmative acts, which meet Rule 9(b)'s particularity requirement, and that they had obtained substantial prediscovery evidence of the defendants' alleged affirmative acts of concealment.
  • The court also found that the alleged obvious illegality of the defendants' agreement weighed in favor of finding affirmative acts intended to conceal or deceive.

Statistics:

  • The 4th Circuit reversed and remanded the case for further proceedings.
  • The Sherman Act's four-year statute of limitations was the basis for the defendants' argument that the lawsuit was barred.
  • The district court had dismissed the case as barred by the Sherman Act's four-year statute of limitations.
  • The 4th Circuit found that the plaintiffs had adequately alleged affirmative acts, which meet Rule 9(b)'s particularity requirement.

Sources:

  • Scharpf v. General Dynamics Corp. (VLW 025-2-174)
  • Supermarket of Marlinton, Inc. v. Meadow Gold Dairies, Inc.
  • Pocahontas Supreme Coal Co. v. Bethlehem Steel Corp.
  • Robertson v. Sea Pines Real Estate Cos.