Fraudulent concealment, self-concealing conspiracies, and the Clayton Act.

• Date: 01 August 1993
• Author: Schwed, Richard F.
• Published date: 01 August 1993
• Author: Schwed, Richard F.

INTRODUCTION

Section 4B of the Clayton Act provides a four-year statute of limitation for all civil antitrust actions brought under the Act.(1) The doctrine of fraudulent concealment, however, allows courts to toll this statute of limitation when the defendant conceals the acts giving rise to the cause of action. This doctrine prevents wrongdoers from unfairly using statutes of limitation to escape sanction.

Although the judiciary originally created this exception for fraud actions,(2)the Supreme Court later expanded the doctrine to be "read into every federal statute of limitation."(3) In antitrust cases, courts have required that the plaintiff plead and prove three elements in order to toll the statute of limitation: (1) the defendant concealed the conduct that constitutes the cause of action; (2) the defendant's concealment prevented the plaintiff from discovering the cause of action; and (3) the plaintiff exercised due diligence in attempting to discover the cause of action.(4) Application of the first element, the concealment requirement, has created uncertainty and division among the courts.(5) Specifically, the courts disagree as to whether the plaintiff must show that the defendant concealed the wrong with affirmative acts beyond those necessary to create an antitrust violation, or whether it is sufficient for the plaintiff to show that the defendant committed a "self-concealing" wrong.(6)

This Note argues that courts should apply a self-concealment standard to section 4B of the Clayton Act rather than require a showing of additional affirmative acts. Part I examines the history of the fraudulent concealment doctrine and its application to antitrust cases. It identifies three different standards used by courts to satisfy the concealment element and finds that courts apply the doctrine inconsistently. Part II analyzes the relationship between the fraudulent concealment doctrine and the self-concealment standard in antitrust cases by examining the judicial development of the doctrine and Congress' intent in enacting section 4B. Part II concludes that the self-concealment standard is an integral part of the fraudulent concealment doctrine and thus should apply to section 4B cases. Part III addresses the policies behind statutes of limitation generally and section 4B specifically, and finds that the self-concealment standard best achieves these policy goals. This Note concludes that courts should toll the antitrust limitation period when the defendant either has affirmatively concealed his wrong or has committed a wrong that inherently conceals itself.

1. Fraudulent Concealment and the Clayton Act

   This Part reviews the evolution of the fraudulent concealment doctrine, evaluates the courts' application of the doctrine to the antitrust laws, and examines the disagreement among the courts on how to apply the doctrine. Section I.A analyzes the history, language, and purpose of section 4B of the Clayton Act. Section I.B traces the common law origins and development of the fraudulent concealment doctrine, discussing the key Supreme Court cases applying the doctrine over the past 120 years. Section I.C analyzes courts' recent application of the fraudulent concealment doctrine to section 4B actions. In particular, this section sets out three different standards that courts have used for the concealment requirement and discusses the confusion among the courts in choosing among these standards. This Part concludes that the current application of the fraudulent concealment standard in section 4B cases creates uncertainty and confusion in the courts, thereby defeating the underlying goal of section 4B.

   1. Section 4B of the Clayton Act

      Prior to 1955, the Clayton Act did not include a statute of limitation, and federal courts relied on state law to determine limitation periods for private antitrust actions brought under the Clayton Act.(7) Because limitation periods varied among the states,(8) plaintiffs engaged in forum shopping, creating uncertainty for potential defendants.(9) In addition, within a given state, parties were confused as to which statute of limitation applied to antitrust actions.(10) To establish uniformity and eliminate "confusion and discrimination,"(11) Congress added section 4B to the Clayton Act in 1955.(12) Section 4B states that "[a]ny action to enforce any cause of action under [the antitrust laws] shall be forever barred unless commenced within four years after the cause of action accrued."(13) The statutory language includes no provision for extending the period.(14)

   2. The Fraudulent Concealment Doctrine

      Even without any basis in statutory language, courts have long been willing to toll statutes of limitation. The doctrine of fraudulent concealment has its roots in the much-cited case of Bailey v. Glover.(15) In Bailey, an assignee in bankruptcy filed a bill to set aside certain conveyances to Glover's relatives.(16) The applicable statute of limitation under the Bankruptcy Act of 1867(17) provided that the assignee could not bring any action more than two years after the cause of action accrued. The Supreme Court tolled the statute of limitation because the defendant's concealment of the fraudulent conveyance prevented the plaintiff from discovering the injury creating the cause of action.(18) The Court stated:

      when there has been no negligence or laches on the part of a plaintiff in coming to the knowledge of the fraud which is the foundation of the suit, and when the fraud has been concealed, or is of such character as to conceal itself, the statute does not begin to run until the fraud is discovered by, or becomes known to, the party suing ....(19)

      Courts have relied on this statement as the basis for the modern fraudulent concealment doctrine.(20) While the fraudulent concealment doctrine has grown in importance since Bailey, neither the Supreme Court nor commentators have given it extensive attention.(21)

      In 1921, the Supreme Court extended the Bailey doctrine beyond the Bankruptcy Code. In Exploration Co. v. United States,(22) the government brought an action to cancel land patents, claiming that the defendant secretly and impermissibly obtained the contested patents. A six-year statute of limitation with no tolling provision appeared to bar the cause of action.(23) The Supreme Court held, however, that the fraudulent concealment doctrine tolled the statutory limitation.(24) Although the statute did not expressly provide for tolling, the Bailey doctrine was well settled at the time the statute was enacted, and the Court thus presumed it was part of the statute.(25)

      Although the Supreme Court explicitly expanded the Bailey doctrine beyond the Bankruptcy Act in Exploration Co., the Court failed to define the scope of the doctrine.(26) Twenty-five years later, the Supreme Court addressed this issue in Holmberg v. Arpnbrecht.(27) Armbrecht involved a suit in equity to enforce the Federal Farm Loan Act(28) against the shareholders of a joint stock land bank. The Court, without dissent,(29) tolled the relevant limitation period and stated in dictum that the fraudulent concealment doctrine "is read into every federal statute of limitation."(30) In the forty-seven years since Armbrecht, the Court has left it to the lower courts to determine how to read the doctrine into section 4B of the Clayton Act.

   3. Fraudulent Concealment Applied to Section 4B of the

      Clayton Act

      Despite the language in Armbrecht, defendants in early section 4B cases often contested the application of the fraudulent concealment doctrine to the Clayton Act.(31) Although several district courts refused to apply the doctrine at first,(32) it is now well settled that courts may use the fraudulent concealment doctrine to toll the Clayton Act's limitation period.(33) In order to toll section 4B, a plaintiff must plead and prove the three elements common to all fraudulent concealment claims.(34) However, courts disagree as to what actions satisfy the requirement that defendants "conceal" the conduct constituting the cause of action.(35)

      In considering the concealment element, courts have identified two types of concealment: (a) concealment by affirmative acts; and (b) self-concealment.(36) The Court of Appeals for the D.C. Circuit provided an example to illustrate the difference between these two means of concealment: The theft of an antique vase from its owner's house contains no element of concealment; the thief does not conceal the crime even though the thief is likely to attempt to conceal his involvement in the crime. If the thief steals the antique vase and replaces it with a worthless copy, the thief has taken an affirmative act to conceal the fact that a crime was committed. The wrong is the theft of the vase; the replacement is an act of concealment that is separate from the crime itself since it is not a necessary element of the wrong. On the other hand, if the thief sells an imitation antique vase as a real vase, the thief commits a self-concealing wrong. The thief in this case does not intend merely to hide the wrong; rather, concealment is an essential element of the wrong - without it there can be no crime.(37)

      In Bailey v. Glover, the Supreme Court held that either concealment by affirmative acts or self-concealment could toll the statute of limitation.(38) However, because Bailey involved an underlying action for fraud, some courts have hesitated to apply the holding in the nonfraud context of the antitrust laws. As a result, federal courts have applied three different standards(39) to satisfy the concealment element of the fraudulent concealment doctrine: (1) the separate-and-apart standard;(40) (2) the self-concealment standard;(41) and (3) the affirmative acts standard.(42)

      Illegal bid rigging, a violation of the federal antitrust laws' prohibition on price fixing, provides a good example of how the three standards differ. Bid rigging can arise when one party, often a state or local agency...