Scharpf v. Gen. Dynamics Corp

1

SUSAN SCHARPF, on behalf of herself and all others similarly situated, et al., Plaintiffs, v. GENERAL DYNAMICS CORP., et al., Defendants.

Civil Action No. 1:23-cv-01372 (AJT/WEF)

United States District Court, E.D. Virginia, Alexandria Division

April 19, 2024

MEMORANDUM OPINION AND ORDER

ANTHONY J. TRENGA, SENIOR UNITED DISTRICT JUDGE

In this antitrust putative class action, Defendants^[1] have filed a Joint Motion to Dismiss for Failure to State a Claim, [Doc No. 178] (the "Joint Motion"), and, separately various individual Motions to Dismiss for Failure to State a Claim, [Doc. Nos. 180, 181, 184, 187, 189, 191, 193] (the "Individual Motions"). For the reasons stated below, the Joint Motion is GRANTED on the grounds that the claims by the named plaintiffs are barred by the applicable statute of limitations. ^[2]

I. BACKGROUND

In this antitrust action, Plaintiffs Susan Scharpf and Anthony D'Armiento (together, "Plaintiffs") brought suit on October 6, 2023 on behalf of themselves individually and, under Federal Rule of Civil Procedure 23(a), (b)(2), and (b)(3), on behalf of a class "consisting of all persons employed as naval architects and/or marine engineers in the United States by Defendants" (the "Class"). [Doc. No. 1] at 1 (the "Complaint").^[3] Scharpf worked in the alleged relevant market from 2007 to 2013, first, as a naval architect at Alion Science & Technology Corporation from 2007 to 2009, then, as a naval marine engineer with Computer Sciences Corporation from 2009 to 2011, and finally, as a marine engineer with Gibbs & Cox, Inc. from 2011 to 2013. Id. ¶ 19. D' Armiento worked in the alleged relevant market from 2002 to 2004 when he was employed as a naval architect with Northrop Grumman Ship Systems^[4]from 2002 to 2004. Id. ¶ 20.

The Complaint alleges as its sole cause of action a violation of Section 1 of the Sherman Act, 15 U.S.C. § 1, which provides:

Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal. Every person who shall make any contract or engage in any combination or conspiracy hereby declared to be illegal shall be deemed guilty of a felony, and, on conviction thereof, shall be punished by fine not exceeding $100,000,000 if a corporation, or, if any other person, $1,000,000, or by imprisonment not exceeding 10 years, or by both said punishments, in the discretion of the court.

Id.

Briefly summarized, the Complaint alleges in support of that Section 1 claim that Defendants-who comprise approximately "75 percent of the relevant market"-entered into a conspiracy in restraint of trade that consists of an "'unwritten gentlemen's agreement' not to affirmatively recruit one another's naval engineers" or naval architects, Id. ¶¶ 244, 242, and that this agreement "suppressed wages for naval engineers below competitive levels, depriving Plaintiffs and the Class of hundreds of millions of dollars in compensation," Id. ¶ 1.

A. The Naval Industry

Plaintiffs' Section 1 conspiracy claim pertains only to that part of the naval industry involved with the design and manufacture of the United States "public fleet," that is, vessels owned or operated by federal and state governments or agencies, which are built domestically, while most commercial vessels are built overseas. Id. ¶ 116. The domestic shipbuilding industry generates approximately $30 billion a year, nearly 80% of which is derived from military shipbuilding, maintenance, and repairs, and employs approximately 108,000 workers. Id. ¶ 117. Thus, the country's major and minor shipbuilding yards rely predominantly on contracts with the U.S. military. Id. ¶ 116. As of 2020, about 10,000 of those workers were employed as naval architects or marine engineers. Id. ¶ 121.

"Naval architects" design vessel hulls and are responsible for a vessel's overall stability and performance, while "marine engineers" design onboard systems such as propulsion mechanics, electrical systems, water purification, heating systems, and air conditioning. Id. ¶ 122. While personnel within these two categories are employed under various titles, the Complaint refers to all of them as "naval engineers." Id. Naval engineers earn a median salary of $100,000, and generally must have a bachelor's degree in engineering and U.S. citizenship; but some roles additionally require either master's degrees, doctoral degrees, other specialized training, or security clearances. Id ¶¶ 123-25. Most of the naval engineers in the United States work for (1) shipbuilders, (2) dedicated engineering consultancies, or (3) the federal government directly. Id. ¶¶ 127-31. Naval engineering skills are highly transferable, and consequently, Defendants arc "horizontal competitors" in this labor market for the same pool of talent. Id. ¶¶ 132-33. According to the Complaint, given that limited pool of talent, together with job characteristics that ordinarily promote job mobility such as at-will employment agreements and the industry's geographic concentration, one would expect a competitive environment in which Defendants would "headhunt" experienced candidates, but they did not do so because of their no-poach conspiracy. Id. ¶ 126.

The Complaint further alleges that the nature of the domestic ship-building industry encourages the type of anticompetitive conduct at issue here. In that regard, construction projects in the industry typically require collaborative participation from a plethora of contractors, subcontractors, and firms, see id. ¶¶ 119, 129; thus, consultancies and shipbuilders often work together across multiple projects, id, ¶ 37. As described in the Complaint:

This repeat-player dynamic encourages close and cooperative inter-firm relationships that extend to the individual level-so much so that one industry veteran described the various firms as "allied places." It also ensures that competing firms' fates are bound to each other by networks of obligation and favoritism that provide each firm with many opportunities to help friends and punish rivals who are perceived as competing "out of bounds."

Id. This environment also produces industry groups, conferences, and other regular events at which competitors are free to "interact privately without any digital record." id ¶ 138. Moreover, industry executives are geographically concentrated in the Washington, D.C., Northern Virginia, and East Coast areas, which further "facilitated Defendants' no-poach conspiracy." Id. ¶¶ 139-40.

B. The No-Poach Conspiracy

The Complaint alleges that, though the "origins [of the conspiracy] are obscure," all major industry players had joined in the conspiracy by 2000, id., 160, and the conspiracy has continued despite "sales, spin-offs reorganizations, and other corporate events during the Class Period" because business units maintained continuity through legacy names, personnel, operating practices, and culture. Id. 11160-61.

In support of Plaintiffs' claim that a conspiracy was formed and continues to this day, the Complaint alleges the statements of a wide range of industry participants:

Managers with hiring authority repeatedly and independently confirmed the existence of an industry-wide "gentlemen's agreement," using that term, not to actively poach from competitors. Another senior employee conveyed that a company that had broken the rules was "not supposed to do that." Each Engineering Defendant in this action is tied to the conspiracy through the testimony of at least one witness who verified the party's adherence to the industry's no-poach regime.

Id. ¶ 142. The Complaint also cites similar statements by several other unnamed witnesses. See, e.g., id. ¶¶ 143, 146-48, 150-58. Moreover, Plaintiffs allege that each of the Defendant entities or business units were connected to the conspiracy by at least one witness who either (1) named the individual Defendant as a part of the conspiracy, (2) discussed how the conspiracy related to an individual seeking to change employment in the industry, or (3) acknowledged that the Defendant had a policy or practice of not recruiting competitors' employees. Id. ¶ 159.

A main feature of the alleged conspiracy is that the Defendants actively avoided recruiting from other Defendants' naval engineers, except when naval engineers made the initial approach to a Defendant, in which case Defendants could and did hire them. Id. ¶ 161. "No Engineering Defendant, much less all Engineering Defendants, would arrive at such a combination of practices independently without a mutual understanding that the other Engineering Defendants would restrict themselves to the same policies."^[5] Id. ¶ 162. Moreover, according to one witness, "[t]here was so much more demand [for employees] than there was talent," Id. (second alteration in original), and thus, the Complaint alleges, Defendants should have been engaged in a "war for talent in which Defendants offered regular promotions and pay increases, attempted to lure talent away from rivals, and matched offers from competitors trying to do the same," Id. ¶ 163. "[T]he only explanation for firms' parallel failure to actively recruit from competitors is an unlawful agreement," id ¶ 164, and the following "plus factors" indicate an unlawful conspiracy rather than merely parallel action based on independent decision making:

(1) high barriers to entry;

(2) shared financial incentives to maintain low salaries industry-wide;

(3) shared pressure from government customers to keep costs low;

(4) extensive repeat-player working relationships among competitors, with opportunities for a range of informal punishments that can be used to enforce the unlawful no-poach agreement;

(5) social ties between key

...