Texas Court of Appeals Has Put Some FCPA Internal Investigations in an Awkward Spot

Given that this case was decided last summer, I can’t quite put the headline in the present tense. I’m slow to the draw on it, but I think it’s important. Last July, in Writt v. Shell Oil Co., 409 S.W.3d 59 (Tex. Ct. App. 2013), the Court of Appeals of Texas addressed an interesting issue for internal investigations where the interests of corporations and their employees could come into conflict.

Facts

Briefly, here are the facts:  The Justice Department opened an FCPA investigation into Panalpina, Inc. (surely you remember Panalpina), and on July 7, 2007, wrote a letter asking representatives of Shell Oil Company to discuss that investigation at an upcoming meeting.  The letter asked that Shell prepare a spreadsheet detailing in what countries Shell had used Panalpina’s freight services and the total payments for those services for the last five years.  At the requested meeting on July 17, Shell agreed to conduct an internal investigation into its dealings with Panalpina.  As Shell’s “managing counsel” later testified, “Shell agreed to conduct the internal investigation with the understanding that it would ultimately report its finding to the DOJ . . . .”  A DOJ Fraud Section attorney wrote a follow-up letter noting, “[I]t is our understanding that Shell intends to voluntarily investigate its business dealings with Panalpina Inc. and all other Panalpina subsidiaries and affiliates.”  DOJ also asked for Shell’s proposed investigative plan, the production of 10 categories of documents, and the locations of a number of individuals, including Robert Writt, a Shell employee who had been associated with a project in Nigeria in 2004 and 2005.

As it happens, Shell submitted an investigative report that pointed the finger at Writt.  Specifically, Shell said Writt had been involved in illegal conduct in a Shell Nigerian project by recommending that Shell reimburse contractor payments he knew to be bribes and failing to report illegal contractor conduct he was aware of.

Writt Sues for Libel

Not one to take this lying down, Writt sued Shell for libel.  Shell won its motion for summary judgment in the trial court, claiming that it had an absolute privilege to say what it did in its investigative report to the DOJ.

The Court of Appeals disagreed.  In its view of Texas law, an absolute privilege attaches to communications made in judicial proceedings by judges, jurors, counsel, parties, or witnesses, and attaches to all aspects of the proceedings, including statements in open court, pre-trial hearings, depositions, affidavits, and any pleadings or motion papers.   The privilege has been extended to administrative proceedings before executive officers that exercise quasi-judicial powers.  When the absolute privilege applies, there is no action in damages, even if the words spoken are false and published with express malice.

By contrast, a conditional privilege arises out of the particular occasion on which the statement is published and is based on a public policy recognizing that true information should be given whenever it is reasonably necessary for the protection of the actor’s own interests, the interests of a third person, or certain interests of the public.

The conditional privilege protects the speaker from liability but not civil action.  Put another way, one with an absolute privilege doesn’t have to tolerate litigation over its statements; with only a conditional privilege, the speaker may well win the case, but has to slug it out through discovery, dispositive motions, and trial, and hope things work out in the end.

In the court’s view, DOJ was acting purely in a prosecutorial and non-judicial capacity.  Shell submitted its investigative report on February 5, 2009, and DOJ did not file a criminal complaint against the company until November 2010, 20 months later.  As the court said, “Just because the DOJ ultimately filed a judicial proceeding against Shell does not establish that it was proposing that one be filed when it contacted Shell on July 3, 2007 or received Shell’s report on February 5, 2009.”

The Dissent

Justice Harvey Brown dissented from the court’s opinion, writing, “To deny absolute privilege here would be to chill the free flow of information and impair the DOJ’s ability to conduct its investigations and enforce the FCPA. Without incentives to cooperate, enforcement of the FCPA would be curtailed.  Writt, 409 S.W.3d at 80 (Brown, J., dissenting) (citing Robert W. Tarun, The Foreign Corrupt Practices Act Handbook: A Practical Guide for Multinational General Counsel, Transactional Lawyers and White Collar Criminal Practitioners, 190 (2d ed. 2012) (stating that “DOJ and SEC do need companies to voluntarily disclose because their resources are limited.”)).

The dissent basically would hold that the Justice Department’s investigative process for FCPA violations is a quasi-judicial proceeding that merits an absolute privilege for statements made within its confines.  I think that’s right.  When the Fraud Section is “asking” that you conduct an internal investigation, wants to know exactly how you’re going to conduct that investigation, and wants to know the location of your individual employees, it’s not exactly a voluntary process.

It seems to me that the majority’s take on DOJ’s intentions as of July 2007 is quite naïve. They were just asking some questions! Submitting that investigative report was totally voluntary! I think the court properly, but woodenly, applied the law as it exists in Texas. FCPA investigations these days are a different animal, and probably deserving of different treatment by the courts.  As of now, a company conducting an internal FCPA investigation in Texas has to ask, what do we do if one of an investigation reveals one of our employees as a bad actor?  Do we say as much in the report we turn over to the government, as the government surely expects?  If we do, are we signing on for libel litigation by the employee?  Shell has petitioned the Texas Supreme Court for review.