iYou may remember the 2013 Texas Court of Appeals case involving Shell Oil Company and Robert Writt. It left FCPA internal investigations based in Texas in an awkward spot. To recap very briefly, in 2007 the Justice Department asked Shell to conduct an investigation into potential FCPA violations, and the company did. The investigation pointed at least one finger at former employee Writt as a bad actor, and Shell reported that finding to DOJ. Writt was never charged with wrongdoing, and sued Shell for libel. The key question for the court: were Shell’s statements to DOJ subject to a conditional privilege or an absolute privilege? Cases involving conditional privilege frequently proceed to discovery, because they depend on factual questions surrounding the good faith basis for the statements at issue. Cases involving absolute privilege can often be handled at the motion-to-dismiss stage. If the statements are absolutely privileged, not much is left for discovery. The Court of Appeals thought Shell’s statements about Writt were only conditionally privileged, and reversed the trial court’s grant of summary judgment to Shell. On May 15, the Texas Supreme Court reversed again.
Facts Surrounding the Investigation
I tend to think that cases like this one (and maybe all cases) are decided by how the facts are characterized. Here’s how the Texas Supreme Court described them: In July 2007, the Justice Department sent Shell a letter explaining that it had become aware that Shell had engaged another company, Panalpina, “to provide freight forwarding and other services . . . and that certain of those services may violate the [FCPA].” In its letter, the DOJ requested that Shell meet with it to discuss Shell’s engagement of Panalpina. At the meeting Shell agreed to conduct an internal investigation into its dealings with Panalpina and to report its findings to the DOJ, with the understanding that the report would be treated as confidential. The investigation was to be done pursuant to a plan approved by DOJ, and Shell agreed to produce additional documents and information. DOJ subsequently identified several individuals as potential persons of interest regarding its investigation and requested Shell to produce information related to them. One of these was a Shell employee named Robert Writt.
Shell hired outside counsel and investigators to assist in the investigation, and Writt was interviewed several times about his knowledge of possible illegal payments made by Panalpina. In February 2009, Shell provided the investigators’ findings and its report to the DOJ. Among other matters, the report set out that the impetus for it was the meeting between Shell and DOJ representatives regarding allegations of criminal violations. The report also contained information, analyses, and conclusions as to Shell’s relationship with, and Writt’s actions as they related to, Panalpina. The report stated that Writt was aware of “several red flags” concerning Panalpina’s customs clearance process and that he provided inconsistent information about his knowledge of Panalpina’s questionable acts. In addition to providing the report to the DOJ, Shell terminated Writt’s employment. In its termination letter, Shell stated that Writt’s conduct was a “significant, substantial and unacceptable” violation of Shell’s General Business Principles and Code of Conduct. Writt then sued for defamation and wrongful termination
How the Investigation Was Resolved
While Shell’s motion for summary judgment in the defamation suit was pending, DOJ filed an information charging Shell with conspiracy to violate the FCPA and aiding and abetting the making of false books and records. Shell and the DOJ then executed a Deferred Prosecution Agreement — frequently used in FCPA cases.
In the Agreement, the DOJ acknowledged that Shell had (1) cooperated in the DOJ’s investigation, (2) agreed to cooperate in any ongoing investigation, and (3) agreed to pay a monetary penalty. Shell’s willingness to conduct an internal investigation, admit misconduct, and cooperate with the investigation was an important factor in the DOJ’s decision to offer Shell the opportunity to enter into the Deferred Prosecution Agreement. The terms of the DPA, which are more favorable than the criminal penalties that could have resulted from an FCPA prosecution, required Shell to continue to cooperate with the DOJ and other law enforcement agencies, pay a $30 million criminal fine, and implement an extensive FCPA compliance and reporting program. The DPA provides that if Shell fully complies with its terms, then the criminal charges will be dropped. But if Shell fails to abide by the DPA’s terms, DOJ will resume the prosecution.
Which Kind of Privilege?
But coming back to the defamation case, were Shell’s statements about Writt conditionally or absolutely privileged? Shell argued that because its statements were made in serious contemplation of a judicial proceeding, and not on the bare possibility that a proceeding might occur, an absolute privilege should apply. The Supreme Court analogized Shell’s position before the Justice Department in 2007 to that of Brian McNamee in Clemens v. McNamee, 608 F. Supp. 2d 811, 824-25 (S.D. Tex. 2009). During the course of the investigation described in that case, McNamee was told by the Assistant United States Attorney, FBI agents, and IRS agents conducting the investigation that his status as a witness would be reconsidered if he failed to cooperate with the investigation, which included being interviewed by the Mitchell Commission. Id. at 824. All of McNamee’s interviews with the Mitchell Commission were arranged and attended by Assistant United States Attorneys or other government agents. Id. Although McNamee cooperated with the investigation and offered information voluntarily, he was for all practical purposes compelled to make his statements to the commission. Id. at 825. The court concluded that to classify McNamee’s statements as only conditionally privileged would have caused great harm to the administration of government and the government’s ability to ensure justice was served. Id. at 825-26.
What It Means
Similarly, in some sense Shell had a choice about making a full report to the Justice Department when it “asked” the company to conduct an internal investigation into the Panalpina matter. But it didn’t really have a choice. It could have told DOJ prosecutors to pound sand, and it also could have signed on for an indictment of the company and massive fines. The court understood this, and also understood the context of how FCPA investigations are resolved these days. Specifically, “[f]ederal prosecutors and the U.S. Sentencing Guidelines ‘place a high premium on self-reporting, along with cooperation and remedial efforts, in determining the appropriate resolution of FCPA matter.” Shell didn’t really speak freely when making its statements to the Justice Department. It was already being ground up in the judicial process, even if that process looks a bit different than many traditional prosecutions do. So the statements were absolutely privileged.
This case will make investigations that require reports to the government a lot less risky for companies that conduct them. And tougher for employees who want to sue for defamation.
