Shell's Provision of FCPA Probe Report To DOJ Wholly Protected, Texas Court Says

Bloomberg BNA’s Corporate Law & Accountability Report is available on the Corporate Law Resource Center. This news service keeps corporate practitioners informed of legal developments of...

By Yin Wilczek

May 18 — Shell Oil Co. was absolutely privileged in providing the Justice Department with a report detailing its internal investigation of possible Foreign Corrupt Practices Act violations, the Texas Supreme Court held May 15.

Reversing the Texas Court of Appeals, the state high court found the report absolutely privileged because it was “made preliminarily to a proposed judicial proceeding.” Shell thus was immune from a defamation lawsuit filed by an employee who alleged he was defamed in the report, wrote Justice Phil Johnson.

The ruling has important implications for internal investigations given the DOJ's repeated push for companies to identify corporate wrongdoers in such probes. 

The defamation action by former Shell employee Robert Writt is believed to be the first such lawsuit filed in connection with an FCPA investigation.

Contacted by DOJ 

In 2007, Shell was informed by the DOJ that it may have violated the FCPA in engaging Panalpina Inc. to provide freight forwarding and other services. Shell agreed to conduct an internal investigation and provide the findings to the DOJ on the understanding that its report would be confidential.

Shell provided the report to the DOJ in 2009. About 20 months after that, the DOJ filed a criminal information against Shell, which—with several other oil and freight companies—agreed to pay a total of approximately $156 million to resolve charges that they violated the FCPA by bribing Nigerian and other foreign officials in exchange for leniency under local import regulations.

Writt subsequently sued the company, alleging that the report contained defamatory statements that he was a “major participant” in the bribery scheme.

Concluding that Shell's report was subject to absolute privilege, a trial court granted Shell's summary judgment motion. However, the court of appeals reversed, finding that at the time that Shell handed the report to the DOJ, the evidence did not conclusively show that criminal proceedings were ongoing or would be initiated against the company.

State High Court Ruling 

The Texas Supreme Court noted that given the DOJ's “somewhat draconian potential penalties” in the FCPA arena, Shell was “practically speaking, compelled to undertake its internal investigation and report its findings to the DOJ.” It also observed that federal prosecutors and the U.S. Sentencing Guidelines place a premium on self-reporting, cooperation and remedial efforts in determining how FCPA cases should be resolved.

“In sum, the summary judgment evidence is conclusive that when Shell provided its internal investigation report to the DOJ, Shell was a target of the DOJ's investigation and the information in the report related to the DOJ's inquiry,” the court wrote. “The evidence is also conclusive that when it provided the report, Shell acted with serious contemplation of the possibility that it might be prosecuted.”

Shell was represented by Macey Reasoner Stokes and Michelle Stratton, Baker Botts LLP, Houston.

Writt was represented by Kenneth David Hughes, the Hughes Law Firm, Houston; and Robert B. Dubose, Alexander Dubose Jefferson & Townsend LLP, Houston.

Pursuing Internal Investigations 

Harry Sandick, a New York-based partner at Patterson, Belknap, Webb & Tyler LLP, told Bloomberg BNA that the ruling “gives companies more confidence to pursue an internal investigation and self-report company wrongdoing to the government without the company’s lawyers needing to look over their shoulders in fear of a defamation suit.”

While it is possible for an employee to be unfairly accused of conduct in which he or she did not participate, the Texas Court of Appeals' decision had put companies in a very difficult spot, “between the ‘Scylla' of a defamation lawsuit and the ‘Charybdis' of a governmental investigation,” Sandick said.

However, Sandick added that defamation law is for the most part a state-law issue. “So it is possible that another state will accept the invitation that Texas declined in this case and allow aggrieved employees to sue for defamation on similar facts,” he said.

To contact the reporter on this story: Yin Wilczek in Washington at ywilczek@bna.com

To contact the editor responsible for this story: Ryan Tuck at rtuck@bna.com

The Texas Supreme Court opinion is available at http://www.bloomberglaw.com/public/document/SHELL_OIL_COMPANY_AND_SHELL_INTERNATIONAL_EP_INC_PETITIONERS_v_RO.