INTERNAL INVESTIGATIONS: COMPANY HAS AN ABSOLUTE PRIVILEGE TO PROVIDE A REPORT TO LAW ENFORCEMENT IF DONE PRELIMINARY TO A PROPOSED JUDICIAL PROCEEDING

Shell learned it was under investigation by the Department of Justice for possible violations of the Foreign Corrupt Practices Act by one of Shell’s contractors. After meeting with the DOJ, Shell agreed to conduct an internal investigation and provide a confidential report to the DOJ. During their discussions, the DOJ identified a Shell employee, Robert Writt, as a possible witness or person of interest. Upon conclusion of its investigation, Shell provided the promised written report to the DOJ. The report stated (among other things) that Writt was aware of “several red flags” and provided inconsistent information. Shell then terminated Writt’s employment. Writt sued Shell, alleging Shell defamed him when it voluntarily provided a copy of the written report to the DOJ. Shell moved for summary judgment on the ground it was absolutely privileged to provide the report to the DOJ because it did so “preliminary to a proposed judicial proceeding.” While that motion was pending, the DOJ filed a criminal action charging Shell with conspiracy to violate the FCPA; that action was concluded by a deferred prosecution agreement. The trial court granted Shell’s summary judgment motion, agreeing with Shell that its conduct was absolutely privileged. But the court of appeals reversed, holding that the report was only conditionally privileged.

The Texas Supreme Court held that Shell was entitled to the absolute privilege because Shell was the target of a DOJ investigation when it furnished the report, the information related to the DOJ’s inquiry, and the evidence conclusively established Shell provided the report with “serious contemplation” that it might be prosecuted by the DOJ. The Court emphasized the draconian penalties available under the FCPA, the rise in enforcement actions brought by the DOJ, and the fact that businesses that refused to cooperate with the DOJ were subjected to substantially greater penalties if the DOJ ultimately prevailed. The Court distinguished—but did not displace—its prior holding in Hurlbut v. Gulf Atlantic Life Insurance Co., where the Court concluded statements made to an Assistant Attorney General were only conditionally privileged because they were voluntarily made prior to a formal investigation of the company. Although the line between the absolute and conditional privilege is not always clear, the Court’s opinion provides guidance on the issue and an incentive for companies that are the target of an investigation to cooperate with law enforcement while minimizing the company’s exposure to a defamation suit.