Companies that prepare internal reports at the request of the Department of Justice, discussing the likelihood of criminal violations, should be able to benefit from absolute privilege that shields them from defamation suits brought by people named in the reports.
That is what the law should be; otherwise, companies would not feel free to conduct internal investigations that are necessary if the company wishes to uncover wrongdoing and to approach prosecutors.
And recently, the Texas Supreme Court held that this was the case and that such reports are in fact privileged.
On May 15, 2015, that court, overturning the Texas Court of Appeals, ruled that an internal report prepared by Shell Oil Company in response to an inquiry by the Department of Justice into the possible criminal activity of one of its contractors and then shared with the DOJ is “absolutely privileged” and cannot form the basis of a defamation claim.
The case turned on a report detailing the results of an internal investigation Shell had turned over to the DOJ in response to an inquiry regarding possible violations of the Foreign Corrupt Practices Act (FCPA) by a Shell contractor operating in Nigeria.
In its report, Shell accused the employee, who had been in charge of the contract between Shell and the contractor, of approving bribery payments and participating in the illegal conduct. The former employee alleged that the statements made about him in the report were untrue. He sued in Texas state court for both defamation and wrongful termination.
Shell sought summary judgment on the grounds that the report was subject to absolute privilege. The trial court agreed, but the Texas Court of Appeals reversed, holding that there was no conclusive proof that criminal judicial proceedings against Shell were “ongoing, actually contemplated, or under serious consideration” and that qualified privilege, not absolute privilege, attached to the report.
In upholding the trial court, the Texas Supreme Court noted that there were two classes of privilege that could have attached to the report: absolute privilege or qualified privilege. Absolute privilege applies in “limited situations involving the administrative functions of the branches of government” and serves as a defense in a defamation suit when the alleged defamatory statements are made in the context of communications preliminary to a proposed judicial proceeding or as part of a judicial proceeding, provided that it is related to the proceeding and that the possibility of a judicial proceeding was a serious consideration at the time the communication was made.
Qualified immunity is situation-dependent and may be invoked where there is information that affects a sufficiently important public interest and the communication is made to a public officer or private citizen who is authorized to take action if the defamatory matter is true. Qualified immunity provides less protection and, unlike absolute immunity, may be defeated when “person making the defamatory statement knows the matter to be false or does not act for the purpose of protecting the interest for which the privilege exists.”
In coming to its decision, the court highlighted the key factors it used to determine that the report prepared by Shell was entitled to absolute immunity: at all relevant times Shell was the target of a DOJ investigation; the DOJ had leverage over Shell in terms of potential penalties, thus, practically speaking, Shell was compelled to undertake an internal investigation and report its findings to the DOJ; at the time the DOJ informed Shell of its investigation of the contractor, the number of FCPA enforcement actions, along with large fines, was rapidly rising; and, finally, businesses that did not cooperate with the DOJ and were later successfully prosecuted faced substantially greater punishments than those who did.
In summary, Shell was a target of the inquiry, the information it provided to the DOJ was related to the inquiry, and Shell acted under the real threat that it might be prosecuted.
While this case was considered under Texas tort law, the guiding principles and the factors considered by the court in making its determination that absolute immunity applied to Shell’s internal investigation are useful tools for any client who might find themselves similarly situated in any jurisdiction. The case upholds the importance of internal investigations and was decided correctly.