Fifth Circuit Finds Employer’s Investigative Report Shielded from Defamation Liability

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Attorney Harrison Oldham

Earlier this month, the Fifth Circuit Court of Appeals affirmed the lower court’s summary judgment for the defense, holding, that an employer’s investigative report was shielded from defamation liability.

In the case of Warren v. Fannie Mae, No. 18-11211 (Aug. 2, 2019), Stephanie Warren, challenged  the district  court’s  grant  of  summary judgment  on her defamation  claim against  Fannie  Mae  and its evidentiary decision to exclude a statement of another Fannie Mae employee.

In 2013, Warren was one of four employees fired after an internal investigation concluded that she had violated the company’s  Code  of  Conduct  and  Conflicts  of  Interest  Policy by  working  with  an  outside broker  who  was  not  approved  by  Fannie  Mae and concealing it from her supervisor. After being fired, Warren  sued Fannie  Mae, raising  claims  of  racial discrimination  under  Title  VII  and  Texas  law,  as  well  as  defamation  under  Texas law.  After bouncing around through the judicial process, the case finally ended up at the Fifth Circuit Court of Appeals.

On appeal, the claims of racial discrimination has been dismissed, however, Warren still contended that the investigative report defamed her  by  accusing  her  of  concealing  her  association  with  the  outside  broker.  Comments from the report were then allegedly leaked outside of Fannie Mae to employees at Freddie Mac. Warren argued that the statements were then “widely republished within the  industry.” The court agreed with Fannie Mae that Warren failed to establish a prima facie case as to whether these allegedly defamatory comments were published. Warren did not offer any evidence, other than her own speculation, as to what these other people allegedly said, when and where they allegedly made the statements, and to whom they are alleged to have made the statements.

In addition, the court went on to provide that “even assuming that Warren had made a prima facie case for all the aspects of her defamation claim, summary judgment was proper because she failed to overcome Fannie Mae’s qualified privilege under Texas law.”

Under Texas law, a communication on a subject in which the author or the public has an interest, or with respect to which the author has a duty to perform to another owing a corresponding duty, may constitute a qualified or conditional privilege. This qualified privilege protects employers from defamation liability for communications made while investigating alleged wrongdoings, so long as the communications are made only to persons with a valid interest. However, that privilege can be overcome if a plaintiff shows that the statement was made with actual malice, which means knowledge of its falsity or reckless disregard for the truth.

Accordingly, to overcome Fannie Mae’s qualified privilege, Warren needed to raise a dispute as to whether Fannie Mae’s investigative report was made with actual malice or excessively distributed.

To support this position, Warren argued that the investigative report evidences malice because the investigator “concealed information from her report that would have cleared Warren,” because allegedly the report excluded several handwritten notes and emails excluded from the report.  However, relying on precedent, the court reasoned that “negligence, lack of investigation, or failure to act as a reasonably prudent person are insufficient to show actual malice,” and that “actual malice requires more than a departure from reasonably prudent conduct. Mere negligence is not enough. There must be evidence that the defendant in fact entertained serious doubts as to the truth of his publication.”

However, the court found that none of the omissions that Warren pointed to established that the investigator knew that the report was false or recklessly disregarded the truth. And as to Warren’s argument about excessive distribution of the report, she “offer[ed] no evidence, other than her own speculation, that any person without a valid interest received the report or was made aware of its findings.”  As such, the Fifth Circuit Court of Appeals affirmed the district court’s decision in favor of Fannie Mae.

Take away for employers? It’s always important to conduct thorough and comprehensive, investigations and do you best to make sure the results of the investigation and not shared beyond those with a need to know.


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About Harrison Oldham

Harrison grew up in Mansfield, Texas. He attended Texas A&M University for his bachelor’s degree, where he met his wonderful wife, Kelsey. After graduating magna cum laude from Texas A&M, he attended SMU Dedman School of Law, graduating with honors in 2012. Today, Harrison and his wife live in Dallas, Texas with their son, Teddy.

Since graduating from SMU Law, Harrison has worked exclusively in the field of business law. He has spent time in private practice and in-house, working with clients of every size; from single person startups to Fortune 250 companies. Today his practice focuses on serving the diverse needs of businesses and individuals throughout Texas. You can learn more about Harrison by visiting his website, at: http://lonestarbusinesslaw.com/.

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