SEC V Jackson (Jackson Moton For Summary Judgment)

Case 4:12-cv-00563 Document 144 Filed in TXSD on 03/28/14 Page 1 of 46
UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF TEXAS HOUSTON DIVISION
SECURITIES AND EXCHANGE COMMISSION, Plaintiff, v. MARK A. JACKSON and JAMES J. RUEHLEN, Defendants.
) ) ) ) ) Case No. 4:12-cv-00563 ) ) ) ) ) ) ) )
DEFENDANT MARK A. JACKSONS MOTION FOR SUMMARY JUDGMENT
TABLE OF CONTENTS STATEMENT OF NATURE AND STAGE OF PROCEEDING ................................................. 1 SUMMARY OF THE ARGUMENT ............................................................................................. 1 STATEMENT OF ISSUES TO BE RULED ON AND STANDARD OF REVIEW .................... 2 STATEMENT OF UNDISPUTED MATERIAL FACTS ............................................................. 3 A. Background ............................................................................................................. 3 B. Nobles FCPA Compliance Program: Procedures and Training ............................ 7 C. Nobles FCPA Compliance Program: Worldwide FCPA Audit............................. 9 D. April 2004 West Africa Internal Audit Report ..................................................... 10 E. Facilitating Payments Approved by Mark Jackson .............................................. 15 ARGUMENT ................................................................................................................................ 19 I. MR. JACKSON IS ENTITLED TO SUMMARY JUDGMENT ON THE SECTION 30A BRIBERY CLAIM BECAUSE NO REASONABLE JURY COULD FIND THAT HE ACTED CORRUPTLY (CLAIM 1) ................................................................................. 19 A. Mr. Jackson Believed that Noble Was Entitled to the Permits It Sought ............. 20 B. The Evidence Relied upon by the SEC Does Not Demonstrate that Mr. Jackson Understood that the Permits Were Illegal or Discretionary .................................. 24 1. The Panel of Inquiry ................................................................................. 25 2. Bob Kayls Review of Worldwide Operating Taxes ................................ 27 3. The Paper Process ................................................................................. 27 II. MR. JACKSON IS ENTITLED TO SUMMARY JUDGMENT ON THE BOOKS AND RECORDS AND INTERNAL CONTROLS CLAIMS (CLAIM 4)................................ 31 A. The SEC cannot prove that Mr. Jackson falsified Nobles books and records ..... 32 B. There is no evidence that Mr. Jackson knowingly circumvented a system of internal accounting controls .................................................................................. 34 1. The SECs only alleged evidence of circumvention relates to the wrong set of controls ................................................................................................. 35 2. There was no evidence that Mr. Jackson circumvented Nobles ICFR .... 36 III. MR. JACKSON IS ENTITLED TO SUMMARY JUDGMENT ON THE AIDING AND ABETTING CLAIMS (CLAIMS 2 AND 3) .................................................................... 38 IV. MR. JACKSON IS ENTITLED TO SUMMARY JUDGMENT ON THE MISREPRESENTATION CLAIMS (CLAIMS 5 AND 6) .............................................. 39 V. MR. JACKSON IS ENTITLED TO SUMMARY JUDGMENT ON THE CONTROLLING PERSON CLAIM (CLAIM 7) ............................................................ 40 CONCLUSION ............................................................................................................................. 40
TABLE OF AUTHORITIES Cases Anderson v. Liberty Lobby, Inc., 477 U.S. 24 (1986) ..................................................................... 3 Celotex Corp. v. Catrett, 477 U.S. 31 (1986) ................................................................................. 2 Forsyth v. Barr, 19 F.3d 1527 (5th Cir. 1994) ................................................................................ 3 G.A. Thompson & Co., Inc. v. Partridge, 636 F.2d 945 (5th Cir. 1981) ...................................... 40 Hockman v. Westward Commcns, LLC, 407 F.3d 317 (5th Cir. 2004) ....................................... 24 Krim v. BancTexas Group, Inc., 989 F.2d 1435 (5th Cir. 1993) ............................................ 20, 24 Little v. Liquid Air Corp., 37 F.3d 1069 (5th Cir. 1994) (en banc) ................................................ 3 Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574 (1986)...................................... 3 Reese v. Anderson, 926 F.2d 494 (5th Cir. 1991) ......................................................................... 25 SEC v. Das, 723 F.3d 943 (8th Cir. 2013) .................................................................................... 39 SEC v. Das, No. 8:10-CV-102, 2011 WL 4375787 (D. Neb. Sept. 20, 2011) ............................. 39 SEC v. DiBella, 587 F.3d 553 (2d Cir. 2009) ............................................................................... 38 SEC v. Espuelas, 905 F. Supp. 2d 507 (S.D.N.Y. 2012) .............................................................. 39 SEC v. Johnson, 530 F. Supp. 2d 325 (D.D.C. 2008) ................................................................... 39 SEC v. Jorissen, 470 F. Supp. 2d 764 (E.D. Mich. 2007) ............................................................ 33 SEC v. Todd, 642 F.3d 1207 (9th Cir. 2011) ................................................................................ 39 Southland Sec. Corp. v. INSpire Ins. Solutions, Inc., 365 F.3d 353 (5th Cir. 2004) .................... 40 Topalian v. Ehrman, 954 F.2d 1125 (5th Cir. 1992) ...................................................................... 3 United States ex rel. Farmer v. City of Houston, 523 F.3d 333 (5th Cir. 2008) ........................... 20 Willis v. Roche Biomedical Labs., 61 F.3d 313 (5th Cir. 1995) ......................................... 3, 27, 28 Statutes Exchange Act 13(b)(2), 15 U.S.C. 78m(b)(2) ................................................................. passim Exchange Act 13(b)(5), 15 U.S.C. 78m(b)(5) ...................................................... 31, 32, 33, 34 Exchange Act 20(a), 15 U.S.C. 78t(a) .................................................................................... 40 Exchange Act 20(e), 15 U.S.C. 78t(e) .................................................................................... 38 Exchange Act 30A, 15 U.S.C. 78dd-1 ........................................................................ 20, 38, 40 Other Sources H.R. Rep. No. 100-576 (1988) (Conf. Rep.)................................................................................. 34 Internal ControlIntegrated Framework of the Committee of Sponsoring Organizations of the Treadway Commission (COSO) ............................................................................... 35
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Joint Stipulation and Motion, 3/22/2013 (Dkt. 104) ............................................................... 20, 28 Noble Corp. 2004 10-K, 3/8/2005 .................................................................................... 3, 5, 6, 36 Noble Corp. 2005 10-K, 3/14/2006 .............................................................................................. 36 Noble Corp. 2006 10-K, 2/28/2007 .............................................................................................. 36 Noble Corp. 2007 10-K, 2/29/2008 .............................................................................................. 36 Noble Corp. 8-K, 10/30/2006 ........................................................................................... 4, 6, 7, 19 Noble Corp. 8-K, 9/20/2007 ........................................................................................................... 7 Opinion on Motion to Dismiss, SEC v. Jackson and Ruehlen, Civ. Action No. H-12-0563 (Dkt. 87) ........................................................................................................................... passim S. Rep. No. 95-114 (1977) ............................................................................................................ 34 SEC Release No. 33-8238, 6/5/2003 ............................................................................................ 35 SEC Release No. 34-17500, 1/29/1981 ........................................................................................ 33 Second Amended Complaint (Dkt. 106) ................................................................................ passim Unopposed Motion for Partial Voluntary Dismissal with Prejudice (Dkt. 134)............................. 1 Rules Exchange Act Rule 13a-14, 17 C.F.R. 240.13a-14 .................................................................... 39 Exchange Act Rule 13b2-1, 17 C.F.R. 240.13b2-1 ....................................................... 31, 32, 33 Exchange Act Rule 13b2-2, 17 C.F.R. 240.13b2-2 ................................................................... 39 Fed. R. Civ. P. 56 ........................................................................................................................ 2, 3 Fed. R. Civ. P. 56(c)(1)(B) cmt. (2010) .......................................................................................... 3 Treatises Joseph P. Covington & Iris E. Bennett, Practicing Under the U.S. Anti-Corruption Laws (2013 Supplement) .................................................................................................................. 36
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STATEMENT OF NATURE AND STAGE OF PROCEEDING Plaintiff Securities and Exchange Commission (SEC) filed its initial complaint against Defendants Mark A. Jackson and James J. Ruehlen on February 24, 2012 (Dkt. 1), alleging violations of the Foreign Corrupt Practices Act (FCPA). The Court granted in part and denied in part the Defendants Motions to Dismiss on December 11, 2012. Thereafter, the SEC filed a First (Dkt. 95) and Second Amended Complaint (SAC) (Dkt. 106) (Ex. 25), and Defendants Answered on April 19, 2013. Fact and expert discovery are closed. Trial is scheduled for July 9, 2014. On March 25, 2014, the SEC moved to dismiss, with prejudice, most of its claims against the Defendants related to Nobles internal controls. (Dkt. 134) (Ex. 7). SUMMARY OF THE ARGUMENT This case is entirely about Mr. Jacksons state of mind: Did he act corruptly in violation of the FCPA when he approved certain payments to Nigerian customs officials? In denying the Defendants Motions to Dismiss, the Court held that an act is done corruptly when it is done with an evil motive or wrongful purpose of influencing a foreign official to misuse his position. Ex. 18 (SEC v. Jackson and Ruehlen, Civ. Action No. H-12-0563, Dkt. 87) at 37. It is the SECs burden to prove that Defendants acted corruptly. Id. at 32-33. The SEC failed to come close to carrying that burden. Put simply, discovery revealed only one thing: Undisputed evidence that Mr. Jackson acted with the good faith (id. at 39) belief that Nobles payments facilitated getting temporary import permits and extensions to which Noble was entitled. But as the Court observed regarding permit extensions, to establish corrupt intent the SEC must show that Defendants knew they were not entitled to extensions as a matter of right upon satisfying certain basic threshold requirements. Id. at 40 n.20. Mr. Jackson was repeatedly advised by Noble management that Noble was entitled to
those permits and extensions. He was advised by management and PricewaterhouseCoopers that as long as the rigs had contracts to drill oil for the benefit of the Nigerian government, the rigs could stay in the country to perform those contracts. He was advised and observed that legal and audit experts were reviewing Nobles FCPA compliance and, specifically, compliance in its Nigerian operations. And he was advised that Nobles Nigerian lawyer had counseled that the use of the so-called paper process, where rigs obtained new permits without leaving the country, was legal in Nigeria. The SEC has no evidence to prove Mr. Jacksons state of mind was anything different. Despite many promises in the SECs pleadings, promises proved false by discovery, there was no evidence that Mr. Jackson believed Nigerian officials had discretion to deny Noble these permits and extensions. There was no evidence that he knew the paper process was illegal in Nigeria, so that any payments related to it had to be corrupt. And there was no evidence that he misled anyone not the Audit Committee, not auditors, not anyone about any of Nobles facilitating payments. Instead, what he knew was that Nobles legal counsel and internal auditors did not question the propriety of payments to Nigerian customs officials. No reasonable jury could conclude that Mark Jackson acted with the state of mind requisite for a violation of the FCPA. The SEC has not met its burden and the Court should grant summary judgment on all claims. STATEMENT OF ISSUES TO BE RULED ON AND STANDARD OF REVIEW Mr. Jackson moves for summary judgment on all claims against him. Summary judgment must be granted if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(a). The movant is entitled to summary judgment if the non-movant fails to make a showing sufficient to establish the existence of an element essential to that partys case, and on which that party will bear the burden of proof at trial. Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986);
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see also Fed. R. Civ. P. 56(c)(1)(B) cmt. (2010). [T]he mere existence of some factual dispute will not defeat a motion for summary judgment; Rule 56 requires that the fact dispute be genuine and material. Willis v. Roche Biomedical Labs., 61 F.3d 313, 315 (5th Cir. 1995). First, [o]nly disputes over facts that might affect the outcome of the suit under the governing law are material. Id. (citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986)). Second, a dispute is genuine only if the evidence is such that a reasonable jury could return a verdict for the nonmoving party. Id. Conclusory allegations and unsubstantiated assertions do not satisfy the non-movants summary judgment burden. See Little v. Liquid Air Corp., 37 F.3d 1069, 1075 (5th Cir. 1994) (en banc) (noting that a non-movants burden is not satisfied with some metaphysical doubt as to the material facts) (quoting Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986)); Topalian v. Ehrman, 954 F.2d 1125, 1131 (5th Cir. 1992) (Mere conclusory allegations are not competent summary judgment evidence, and they are therefore insufficient to defeat or support a motion for summary judgment.). The non-movant must identify specific evidence in the record, and to articulate the precise manner in which that evidence support[s] [its] claim[s]. Forsyth v. Barr, 19 F.3d 1527, 1537 (5th Cir. 1994) (internal quotation omitted). STATEMENT OF UNDISPUTED MATERIAL FACTS A. Background
The Noble Corporation was founded in 1921 and evolved over the years into a globally focused offshore oil and gas driller. Ex. 1 (Noble Corp. 2004 10-K, 3/8/2005) at 2. By 2004, when the relevant period for this case began, Noble operated 60 offshore drilling rigs around the world. Id. Seven of those rigs operated in Nigeria, a market that Noble had entered around 1990. Id. at 20; Ex. 2 (Day Tr.) at 68. In Nigeria, as was generally true for Nobles operations around the world, Noble was
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contracted to drill wells by joint ventures comprised of the Nigerian governments national oil company and major private oil companies, or by the major oil companies acting on the Nigerian governments behalf, to extract oil reserves from state-owned waters.1 Ex. 2 (Day Tr.) at 23-26. Oil drilling was at the time, and remains today, extremely important to the Nigerian economy. Oil revenue made up over 20% of Nigerias GDP and 95% of its export revenues. Ex. 6 (Amb. Campbell Rep.) at 8, 31-33; Ex. 9 (Kelley Rep.) at 36; Ex. 10 (Kelley Tr.) at 125-26. Nobles contracts to drill that oil ran for several years (up to five years once extensions were included) and they required Nobles rigs to operate in Nigeria for the duration of the agreement. Ex. 2 (Day Tr.) at 157-58. As in many countries, drillers like Noble with contracts with Nigeriancontrolled entities could import their rigs into Nigeria either permanently or under a temporary import permit. Ex. 5 (Jackson Tr.) at 112-13. Those permits are what this case is about. Mark Jackson joined Noble in 2000, by which time Noble had already established a strong leadership corps both at its headquarters in Sugar Land, Texas, and in Nigeria. Noble was led by its long-time CEO, Jim Day, a recognized leader in the drilling industry who had been at Noble since 1977. Ex. 2 (Day Tr.) at 15-18; Ex. 65 (Noble Corp. 8-K, 10/30/2006) at 2. Mr. Day was known as a hands-on CEO with extensive, detailed knowledge of global operations and high expectations for his team. See, e.g., Ex. 4 (Robertson Tr.) at 60, 198, 224-26; Ex. 16 (Campbell Tr.) at 41-42; Ex. 24 (ORourke Tr.) at 48, 72-73; Ex. 68 (Lowther Tr.) at 34, 38. Nobles President, Bob Campbell, was a lawyer who had been at the company since 1999, after serving as the companys outside general counsel for many years; Mr. Campbell later became Nobles first inside General Counsel, in 2003. Ex. 14 (6/5/2003 Letter, Day to Campbell). Noble also had a cadre of experienced operations executives, including Bill Rose, who had run Nobles West Africa Division (which included Nigeria) for many years before becoming Nobles
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For ease of reference, these will all be referred to as joint ventures. 4
Vice President for Eastern Hemisphere operations. Ex. 12 (Rose Tr.) at 12, 15-16, 139; Ex. 5 (Jackson Tr.) at 336. Nobles head of Internal Audit, Tom ORourke, had been at the company since 1989, and served as its Controller for a short period of time in 2005-06 as well. Ex. 15 (ORourke Background Questionnaire). Noble also had a strong Board of Directors and an Audit Committee of independent directors with substantial experience in the oil industry. Ex. 2 (Day Tr.) at 119-20; Ex. 4 (Robertson Tr.) at 24-25. In order to efficiently and effectively run such a sprawling, worldwide operation (including 5,300 employees at the end of 2004, 80% international), Noble put in place a strong set of internal controls and corporate governance procedures.2 Local management of each geographic Division, including the West Africa Division, reported to central management in Sugar Land. Ex. 17 (Kayl Tr.) at 164; Ex. 4 (Robertson Tr.) at 172-73. Every employee was bound by Nobles extensive Administrative Policy Manual (APM) to comply with applicable laws, regulations, and internal procedures. Ex. 67 (APM) at 2.1, 2.3, 2.4. Noble implemented various processes to ensure that key information flowed up from the Divisions to central management, including periodic certifications of compliance (such as with the FCPA and the APM), frequent operations and controller calls, and wide-ranging Disclosure Committee meetings prior to issuance of Nobles financial statements. Ex. 26 (Thomasson Tr.) at 33-34, 3839, 41-42, 330; Ex. 11 (Mitchell Tr.) at 40-42, 49-52; Ex. 68 (Lowther Tr.) at 33-34, 69-72. Senior management testified that they relied on these processes, including the certifications of lower level personnel, to raise necessary compliance information to their attention. Ex. 2 (Day Tr.) at 42-43; Ex. 26 (Thomasson Tr.) at 34, 331; Ex. 11 (Mitchell Tr.) at 52; Ex. 5 (Jackson Tr.) at 284-85.
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See, e.g., Ex. 1 at 7; Ex. 2 (Day Tr.) at 27-29, 39-40; Ex. 4 (Robertson Tr.) at 82-86; Ex. 68 (Lowther Tr.) at 44, 54-55; Ex. 102 (Welsh Tr.) at 58-59, 72; Ex. 72 (Shappard Tr.) at 66; Ex. 11 (Mitchell Tr.) at 38-39; Ex. 48 (Goolsby Tr.) at 128-31. 5
Nobles Internal Audit department was headed by Mr. ORourke for most of 2003-07, and supplemented by experienced auditors from an outside firm, Mann Frankfort Stein & Lipp (later known as UHY International). Ex. 24 (ORourke Tr.) at 21-22, 27-28; Ex. 26 (Thomasson Tr.) at 48-49. The Internal Audit department conducted regular audits in all geographic Divisions, with reports to the Audit Committee regarding concerns identified and recommended enhancements to internal controls. Ex. 24 (ORourke Tr.) at 28-30. The Internal Audit group was consistently judged to be strong by Nobles external auditor, PricewaterhouseCoopers (PWC). Ex. 2 (Day Tr.) at 55-56; Ex. 102 (Welsh Tr.) at 91; Ex. 72 (Shappard Tr.) at 55-56. PWC conducted its own extensive yearly audits of Noble which, after 2003, included even more extensive auditing of Nobles internal controls pursuant to the Sarbanes-Oxley Act. Ex. 72 (Shappard Tr.) at 19, 29-30. Each year under Sarbanes-Oxley, PWC opined publicly that Nobles internal controls over financial reporting were effective, with no material weaknesses.3 Mr. Jackson was hired by Mr. Day in 2000 to be Nobles Chief Financial Officer (CFO). Ex. 2 (Day Tr.) at 30; Ex. 65 at 2. Before joining Noble, Mr. Jackson had graduated from Oklahoma Christian University with an accounting degree, and briefly joined a large public accounting firm before entering the energy industry in 1980. Ex. 5 (Jackson Tr.) at 40, 43. He worked his way up the corporate ladder over the years to become the CFO of two large oil companies, Santa Fe Snyder and Apache, both exploration and production companies. Id. at 44, 51. Mr. Day testified that the CEOs of both companies, whom he knew personally, recommended Mr. Jackson without qualification. Ex. 2 (Day Tr.) at 30-31. When Mr. Jackson joined Noble he took on extensive responsibilities supervising Nobles accounting, tax, treasury, budgeting, investor relations, and other departments. Ex. 2
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Ex. 1 at 37-38; Ex. 69 (Noble Corp. 2005 10-K, 3/14/2006) at 40-41; Ex. 70 (Noble Corp. 2006 10-K, 2/28/2007) at 38-39; Ex. 71 (Noble Corp. 2007 10-K, 2/29/2008) at 41; see also Ex. 56 (Harfenist Tr.) at 227; Ex. 47 (Goolsby Rep.) at 5, 42. 6
(Day Tr.) at 32-33; Ex. 4 (Robertson Tr.) at 29-32. He performed at a high level and was rewarded with more responsibilities over time, including running drilling operations in the Western Hemisphere (the Americas). Ex. 5 (Jackson Tr.) at 70-71. Mr. Jackson became Nobles COO in March 2005, and President in February 2006. Ex. 65 at 2. Following Mr. Days retirement in 2006, the Board promoted Mr. Jackson to be Nobles CEO. Id.; Ex. 2 (Day Tr.) at 37-38.4 Noble witnesses consistently testified that Mr. Jackson possessed high ethical standards.5 Indeed, a CFO who succeeded Mr. Jackson came to Noble specifically because he had previously worked with Mr. Jackson and respected him. Ex. 11 (Mitchell Tr.) at 19. B. Nobles FCPA Compliance Program: Procedures and Training
As Nobles CFO, in addition to his many other duties, Mr. Jackson was assigned FCPA responsibilities by Nobles FCPA compliance program. Ex. 5 (Jackson Tr.) at 57-58. Numerous Noble witnesses testified about steps taken by Mr. Jackson to enhance Nobles FCPA compliance policies, including through the frequent use of outside experts.6 Mr. Jackson was sensitive to the need for Noble to ensure its program comported with best industry practices. Ex. 5 (Jackson Tr.) at 130. To this end, in 2002 Mr. Jackson and the head of Internal Audit determined that the companys written FCPA policies and procedures should be reviewed and upgraded if necessary. Id. at 66, 125-26, 128. They hired FCPA experts at the law firm of Thompson & Knight to conduct that review.7 Id. In October 2002, Thompson
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Mr. Jackson left Noble in September 2007. Ex. 66 (Noble Corp. 8-K, 9/20/2007) at 1.
E.g., Ex. 2 (Day Tr.) at 37-38; Ex. 4 (Robertson Tr.) at 34-35; Ex. 17 (Kayl Tr.) at 26-27; Ex. 26 (Thomasson Tr.) at 25-27; Ex. 24 (ORourke Tr.) at 220-21; Ex. 11 (Mitchell Tr.) 22-23; Ex. 68 (Lowther Tr.) at 19-20.
Ex. 5 (Jackson Tr.) at 206-09; Ex. 4 (Robertson Tr.) at 115-20; Ex. 26 (Thomasson Tr.) at 71-74, 94-95; Ex. 2 (Day Tr.) at 66-67. 7 Mr. Campbell, a partner at Thompson & Knight before joining Noble, assisted with selecting the appropriate partner from the firm for the FCPA review. Ex. 5 (Jackson Tr.) at 127; Ex. 16 (Campbell Tr.) at 78. Mr. Campbell himself had provided FCPA training to Noble executives while he was still outside general counsel, so he knew the statute and how Noble should comply. Ex. 16 (Campbell Tr.) at 32-34. 7
& Knight reported back to Mr. Jackson that Noble had an excellent program of [FCPA] policies and procedures in place, and recommended several enhancements, which were readily accepted by Mr. Jackson and Noble. Ex. 43 (10/16/2002 Letter, Thompson & Knight to Jackson and Edmonds) at *5608. Following this review, the CFO was formally given the responsibility for approving all facilitating payments. Ex. 5 (Jackson Tr.) at 66. A new account known at Noble as the 799999 or facilitating payment account was also established in Nobles books and records to hold all facilitating payments to foreign officials. Ex. 50 (1/15/2004 FCPA Audit Report) at *2297. This allowed easy identification of payments to government officials for additional scrutiny under the FCPA, including by inside and outside auditors.8 Ex. 64 (8/26/2003 Email, Ong to Accounting Personnel). Thompson & Knight also presented an in-depth FCPA training program to Noble management in November 2002. Ex. 5 (Jackson Tr.) at 125-26. That training and the associated materials counseled Noble management that facilitating payments were appropriate and legal when paid to expedite or secure the performance of a routine governmental action in one of several categories, including obtaining permits, licenses or other official documents to qualify a person to do business in a foreign country . . . . Ex. 60 (11/15/2002 Thompson & Knight FCPA Training with Speaker Notes) at *6211-12. Thompson & Knight further explained that a routine governmental action is something that is ordinarily and commonly performed by the official. The official is just holding you up for something he is required to do anyway. Id. at *6212. The materials also included a hypothetical apparently based on actual Noble experience, in which an agent sought to make a $10,000 facilitating payment to overcome a problem with
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In 2003, Mr. Jackson directed Nobles Controller to go a step further, requiring the recording of even more details regarding payments to government officials to ensure clear auditability. Ex. 64. Recording of facilitating payments into Nobles general ledger was done by accountants on the ground in Nigeria, including the West Africa Division Controller. Ex. 61 (Middleton Tr.) at 145-47; Ex. 11 (Mitchell Tr.) at 30-31. 8
customs relating to importing or exporting a rig. Id. at *6213. Noting that $10,000 is significant and will raise issues whether the action was a routine governmental action, the FCPA training materials advised Noble that [a]rguably, the [facilitating payments] exception applies. Id. It is undisputed that nobody ever told Mr. Jackson that there was a cap on the dollar amount of facilitating payments. Ex. 5 (Jackson Tr.) at 141-42; see also e.g., Ex. 26 (Thomasson Tr.) at 86. Thompson & Knights training was then circulated throughout various parts of Noble over the next several years. See, e.g., Ex. 62 (11/22/2002 Email, Thomasson to Ong et al); Ex. 63 (4/18/2004 Email, Yester to Ops Personnel). C. Nobles FCPA Compliance Program: Worldwide FCPA Audit
Nobles Internal Audit department and the Audit Committee were critical to the companys system of internal controls. E.g., Ex. 47 (Goolsby Rep.) at 5, 9, 17-18, 28-30. Each year Internal Audit proposed a list to the Audit Committee identifying which Divisions and functional units to audit the next year. Ex. 24 (ORourke Tr.) at 29-30. PWC was also involved in planning internal audits. Ex. 49 (1/15/2004 Email, Welsh to Shappard). Both a worldwide FCPA audit and an audit of the West Africa Division were conducted in 2003 and early 2004. Undisputed evidence, discussed below, shows that Mr. Jacksons understanding of the audits informed his state of mind in approving the payments now alleged to violate the FCPA. The comprehensive worldwide FCPA internal audit was intended to assess the effectiveness of Nobles FCPA education and communication, determine the adequacy of internal controls and identify opportunities for improvements over: FCPA policies and procedures; awareness of FCPA requirements throughout the organization; and identification and tracking of facilitating payments. Ex. 50 at *2298. Mr. Jacksons reaction to the worldwide audit showed his attention to FCPA compliance. After receiving a draft of the audit report, Mr. Jackson identified a significant omission and told
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Mr. ORourke that he was skeptical of the draft reports statement that Noble had not made any facilitating payments in 2003 in Nigeria. Ex. 51 (1/13/2004 Email, Thomasson to ORourke); Ex. 5 (Jackson Tr.) at 175-77. Mr. Jackson asked Internal Audit to reconsider its findings and, as a result of additional auditing, the final report indeed found that the division did not completely understand the definition of facilitating payments and, therefore, had not followed procedures related to the recording of such payments. Ex. 50 at *2298. This report, dated January 15, 2004, was distributed to the CEO, other senior executives, PWC, and the Audit Committee. Id.; Ex. 52 (1/29/2004 Agenda, Audit Committee). Nobles management and Internal Audit then followed up by reviewing the Nigeria divisions records and reclassifying nearly $670,000 of payments from other expense accounts into the facilitating payments account for further review. Ex. 53 (4/16/2004 Memo, Campbell to Parker); Ex. 5 (Jackson Tr.) at 183-85; Ex. 24 (ORourke Tr.) at 64-65, 167. Management also enhanced the FCPA materials given to employees, and Thompson & Knights FCPA experts were again engaged, this time to create a dedicated FCPA compliance section within Nobles APM. Ex. 54 (1/23/2004 Memo, Campbell to Parker). Mr. Jackson then recommended even further enhancements to the resulting FCPA policy, to broaden the definition of government official to include employees of state-owned enterprises. Ex. 55 (2/11/2004 Memo, Campbell to Madden et al). Mr. Jackson was reassured of Nobles FCPA compliance by the consistent involvement of inside and outside attorneys. Ex. 5 (Jackson Tr.) at 183-85, 198-99, 323-34. D. April 2004 West Africa Internal Audit Report
The West Africa Division internal audit, conducted in early 2004, sharpened the focus of Nobles management and lawyers on FCPA compliance in Nigeria. An Internal Audit team, which included Mr. ORourke, Mr. Ruehlen, and UHY personnel, visited Nigeria to conduct a full audit of the Division, including its accounting records and internal controls. Ex. 24
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(ORourke Tr.) at 88-90; Ex. 40 (4/12/2004 West Africa Division Audit Report). As part of their work, Internal Audit reviewed the nearly $670,000 that had been reclassified into Nigerias facilitating payments account. Ex. 89 (5/10/2004 Memo, Campbell to Parker). These transactions included a series of payments totaling approximately $18,000 to a Nigerian labor official, Mrs. Olerewaju, which raised immediate FCPA concerns. Ex. 24 (ORourke Tr.) at 115-16; Ex. 44 (5/27/2004 Report, Thompson & Knight) at *5224-25. Mr. ORourke alerted Mr. Campbell to the payments, and Mr. Campbell quickly engaged Thompson & Knight to conduct an investigation to determine whether the FCPA had been violated. Ex. 90 (3/31/2004 Memo, Campbell to file); Ex. 24 (ORourke Tr.) at 116, 133-34; Ex. 16 (Campbell Tr.) at 114-17. Internal Audit issued its final audit report (the West Africa Internal Audit Report) on April 12, 2004 and provided it to all members of senior management, PWC, and the Audit Committee. Ex. 40; Ex. 33 (4/20-22/2004 Robertson Board Materials) at *4675; Ex. 24 (ORourke Tr.) at 153-54. Per normal audit protocol, drafts or portions of that report had been reviewed or edited by Mr. ORourke, Mr. Ruehlen, UHY, and executives such as Tim Thomasson (the Controller), and Mr. Rose, prior to reaching Mr. Jackson. Ex. 91 (3/23/2004 Email, ORourke to Rose et al); Ex. 92 (3/29/2004 Email, ORourke to Kayl); Ex. 24 (ORourke Tr.) at 107-08, 113-15, 219-21, 254-55. The report reached 16 findings on a variety of topics. Ex. 40. Two of the findings involved a potential risk of FCPA violations (Finding 5 regarding Mrs. Olerewaju, and Finding 8 regarding a failure to document certain sales agents commitment to FCPA compliance). Id. at *4718, 4720. Management agreed to remediate the findings. For the FCPA issues, Mr. Campbell as General Counsel, and Mr. Rose as the Vice President supervising the West Africa Division, agreed to terminate payments to Mrs. Olerewaju, obtain agent certifications of FCPA compliance, and ensure CFO approval for all payments to
11
government officials. Id. Mr. Rose also provided additional FCPA training on-site in Nigeria. Ex. 93 (5/18/2004 Memo, Adkins to Rose) at *9100. Among the other findings was one involving the importation of Nobles rigs into Nigeria. In Finding 9, the report read: Nobles rigs are temporarily imported into Nigerian waters based on the existence of a contract. The Temporary Import Permit is valid for twelve months, after which requests for extension may be granted. Per the terms of the permit, after a 24 month period has been completed, the rig is required to leave Nigerian waters within 90 days; however, information obtained from PricewaterhouseCoopers Lagos, Nigeria office disclosed that additional renewals of the temporary import license may be obtained as long as the Company can justify continued use of the rig in Nigeria. During our review of the documentation associated with the temporary import process for [one of Nobles rigs], we determined that instead of applying for an additional extension, documents were filed with the Nigerian Customs Service which represented that the rig was physically removed from and subsequently returned to Nigerian waters, when in actuality, the rig never left Nigeria and continued to operate. Per the [APM], Section 7.5.1, it is the policy of the Company to comply with all laws governing the conduct of its world wide operations.9 Ex. 40 at *4721. This is what the SEC has come to call, in this litigation, the paper process. The risk identified by Internal Audit in this instance was potential fines and penalties, as opposed to the potential FCPA risks noted for other findings (id.); multiple witnesses testified that the issue presented involved only compliance with Nigerian law, not the FCPA. Ex. 24 (ORourke Tr.) at 133; Ex. 5 (Jackson Tr.) at 304-05; Ex. 4 (Robertson Tr.) at 138. As noted, the finding posed the question of whether the practice complied with Nigerian law, but did not contain a conclusion that it did violate Nigerian law. Ex. 40 at *4721; Ex. 24
The information obtained from PricewaterhouseCoopers-Nigeria was obtained by the Manager of Tax, Bob Kayl, who was separately investigating methods to reduce Nobles operating taxes (such as import duties). Ex. 17 (Kayl Tr.) at 44-45, 52, 133-35. While Mr. Kayl wrote a draft summary of his findings from that inquiry, addressed to both Mr. Jackson and Mr. Thomasson, there is no evidence that that memorandum was ever finalized or sent to Mr. Jackson in any form, and Mr. Jackson testified that he never saw any such memorandum. Ex. 17 (Kayl Tr.) at 94-101, 218; Ex. 5 (Jackson Tr.) at 231-33. 12
(ORourke Tr.) at 159. Internal Audit recommended follow-up, including that Mr. Rose and Bob Kayl, the Manager for Corporate Tax, should obtain a detailed understanding of the risks and liabilities associated with the temporary import process, and Mr. Rose committed to ensuring the divisions compliance with all applicable rules and regulations related to importing and exporting assets. Ex. 40 at *4721. Throughout, in accordance with audit requirements, PWC was kept aware of Internal Audits findings and concurred with the remediation steps that arose out of the West Africa Audit Report. Ex. 94 (7/22/2004 PWC Workpaper). Thompson & Knights investigation of the Mrs. Olerewaju finding continued throughout this time period. The firm conducted an extensive investigation of the FCPA issues raised by the finding, including analysis of substantial documentation and employee interviews. Ex. 44 at *5221-22, 5238. During Thompson & Knights investigation, management and Internal Audit continued to review the reclassified facilitating payments. Ex. 95 (4/16/2004 Email, Thomasson to Campbell et al); Ex. 89; Ex. 24 (ORourke Tr.) at 79-80. A 7-page spreadsheet detailing those payments was provided to Mr. Campbell, who in turn provided it to Thompson & Knight. Ex. 53. This accounting recorded over $200,000 of payments to Nigerian customs officials through the Divisions customs broker, IC Network, in connection with Nobles applications for temporary importation permits and TIP extensions for its rigs.10 Id.; Ex. 89. Mr. ORourke also told Thompson & Knight about these amounts in an interview conducted as part of its investigation, and he further discussed the account with them in telephone calls. Ex. 96 (4/28/2004 Email, Campbell to ORourke); Ex. 24 (ORourke Tr.) at 136-38, 237, 141-42. Thompson & Knights final report on its FCPA investigation was submitted to the Audit Committee on May 27, 2004, after discussion with, and editing by, the General Counsel. Ex. 44;
10
The accounting entries included: NPA [Nigerian Port Authority] charges/customs for all rigs, re-exportation and importation of rigs, process T.I. [Temporary Import] exten[sion] for rigs, NPA payments for ship dues inward, and pmts made for process T. I. Permit for rigs. Ex. 53 at *5431. 13
Ex. 97 (5/27/2004 Note, Parker to Campbell with draft). Mr. Jackson received that report as well. Ex. 5 (Jackson Tr.) at 191-92, 198-99. The lengthy report, which incorporated and endorsed extensive remediation measures proposed by management, contained a number of conclusions including that: good arguments exist that the Payments [to Mrs. Olerewaju of approximately $18,000] constitute facilitating payments [t]he FCPA does not contain a monetary cap on the amount of the facilitating payments; $229,654.16 [was] paid to IC Network Limited, a customs consultant and import/export firm used by The Division . . . for which backup documentation (from a confirming third party) . . . has not yet been obtained; and on a prospective basis, payment by the Division of IC Networks invoices will be conditioned upon adequate . . . identification of the amount of any third party fee being paid on the Divisions behalf (such as customs/port authority fees) . . . and identification of the amount, if any, of a facilitating payment.
Ex. 44 at *5246, 5249, 5251-52. Thompson & Knights report did not raise any concerns that the $200,000 in facilitating payments by IC Network in connection with temporary import permits were illegal bribes.11 To the contrary, the report concluded that the substantial payments to Mrs. Olerewaju do not appear to be part of a larger scheme to corruptly influence government officials. Ex. 44 at *5231.12 At the next Audit Committee meeting on July 22, 2004, there were presentations by both
11
Mr. Campbell and Thompson & Knight, with the involvement of Mr. Rose, then drafted a contract to govern Nobles relationship with IC Network. Ex. 98 (5/20/2004 Email, Rose to Campbell); Ex. 45 (7/19/2004 Email, Campbell to Rose et al); Ex. 16 (Campbell Tr.) at 160-61. Initial drafts required IC Network to provide supporting documentation for all payments made on Nobles behalf, however IC Network indicated that it could not always supply such documentation when it made facilitating payments to government officials. Ex.16 (Campbell Tr.) at 164-65. As a result, the lawyers revised the contract so that IC Network could make facilitating payments without supporting documentation, and required IC Network to refer to facilitating payments on its invoices as special handling fees. Ex. 45. Mr. Campbell testified that he came up with that term as an alternative to facilitating payments because he did not want to use legal terminology. Ex. 16 (Campbell Tr.) at 167-68. Mr. Jackson was not involved. 12 At this same time, Internal Audit investigated a complaint from a Nigerian activist group that IC Network was paying kickbacks to a Noble manager. Internal Audit reviewed all of IC Networks invoices from January 2003 to February 2004, and reported to Mr. Jackson and other senior executives that the allegations had no merit. Ex. 99 (5/14/2004 Memo, ORourke to Day et al). There was no suggestion that any payments by Noble to IC Network were used to pay bribes. 14
Thompson & Knight and Internal Audit regarding Nigeria. Mr. Jackson attended that meeting, as did Messrs. ORourke, Campbell,13 and PricewaterhouseCoopers partners. Ex. 36 (7/22/2004 Audit Committee minutes). Regarding the paper process finding in Nigeria, Internal Audit notified the Audit Committee and Mr. Jackson that the issue was fully resolved and that Noble, specifically Mr. Thomasson and Mr. Kayl, had determined that the units currently located in Nigeria meet the criteria necessary for an extension of each Temporary Import Permit. Ex. 34 (7/22/2004 Internal Audit Update) at *5807. When new permits rather than extensions were required in the future, the stated management plan was to physically export the rigs to a free trade zone, rather than use the paper process. Id. There is no evidence that Mr. Jackson had any role in investigating or resolving the paper process finding in the Audit Report. See, e.g., Ex. 100 (5/17/2004 Email, Rose to Thomasson) (drafting managements follow-up plan). E. Facilitating Payments Approved by Mark Jackson
While the SEC attempts to make this case entirely about the paper process, Mr. Jackson in fact approved facilitating payments related to only one use of the paper process, for three rigs. Ex. 38 (5/17/2005 Email, Ruehlen to O'Rourke, cc Jackson); Ex. 87 (9/16/2005 Email, Jackson to Ruehlen, cc O'Rourke). All other payments he approved relating to TIPs were for applications for temporary import extensions, which by definition do not involve the paper process. See Ex. 73 (8/31/2004 5/16/2006 Emails); Ex. 41 (11/10/2004 Email, Thomasson to Rose et al). In September 2004, Mr. Ruehlen became the Division Manager in Nigeria. Ex. 59 (Ruehlen Tr.) at 20. Mr. Ruehlen had substantial experience at Noble in operations, having worked his way up over ten years through operations into management. Ex. 86 (Noble Corp.
13
This was not the first time Mr. Campbell was involved in discussions about a paper process. In 2002, during Nobles acquisition of two rig hulls in China, a potential paper export and import was discussed among Noble (including Mr. Campbell), PWC, and outside counsel at Baker Botts. Ex. 39 (3/15/2002 Email, Campbell to Thomasson et al). 15
Personnel History Record). Mr. Rose, now Mr. Ruehlens superior, had been Nigerias manager for several years and was by this time head of all Nobles operations in the Eastern Hemisphere. Ex. 12 (Rose Tr.) at 12, 15-16. Mr. Jackson testified that having seasoned managers over Nigerian operations was critical to his approvals of facilitating payments. Ex. 5 (Jackson Tr.) at 248-49, 278-80, 335-37. As Mr. Jackson was not involved in operations issues in Nigeria, the rig permitting process occurred outside of his view. IC Network, a licensed customs broker, acted as Nobles agent by preparing the necessary paperwork and delivering it to the Nigerian Customs Service. Ex. 59 (Ruehlen Tr.) at 61, 143-44. The application prepared by the broker included Nobles drilling contract with the government-controlled joint venture, a bank bond, and other documents. See, e.g., Ex. 84 (11/12/2004 ICN Permit Application for NEN). There is no evidence that Mr. Jackson ever saw any of the documentation that went to Customs, including any of the applications. Also as part of this process, for every dealing with Customs every extension and new permit, whether a paper process or not14 a facilitating payment was made by the broker to Customs to speed up their work. See generally Ex. 38, 41, 73, 87. From August 2004 until January 2005, Mr. Jackson received approximately six email requests to approve facilitating payments related to extensions to existing temporary import permits. See Ex. 73, 41. Barely a month before he received the first request to approve a facilitating payment related to a TIP extension, Internal Audit had advised that all of Nobles rigs in Nigeria met the criteria for extensions of their temporary import permits. Ex. 34 at *5807. Like several other Noble executives who testified in discovery, based on information he received
14
In late 2005, for example, the Noble Don Walker rig physically left Nigeria to drill a well elsewhere, then came back and obtained a new, non-paper process temporary import permit; obtaining that permit, as well, required a facilitating payment. Ex. 46 (12/12/2005 Email, ORourke to Busmire et al); Ex. 3 (Arthur Tr.) at 101. 16
from others including Internal Audit, Mr. Jacksons understanding of the process was that Noble was entitled to a permit (whether an extension or a new TIP) so long as the rig was under contract with a Nigerian government joint venture and therefore producing revenue for the Nigerian government. Ex. 5 (Jackson Tr.) at 234.15 Indeed, Mr. Rose, who had worked for years in Nigerian operations, advised Mr. Jackson that other drillers kept their rigs in Nigeria for many years while under contract without any issue from the Nigerian government. Ex. 5 (Jackson Tr.) at 236-37, 335, 348. Each request for facilitating payment approval related to temporary import permits or extensions was presented to Mr. Jackson by at least two members of Noble management. See Ex. 38, 41, 73, 87. One request, for instance, was sent to Mr. Jackson by the Nigeria Operations manager and Nobles Corporate Controller, with the Controller advising that the rig is eligible, and the law allows for, the extension of this temporary import. Ex. 41. Although requests related to facilitating payments were infrequent and only a small part of his daily responsibilities as CFO, he testified that he approached such requests conscientiously, asking questions and getting answers. Ex. 5 (Jackson Tr.) at 299-305, 309. The only requests to Mr. Jackson for approval of facilitating payments related to new temporary import permits as opposed to extensions came from Mr. Ruehlen in Nigeria, first on May 16, 2005. Ex. 38. Mr. Ruehlen explained to Mr. Jackson and Mr. ORourke that three months earlier, his superior, Mr. Rose, had approved obtaining new permits for three rigs using the paper process, as well as making facilitating payments related to those permits. Id. By the time of Mr. Ruehlens email to Mr. Jackson on May 16, IC Network had already made the facilitating payments and obtained the new permits. Id. Mr. Jackson responded to Mr.
See also Ex. 24 (ORourke Tr.) at 124-25, 240-41; Ex. 17 (Kayl Tr.) at 126-27, 135; Ex. 2 (Day Tr.) at 221-22; Ex. 26 (Thomasson Tr.) at 150-54, 159, 162-63; Ex. 59 (Ruehlen Tr.) at 133-34, 196-7; Ex. 23 (Busmire Tr.) at 180; Ex. 12 (Rose Tr.) at 248-51. 17
15
Ruehlens request with a question about the impact of the past audit finding regarding one of the same rigs. Id. Mr. ORourke and Mr. Ruehlen provided Mr. Jackson with additional information about the audit finding and operation managements decision to use the paper process, including that it would not be feasible to take the rig off contract to [wait] for this amount of time . . . . I have discussed this with the other Drilling Contractors working in Nigeria and [the paper process] is the same process they are using in order to keep their rigs on contract. Id. at *8145. It is undisputed that Mr. Jackson inquired even further of Mr. ORourke and Mr. Ruehlen before approving the requested facilitating payments on May 25, 2005.16 Ex. 88 (5/25/2005 Email, ORourke to Ruehlen). In at least one of those follow-up conversations with Mr. ORourke or Mr. Ruehlen, Mr. Jackson asked whether legal advice had been obtained regarding the legality of the paper process, and he was assured that Mr. Ruehlen had spoken with Nobles Nigerian lawyer, Jo Onodugo. Ex. 5 (Jackson Tr.) at 305-07; Ex. 24 (ORourke Tr.) at 262, 350, 381. Ms. Onodugo had been Nobles counsel for over a decade and was well-respected in Nigeria and among Nobles corporate management. See, e.g., Ex. 2 (Day Tr.) at 68-70; Ex. 24 (ORourke Tr.) at 170-72; Ex. 5 (Jackson Tr.) at 349-51. Mr. Jackson was told that Ms. Onodugo had advised Mr. Ruehlen that the paper process was accepted by the Nigerian Customs Service and was lawful.17 Ex. 5 (Jackson Tr.) at 305-07; Ex. 24 (ORourke Tr.) at 262, 350, 381; see also Ex. 4 (Robertson Tr.) at 272-73. Mr. ORourke later corroborated the receipt of this
16
In September 2005, IC Network requested approval to make additional facilitating payments related to finalizing the same three rigs new permits. A request for approval was made by Mr. Ruehlen to Mr. Jackson, copying Mr. ORourke, and Mr. Jackson gave his approval. Ex. 87.
17
In Part I.B.1 below we address the SECs allegations that Mr. Jackson somehow already knew that the paper process was illegal based on February 2003 information about a Nigerian Panel of Inquiry, however the key fact is not in dispute: Mr. Jacksons unrebutted testimony was that he believed, based on conversations with Mr. Thomasson, that any penalty Noble paid to that Panel was due to a past failure to pay sales tax. Ex. 5 (Jackson Tr.) at 149-51. 18
legal advice in an April 2007 email, prior to Nobles Internal Investigation, which began in May 2007. Ex. 32 (5/2/2007 Email, O'Rourke to Middleton, Ruehlen). Later in 2005 and for a short period of time in 2006, Mr. Jackson received and approved several additional requests to make facilitating payments related to TIP extensions again, not involving use of the paper process. See Ex. 73. In 2005 Mr. Jackson was promoted and succeeded as CFO by Bruce Busmire. Ex. 65 at 2; Ex. 80 (Busmire Background Questionnaire) at 2. Mr. Busmire also approved several requests for facilitating payments related to temporary import permits or extensions. Ex. 23 (Busmire Tr.) at 136-37, 153, 156-58; see also e.g., Ex. 83 (1/18/2006 Email, Busmire to Ruehlen et al). Mr. Busmire testified that he consulted both with Mr. Campbell who told him that the facilitating payments had previously been reviewed by himself and outside counsel and determined to be in compliance with the FCPA and with Mr. ORourke, who assured him that payments were being appropriately accounted for. Ex. 23 (Busmire Tr.) at 97-101, 103-06. In late 2006, Noble hired another CFO, Thomas Mitchell, who discussed the facilitating payment approval process with Mr. Jackson, before himself approving several facilitating payments relating to temporary import permits or extensions after discussions with Mr. ORourke, and with the knowledge of Mr. Campbell. Ex. 11 (Mitchell Tr.) at 98-101, 103-05, 105-30, 172, 178. ARGUMENT I. MR. JACKSON IS ENTITLED TO SUMMARY JUDGMENT ON THE SECTION 30A BRIBERY CLAIM BECAUSE NO REASONABLE JURY COULD FIND THAT HE ACTED CORRUPTLY (CLAIM 1) As the Court has explained, the SEC bears the burden of proving that Mr. Jackson approved payments to government officials corruptly that is, with an evil motive or wrongful purpose of influencing a foreign official to misuse his position. Ex. 18 at 37. Because the SEC cannot prove that essential element of an anti-bribery offense under Section 30A of the Exchange
19
Act, 15 U.S.C. 78dd-1, summary judgment must be granted to Mr. Jackson. United States ex rel. Farmer v. City of Houston, 523 F.3d 333, 337 (5th Cir. 2008). The Court has also recognized that if the evidence shows that Mr. Jackson believed that Noble was entitled to their permits and extensions, then the SEC will have failed to prove that he acted with the evil motive or wrongful purpose of influencing an official to misuse his official position. Ex. 18 at 40 n.20; see also id. at 39. Here, the undisputed evidence shows that Mr. Jackson (and many others) indeed believed that Noble was entitled to the temporary import permits and extensions it sought. Therefore, when Mr. Jackson approved payments to government officials responsible for processing the permits, he could not have had a wrongful purpose of influencing the recipients to misuse their positions; instead, the evidence shows that his purpose was to expedite the proper performance of their duties. Accordingly, no reasonable jury could conclude that Mr. Jackson acted with the requisite mental state, and summary judgment must be granted on Claim 1. See Krim v. BancTexas Group, Inc., 989 F.2d 1435, 1449-50 (5th Cir. 1993) (granting summary judgment where there is no affirmative evidence . . . direct or circumstantial, which would allow for the reasonable inference that the moving party acted with a contrary intent or state of mind) (quotation omitted) (alteration in original). A. Mr. Jackson Believed that Noble Was Entitled to the Permits It Sought
In order to prove that Mr. Jackson acted with the intent to influence Nigerian officials to misuse their official positions, the SEC must prove that Mr. Jackson approved payments to Nigerian officials in order to obtain permits that he believed Noble was not entitled to.18 The SECs primary argument for why Mr. Jackson believed that Noble was not entitled to the permits
18
Only one of the payments that Mr. Jackson approved relating to temporary import permits or extensions took place within the limitations period applicable to the SECs claims for penalties. Ex. 19 (Joint Stipulation and Motion, 3/22/2013 (Dkt. 104)); Ex. 20 (SEC Interrogatory Responses, 5/20/2013) at Int. 17. That payment, approved on May 16, 2006, did not involve the paper process. No civil penalties can be imposed based on any of Mr. Jacksons other approvals, which were outside the limitations period. 20
or extensions is their assertion that Nigerian customs authorities had discretion to decide whether or not to grant the permits and extensions to Noble, and secondly, that the paper process was inherently illegal so Noble could not be entitled to a permit using that process. Ex. 21 (SEC Interrogatory Responses, 2/14/2013) at Int. 4. But evidence about whether Nigerian officials in fact had discretion to grant the permits, or whether the paper process was in fact illegal, is irrelevant to the corrupt intent element of the 30A offense. What matters is Mr. Jacksons state of mind in 2004-07, and whether the SEC can prove that Mr. Jackson believed that Noble was not entitled to the permits and extension it sought.19 The undisputed facts show that Mr. Jackson had no understanding whatsoever that the permits were discretionary, or that any of Nobles permits were invalid; he affirmatively believed that Noble was entitled to the permits and extensions. See also infra Part I.B.3 (regarding the paper process). There is no direct evidence that Mr. Jackson understood that the permits were discretionary. In his testimony, Mr. Jackson stated his understanding that Noble was entitled to the permits it sought: As long as we had a contract with the joint venture, that the Nigerians owned 60 percent of, if we had a valid contract, we were entitled to our temporary permits. Ex. 5 (Jackson Tr.) at 234 (emphasis added).20 There is no direct evidence of Mr. Jacksons state of mind that contradicts his stated understanding no witness testified to anything suggesting that Mr. Jackson knew or was warned that obtaining the permits was contrary to Nigerian law or that the permits were granted only at the discretion of customs officials. Nor is there any such
19
For this reason, and others, the opinion of the SECs expert on Nigerian law, Kofo Olugbesan, is irrelevant. In addition to the issues addressed in the Defendants Daubert motion to exclude Ms. Olugbesan (incorporated herein by reference), Ms. Olugbesans opinions go only to what Nigerian law in fact allows or prohibits, and not to Mr. Jacksons state of mind in 2004-07. Ms. Olugbesan conceded that she had no knowledge or opinion about Mr. Jacksons state of mind or intent. Ex. 22 (Olugbesan Tr.) at 336-37. Moreover, there is no evidence that Mr. Jackson was aware of the details of Nigerian law offered by Ms. Olugbesan, much of which was not available to the public. Id. at 141-43, 264-72. 20 There is no evidence that Mr. Jackson approved facilitating payments related to any rigs that did not have a contract in place with an entity owned by, or working with, the Nigerian government. 21
suggestion in the thousands of documents produced in this case; the SEC cannot identify a single email or memo sent or received by Mr. Jackson stating that the permits Noble sought were prohibited, or even questionable. And Mr. Jackson was not alone in his belief.21 Mr. Jackson was affirmatively advised on numerous occasions that Noble was entitled to permits for rigs under contract, including in the April 2004 West Africa Audit Report, which stated that additional renewals of the temporary import license may be obtained as long as the Company can justify continued use of the rig in Nigeria. Ex. 40 at *4721. Multiple Noble employees testified that they understood the phrase may be obtained as long as the Company can justify continued use of the rig in Nigeria to require only that the rig have a contract with a government-controlled entity to work in Nigeria that is, if the rig had a contract, then Noble was entitled to a new permit or an extension issued by the government to enable the rig to fulfill the contract.22 Ex. 5 (Jackson Tr.) at 230-31; Ex. 24 (ORourke Tr.) at 129-31; Ex. 17 (Kayl Tr.) at 133-35. In the follow-up to this same audit finding, Mr. Jackson was then advised that Nobles Controller and Tax Manager had determined that the units currently located in Nigeria meet the criteria necessary for an extension of each Temporary Import Permit. Ex. 34 at *5807. Later, when Mr. Jackson began receiving requests to approve facilitating payments related to temporary import permit extensions, those requests often included explicit assurances that Noble was entitled to the permits it sought, and that the payments were merely to expedite the process. See Ex. 41 (The Noble Ed Noble is eligible, and the law allows for, the extension
21
See, e.g., Ex. 24 (ORourke Tr.) at 124-25, 240-41; Ex. 17 (Kayl Tr.) at 126-27, 135; Ex. 2 (Day Tr.) at 221-22; Ex. 26 (Thomasson Tr.) at 150-54, 159, 162-63; Ex. (Ruehlen Tr.) at 133-34, 196-7; see also Ex. 23 (Busmire Tr.) at 180; Ex. 12 (Rose Tr.) at 248-51. 22 The SEC has suggested that that the use of the term may be obtained means that the decision whether to grant permits or extensions was a matter of discretion, even if Noble can justify continued use of the rig in Nigeria. See Ex. 25 at 72-73. But there is no evidence that anyone at Noble actually read the finding this way. Nor was it Mr. Jacksons understanding at the time; as explained in detail in the text, he believed that Noble was affirmatively entitled to permits for rigs under contract. 22
of this temporary import. The payment is necessary to have the temporary import processed in a reasonable timeframe.); Ex. 42 (8/30/2004 Email, Rose to Jackson, Thomasson) (This extension is allowed under the customs codes however this payment is required to make it happen.). The SEC cannot point to any request for facilitating payment approval made to Mr. Jackson that talked about a risk that the Nigerian Customs Officials might deny permission to stay in the country for a rig under contract.23 Finally, in forming his belief that Nobles West Africa practices were appropriate and that the payments he was approving were for a legitimate purpose, a reasonable jury would undoubtedly consider, in assessing Mr. Jacksons state of mind, the comfort he took from the many expert reviews of Nobles FCPA compliance and Nigerian operations. Mr. Jackson knew that Nobles practices in Nigeria, including its customs broker IC Network and payments made in connection with applications for temporary import permits, had been scrutinized by Nobles lawyers and others. Ex. 5 (Jackson Tr.) at 66, 125-36, 184-85, 265-67, 329-32. From Thompson & Knights earliest review of Nobles FCPA compliance policies in 2002 to the same firms 2004 FCPA investigation of West Africa Division facilitating payments, Mr. Jackson was consistently advised that Nobles FCPA policies were excellent, and that its FCPA compliance program was working. Ex. 43 at *5608; Ex. 44. That compliance program detected and stopped the payments to Mrs. Olerewaju, and Mr. Jackson was assured in the law firms lengthy opinion that there was no broader scheme to improperly influence government officials. Ex. 44 at *5223; Ex. 5 (Jackson Tr.) at 197-99. Mr. Jackson also was aware, through conversations with
23
Mr. Jacksons knowledge of the Nigerian economy and oil market confirmed to him that the Nigerian government would not deny a permit for a rig under contract. He knew that the Nigerian economy was heavily dependent on the oil industry (Ex. 5 (Jackson Tr.) at 343), and that the Nigerian government retained the majority interest in the oil revenue,(id. at 340-42). Mr. Jackson reasonably believed that Nigerias interest was in assisting, not impeding, Nobles ability to fulfill its drilling contracts. Indeed, Mr. Jackson knew that Noble and its competitors had kept rigs temporarily imported in Nigeria for years at a time without incident. Id. at 236-37, 348. 23
Mr. ORourke, that Thompson & Knight had been given the detailed accounting of Nigerias facilitating payment account, which included substantial amounts paid to IC Network for facilitating payments related to temporary import permits. Ex. 5 (Jackson Tr.) at 185-87; Ex. 24 (ORourke Tr.) at 237-44. And he knew that Nobles lawyers, including Thompson & Knight and Mr. Campbell, had prepared a new contract with IC Network, which explicitly addressed the payment of facilitating payments. Ex. 5 (Jackson Tr.) at 188, 265-67, 330-32; see also Ex. 45. The involvement of lawyers who were expert in the FCPA assured Mr. Jackson that Nobles FCPA compliance program was properly functioning, and that issues would be detected and addressed. Ex. 5 (Jackson Tr.) at 183-85, 265-67, 329-30, 355-56. He believed, reasonably, that if any of those individuals had concerns about potential FCPA violations, they would raise those concerns and no such concerns were raised to him. Id. at 198-200, 329-31, 334. Lacking any direct evidence of corrupt intent by Mr. Jackson, the SEC must ask the jury to infer somehow that he understood Nobles permits were illegal or discretionary. But the nonmovant is entitled only to reasonable inferences. Hockman v. Westward Commcns, LLC, 407 F.3d 317, 325 (5th Cir. 2004). In the face of overwhelming, undisputed evidence that Mr. Jackson affirmatively believed that Noble was entitled to permits for any rig under contract, it would not be a reasonable inference to conclude that Mr. Jackson believed the exact opposite, that the payments he was authorizing were being used to influence an official to misuse his official position. Unsupported allegations of bad faith will not suffice to enable a party to survive summary judgment, especially in a case in which there is evidence that the defendant acted in good faith. Krim, 989 F.2d at 1449 (citations omitted). B. The Evidence Relied upon by the SEC Does Not Demonstrate that Mr. Jackson Understood that the Permits Were Illegal or Discretionary
In its interrogatories and pleadings, the SEC has pointed to purported evidence of several
24
events that it claims show that Mr. Jackson knew that the permits that Noble sought were obtained in an illegal manner or were subject to the discretion of the Nigerian customs authorities. The Court accepted those allegations for the motion to dismiss, as it was required to do. However, the SEC promised much more than it could deliver in discovery, and much of what the Court was required to accept at the motion to dismiss stage was shown not to be true. [T]he evidentiary burden on the non-movant in a summary judgment motion is significantly greater than in a motion to dismiss. Reese v. Anderson, 926 F.2d 494, 498 (5th Cir. 1991). 1. The Panel of Inquiry
The SECs first false promise related to a penalty that Noble paid to a Nigerian Panel of Inquiry in 2003. The SEC claims that Mr. Jackson knew that the penalty was due in part to Nobles use of forged and recycled documents and the use of false paperwork to show exportation and re-importation of rigs when the rigs did not physically move, all in violation of Nigerias TIP laws. Ex. 21 at Int. 4. Discovery instead showed that Mr. Jackson had almost no awareness of Nobles interactions with the Panel and, more importantly, he was affirmatively told that the basis for Nobles penalty was a failure to pay a sales tax years earlier, not anything relating to forged or false paperwork. Ex. 5 (Jackson Tr.) at 149-51. First and foremost, Mr. Jacksons testimony is undisputed that his state of mind on this issue was an affirmative belief that any payment Noble made to the Panel related to resolving a failure to pay a sales tax on a rig that was purchased in the early 1990s. Id. at 149-51 (testimony regarding a conversation in early 2003 between Mr. Jackson and Mr. Thomasson). Mr. Jackson was further informed that Noble had already created a tax reserve to address the budgetary impact of the penalty, id.; that testimony is corroborated by documents showing Mr. Thomassons direction to Nobles accounting staff to treat the payment as an unpaid tax. Ex. 28 (4/1/2003 Email, Ashworth to Thomasson); see also Ex. 26 (Thomasson Tr.) at 69-70.
25
The only other information that Mr. Jackson received about the Panel came in February 2003 in two emails and a related conversation. In the emails, an operations employee in Nigeria sent detailed, multi-part reports to Mr. Rose about the status of the Panels investigation and many alleged areas of violation by Noble, all of which involved conduct that had taken place many years earlier. Ex. 29 (2/4/2003 Email, Adkins to Rose et al); Ex. 30 (2/6/2003 Email, Rose to Campbell et al). The seventh point in the original e-mail involved a letter written by a former Noble employee ten years earlier instructing a customs broker to prepare exportation and reimportation of the rig with no physical movement of the rig. Ex. 29 at *0002. Mr. Rose forwarded both emails to several members of senior management, including Mr. Jackson, with brief summaries in cover emails stating that the Panel was checking to see that all temporary import documentation is in place and that there are no gaps, id. at *0001, and that, without specifying the reason, Noble was potentially facing a substantial penalty which the Division was in negotiations to reduce. Ex. 30 at *0027. Mr. Jackson testified that he recalled only the second of the two emails sent to him by Mr. Rose and that he read only Mr. Roses summary at the top of that email regarding the potential penalty. Ex. 5 (Jackson Tr.) at 155-58. There is no evidence contradicting this testimony there is no evidence that Mr. Jackson responded to either of the emails, or ever mentioned, to anyone, the small portion of the emails related to the ten-year-old letter.24 There is no basis for an inference that, contradicting the information he received from Mr. Thomasson on
24
There are handwritten notes from Mr. Rose suggesting that he discussed the Panel with Mr. Jackson the day before the first of the emails referenced above. Ex. 27 (2/3/2003 Email, Nigeria Ops Manager to Rose with Handwritten Notes). According to Mr. Roses handwritten notes, he and Mr. Jackson discussed that the information being received from Nigerian operations personnel was not, in fact, accurate, and also the possibility that the Panel was soliciting a bribe from Noble, which Mr. Roses notes indicated was not the case. Id. Mr. Jackson testified that he did not recall the conversation (Ex. 5 (Jackson Tr.) at 152-54), and Mr. Rose testified that he did not recall anything about the conversation, either (Ex. 12 (Rose Tr.) at 126). There is no basis for an inference that they discussed what the SEC alleges, Nobles use of forged and recycled documents and the use of false paperwork. 26
this exact issue, Mr. Jackson believed instead that the penalty paid to the Panel was due to forged and recycled documents. Unsubstantiated assertions and those supported by only a scintilla of evidence are insufficient to avoid summary judgment. Roche Biomedical Labs., 61 F.3d at 315 (quotation marks and citations omitted). 2. Bob Kayls Review of Worldwide Operating Taxes
The SECs second false promise was that in January 2004, Mr. Jackson learned from his Tax Manager that temporary import permit renewal was not automatic and that the Nigerian government had discretion to grant or deny TIPs and TIP extensions. Ex. 25 at 55. The SECs Second Amended Complaint apparently relied on a document prepared by Mr. Kayl for this allegation, but the undisputed evidence in discovery was that Mr. Kayl never actually sent any such information to Mr. Jackson. While discovery revealed a draft memorandum prepared by Mr. Kayl in this time period, Ex. 31 (2/19/2004 Draft Memorandum), Mr. Kayl testified without contradiction that the only copies of the memorandum located in discovery were not final memoranda they were incomplete drafts that he did not send to Mr. Jackson or the other purported recipient, Mr. Thomasson and he did not recall ever finalizing the memorandum. Ex. 17 (Kayl Tr.) at 94-100, 218. Moreover, according to his testimony, Mr. Kayl did not recall telling Mr. Jackson any information in his draft memorandum. Id. at 100-01. Further, Mr. Jacksons recollection is corroborated by Mr. Thomasson; both testified that they did not recall receiving the memorandum. Ex. 5 (Jackson Tr.) at 231-33; Ex. 26 (Thomasson Tr.) at 143-45. 3. The Paper Process
Finally, the SEC promised the Court that it would prove that Mr. Jackson knew the paper process was illegal and therefore that his facilitating payment approvals must have been for the
27
purpose of influencing the recipients to accept an illegal process.25 Under the SECs theory, Mr. Jackson then lied to Nobles Audit Committee about the use of the paper process and contravened the Committees instructions to stop its use. Ex. 25 at 37, 73-77, 114, 168-69, 171-72; Ex. 21 at Int. 4. Again, the actual evidence in discovery showed that Mr. Jackson affirmatively believed the opposite that the paper process was legal in Nigeria.26 The undisputed evidence in discovery was that Mr. Jackson was told in May 2005 that Nobles long-time lawyer in Nigeria, Jo Onodugo, had advised Mr. Ruehlen that the paper process was legal in Nigeria.27 Ex. 5 (Jackson Tr.) at 305-07; Ex. 24 (ORourke Tr.) at 262, 350, 381; see also Ex. 4 (Robertson Tr.) at 272-73. Ms. Onodugos provision of this legal advice was confirmed in a later email from Mr. ORourke in April 2007. Ex. 32. The SEC omitted this legal advice from its Complaint. After discovery proved that Mr. Jackson was informed that the legal advice had been given, the SEC is left with the unsupportable argument that they just dont believe testimony about the legal advice. But the SECs burden is not satisfied with some metaphysical doubt as to the material facts. Roche Biomedical Labs., 61 F.3d at 315 (quotation marks and citations omitted). Also, regardless of
Even this linkage between payments and the paper process requires an unwarranted inference. In late 2005, a rig known as the Noble Don Walker physically left Nigeria to drill a well in another country, then came back to Nigeria and needed a new temporary import permit. This was, obviously, not a paper process since the rig physically left Nigeria. Yet obtaining that new permit also required Noble to make facilitating payments through IC Network. Ex. 46; Ex. 3 (Arthur Tr.) at 101; Ex. 61 (Middleton Tr.) at 193. It is not a reasonable inference to conclude that the facilitating payments made related to the paper process were made to get the Nigerian Customs Officials to accept false paperwork, where facilitating payments still had to be made to get a new permit without the paper process. 26 As explained previously, Statement of Facts Part E, Mr. Jackson approved payments related to only one set of applications for temporary import permits obtained using the paper process, in May and September 2005. Those acts fall outside of the limitations period applicable to the SECs claims for penalties under Section 30A, so they cannot be the basis for any civil penalty. Ex. 19. Mr. Jackson was also advised that Mr. Ruehlen had consulted with other drilling contractors to determine that they, too, used the paper process (Ex. 38), which confirmed the information Mr. Jackson had separately received from Mr. Rose that other drillers had rigs in Nigeria that had not left for many years. Ex. 5 (Jackson Tr.) at 236-37, 348. 28
27
25
whether the advice was actually given to Noble, the SEC has no grounds to dispute that Mr. Jackson was told that, per Nobles lawyer, the paper process was legal in Nigeria (Ex. 24 (ORourke Tr.) at 262, 350, 381; Ex. 5 (Jackson Tr.) at 305-07), and it is of course Mr. Jacksons state of mind that the SEC needs to prove.28 The evidence showed that to Mr. Jackson, it was reasonable that the paper process could be legal in Nigeria. He was aware by this time period that the paper process was an accepted business practice in some parts of the world. For example, he was told by Mr. Thomasson in 2002 about a potential paper export and reimport that might be used in China related to the purchase of two rig hulls; the evidence in discovery showed that the paper process had apparently been discussed at the time with both Nobles auditors at PWC, and attorneys from Nobles outside counsel, Baker Botts, and it was Mr. Campbell as Nobles President who gave the go-ahead to implement recommendations from PWC. Ex. 39. Mr. Jackson was never told that there were any concerns about the legality of that process. Ex. 5 (Jackson Tr.) at 307-08. Nor did the evidence come close to proving the SECs assertion, accepted by the Court at the motion to dismiss phase, that Jackson and Ruehlen knew [the use of the paper process] violated an Audit Committee resolution. Ex. 18 at 4; Ex. 25 at 77 (Jackson and Ruehlen knew that using false paperwork to obtain TIPs would contravene the expectations and the instructions of the Audit Committee.). There was no evidence developed in discovery that the
28
The undisputed evidence showed that Mr. Jackson had only limited involvement with the paper process, which was an operational issue regarding how to obtain permission for a rig to be in a particular country, not a finance issue. Mr. Jackson, like other executives, was a recipient of information about the paper process in the April 2004 and July 2004 audit reports, and he was not assigned any responsibility to follow up on its use. Ex. 33; Ex. 34 at *5807. When the issue came to him again in May 2005 regarding reimbursing IC Network for previously paid facilitating payments, the paper process for the three rigs had already occurred, on the instruction of Mr. Rose, who had since left the company. Ex. 5 (Jackson Tr.) at 354; Ex. 24 (ORourke Tr.) at 192-94; Ex. 37 (5/17/2005 Email, Jackson to Ruehlen, cc ORourke). Mr. Jacksons only role was to approve the after-the-fact reimbursement of the customs broker, after assuring himself that the paper process had been determined to be legal by Nobles Nigerian counsel. 29
Audit Committee made any resolution regarding the paper process no formal written Committee resolution, no testimony about any resolution. The paper process finding was not even mentioned in the Audit Committee minutes from the April or July 2004 meetings. Ex. 35 (4/20/2004 Audit Committee Minutes); Ex. 36. Attendees testified that there was very limited discussion of the paper process at either of the Audit Committee meetings, and that the only comment from a Committee member was that people needed to follow up and figure out what the law was. Ex. 24 (ORourke Tr.) at 162-63, 406-07; Ex. 26 (Thomasson Tr.) at 170-71, 242; Ex. 5 (Jackson Tr.) at 258-59. The SECs fallback position appears to be that even if there was no formal resolution from the Audit Committee directing the paper process to stop, nonetheless management promised never to use the paper process again. Ex. 25 at 77; Ex. 21 at Ints. 4, 13. But that assertion, as well, was belied by the actual evidence. Members of management other than Mr. Jackson agreed in the April 2004 Audit Report to obtain a detailed understanding of the risks and liabilities associated with the temporary import process. Ex. 33 at *4690; Ex. 5 (Jackson Tr.) at 348-49.29 Based on initial research, the operations and tax groups advised the Audit Committee in the July 2004 Update that if a new permit were needed in the future, management intended to use a location called a free trade zone to obtain the permit. Ex. 34 at *5807. There were no rigs at the time that needed new permits. The first time that rigs again needed new permits, in early 2005, the evidence showed that Nigerian management and supervisors such as Mr. Rose researched the available options and concluded that the paper process was indeed both
29
The action plan in Internal Audits report stated that Mr. Rose has committed to ensuring the divisions compliance with all applicable rules and regulations related to importing and exporting assets. Ex. 33 at *4690. The SEC has suggested that this constituted an implicit guarantee to the Audit Committee that Noble would never again use the paper process. Ex. 21 at Int. 4. In fact, the document means what it says that Noble would comply with the law. Whether or not the paper process was legal was at that time unresolved; by the time Mr. Jackson approved paper process-related facilitating payments in May 2005, the legal question had been resolved favorably. 30
legal, and the preferable method for obtaining a new permit given impracticalities with using the free trade zone. Ex. 24 (ORourke Tr.) at 175-84, 185-88, 190-94; Ex. 38; Ex. 59 (Ruehlen Tr.) at 100-01, 244-45; Ex. 5 (Jackson Tr.) at 302-05, 348-49, 354. These facts do not support an inference that management committed to never use the paper process again, nor that Mr. Jackson was showing consciousness of guilt by not bringing the issue back to the Audit Committee after it had been determined to be legal. And despite alleging that Mr. Jackson deceived the Audit Committee by not re-raising the issue of the paper process, the SEC did not even ask Mr. Jackson in his deposition why he had not gone back to the Audit Committee. They did ask Mr. ORourke (who as the Director of Internal Audit met frequently and in private with the Audit Committee); he testified that he had believed it was unnecessary to raise the issue because the process had been determined to be legal. Ex. 24 (ORourke Tr.) at 195. As with the previous false promises, the SEC asks the Court to draw unreasonable inferences that cannot withstand the actual discovery record. II. MR. JACKSON IS ENTITLED TO SUMMARY JUDGMENT ON THE BOOKS AND RECORDS AND INTERNAL CONTROLS CLAIMS (CLAIM 4) Mr. Jackson is also entitled to summary judgment on the SECs internal controls and books and records claims (Claim 4). Generally speaking, those claims argue that he violated Section 13(b)(5) of the Exchange Act, 15 U.S.C. 78m(b)(5), and Exchange Act Rule 13b2-1, 17 C.F.R. 240.13b2-1 (Ex. 77), by falsifying Nobles books and records, and circumventing internal accounting controls. The SEC asserts several factual bases for these claims, all of which are predicated on a violation of Section 30A; without a bribery violation, the SECs internal controls and books and records claims fall away. Because the SEC cannot show a bribery violation, that alone entitles Mr. Jackson to summary judgment. However, summary judgment must also be granted on Claim 4 because the undisputed facts do not show any falsification of
31
Nobles books and records, or circumvention of internal accounting controls. We note that until the SEC moved to dismiss most of its internal controls claims three days ago, the SEC had also alleged in Claim 4 that Mr. Jackson knowingly failed to implement a system of internal accounting controls. Ex. 25 at 195. The undisputed evidence at discovery showed the falsity of the SECs internal controls claim Nobles internal controls over financial reporting were functioning effectively as apparently even the SEC now concedes. A. The SEC cannot prove that Mr. Jackson falsified Nobles books and records
The SECs books and records claim under Section 13(b)(5) alleges that Mr. Jackson knowingly falsif[ied] any book, record, or account subject to Section 13(b)(2), which requires issuers to keep books and records which, in reasonable detail, accurately and fairly reflect its transactions and the dispositions of its assets. 15 U.S.C. 78m(b)(2). Under Rule 13b2-1, the claim is that Mr. Jackson directly or indirectly, falsif[ied] or cause[d] the same books and records from Section 13(b)(2) to be falsified. Id. (Ex. 77). The crux of these claims is the assertion that Mr. Jackson falsified Nobles books and records by recording the payments at issue as facilitating payments legitimate operating expenses rather than as unlawful bribes. Ex. 21 at Int. 11; Ex. 25 at 194-97. The undisputed evidence showed that (a) there was no falsification of any books or records because the facilitating payments were correctly accounted for; and (b) Mr. Jackson took no action, knowingly or otherwise, to falsify Nobles books and records. First, the accounting treatment used at Noble booking the payments into an account named facilitating payments, and including detail (at Mr. Jacksons urging) about the payments in the text portion of each entry accurately reflected the essential economic substance of the payments at issue. Ex. 61 (Middleton Tr.) at 117; Ex. 64; Ex. 8 (Bell Rep.) at 91. These were payments to government officials in connection with Nobles applications for temporary import permits and extensions,
32
which is exactly what Nobles accounting treatment reflected. Ex. 8 (Bell Rep.) at 91. Both facilitating payments and so-called bribes share that same essential economic substance; the only difference is the legal label added on to the economic substance. Nobles accounting treatment identified the key characteristics of these payments, in contrast to other public FCPA enforcement cases where companies tried to obscure payments to government officials with names such as commissions or cost of goods sold. Ex. 56 (Harfenist Tr.) at 211. Nobles accounting treatment more than satisfied Section 13(b)(2), which requires books be kept in reasonable detail to accurately and fairly reflect the transactions and dispositions of the assets of the issuer. Id. As the SEC has acknowledged, a companys books and records are not held to a standard of absolute exactitude. SEC Release No. 34-17500, 1/29/1981 (Ex. 74). There is no evidence that Noble was required by any accounting rules to book the payments at issue as unlawful bribes. Even the SECs purported accounting expert acknowledged that Generally Accepted Accounting Principles do not require companies to use particular labels, legal or otherwise, when recording transactions (Ex. 56 (Harfenist Tr.) at 216-17), and admitted that Nobles accounting reflected the substance of the transaction and flagged for anyone, including auditors, that these were payments to government officials. Id. at 127, 209. Section 13(b)(2) itself certainly does not require, or even mention, that transactions must reflect their legal status. Indeed, despite the controversy and litigation surrounding these payments, Noble never restated its prior publicly filed financial statements. Ex. 11 (Mitchell Tr.) at 200. Nor does the evidence show any knowing falsification by Mr. Jackson.30 It is undisputed that the accounting entries at issue were booked by Nobles Division Controller staff in Nigeria, not Mr. Jackson (Ex. 61 (Middleton Tr.) at 145-47; Ex. 11 (Mitchell Tr.) at 31), and
While Section 13(b)(5) requires knowing conduct, courts apply a reasonableness standard to Rule 13b2-1. E.g., SEC v. Jorissen, 470 F. Supp. 2d 764, 774 (E.D. Mich. 2007) (one can only violate Rule 13b2-1 if he has acted unreasonably). The same arguments apply equally under that standard. 33
30
there is no evidence that Mr. Jackson directed the particular manner in which any specific payment was recorded in Nobles books. To prove knowing falsification by Mr. Jackson in this context, the SEC would have to prove deliberate and purposeful conduct, not simply a failure to comply: Knowing falsification connotes a conscious undertaking. . . to falsify records or mislead auditors through a statement or conscious omission of material facts. S. Rep. No. 95-114, at 9 (1977) (Ex. 78).31 There is no evidence that Mr. Jackson consciously undertook to conceal or obscure the payments in Nobles books. The evidence shows the exact opposite: Noble created a facilitating payments account specifically to separate out and identify the payments it made to government officials (Ex. 50 at *2297); Mr. Jackson directed that those payments contain even more detail than previously contemplated to assist in their auditability (Ex. 64); the payments in the account were reviewed by Mr. Jacksons staff in the Finance department, by Internal Audit, by Thompson & Knight, and by Mr. Campbell (see supra Statement of Facts Part D and Part I-A), and to Mr. Jacksons knowledge, no one ever questioned the accounting treatment of the payments. B. There is no evidence that Mr. Jackson knowingly circumvented a system of internal accounting controls
The SEC also alleges under Section 13(b)(5) that Mr. Jackson knowingly circumvent[ed] . . . a system of internal accounting controls that are required to be in place pursuant to Section 13(b)(2). The SECs argument appears to be that Mr. Jackson circumvented certain anti-corruption processes and policies that the SEC believes needed to be in place pursuant to Section 13(b)(2). Ex. 21 at Int. 13; Ex. 57 (Harfenist Rep.) at 6, 15, 24. Not only
See also H.R. Rep. No. 100-576, at 916-17 (1988) (Conf. Rep.) (Ex. 79) (regarding the 1988 Amendments to the FCPA, stating that knowingly requires something more than simply failing to comply with the FCPAs books and records or accounting controls provisions. Rather, the knowingly element requires that the conduct have the purpose of falsifying books, records, or accounts, or of circumventing the accounting controls, including deliberate falsification of books and records and other conduct calculated to evade the internal accounting controls requirement.) (emphases added). 34
31
does the SEC have no proof of any circumvention, though, the SECs claims are also based on a fundamental misstatement of the legal requirement set forth in Section 13(b)(2). 1. The SECs only alleged evidence of circumvention relates to the wrong set of controls
In pertinent part, Section 13(b)(2) requires issuers to devise and maintain a system of internal accounting controls sufficient to provide reasonable assurances, that among other things, transactions are executed in accordance with managements general or specific authorization [and] transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles [GAAP]. 15 U.S.C. 78m(b)(2)(B) (emphasis added). The SEC is therefore required to prove here that Mr. Jackson circumvented Nobles entire system of internal controls over financial reporting (ICFR)32 but the SECs factual basis for the claims is limited to only Nobles FCPA-specific controls. As even the SEC admits outside the litigation context, the accepted standard to assess Nobles ICFR is the Internal ControlIntegrated Framework of the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Ex. 76 at Part II.A.3. Internal controls are fact-specific and [a]ppropriate internal controls vary by company, depending on factors such as its size, nature and location of operations, and risk. Ex. 47 (Goolsby Rep.) at 9. Using the standard set forth in COSO, Mr. Jacksons internal controls expert, a former high-level auditor with decades of experience assessing companies internal control systems,
32
On its face, Section 13(b)(2) does not mention anti-corruption controls or compliance programs, nor is there any litigated caselaw that we are aware of interpreting Section 13(b)(2) to require a specific anti-corruption program. The SEC admits elsewhere that Section 13(b)(2) relates to ICFR, not some set of anti-corruption controls. See SEC Release No. 33-8238 at Part II.A.3, 6/5/2003 (Ex. 76) (recognizing that the system of internal accounting controls required under Section 13(b)(2)(B) is internal controls over financial reporting). The SEC has also stated that Section 13(b)(2) does not encompass the elements of [internal controls] that relate to effectiveness and efficiency of a companys operations and a companys compliance with applicable laws and regulations, with the exception of compliance with the applicable laws and regulations directly related to the preparation of financial statements. Id. 35
opined that Nobles ICFR, as designed and as implemented, were effective. Ex. 47 (Goolsby Rep.) at 12. Mr. Jacksons internal controls expert further opined that there were no indications of circumventions of Nobles ICFR. See, e.g., Ex. 47 (Goolsby Rep.) at 36-39; Ex. 48 (Goolsby Tr.) at 250-53. And there is no evidence that the highly qualified experts from Nobles independent auditor flagged any circumventions of Nobles ICFR during their audits; instead, PWC publicly concluded in real time that Nobles ICFR were effective with no material weaknesses. Ex. 1 at 37-38; Ex. 69 at 40-41; Ex. 70 at 38-39; Ex. 71 at 41; see also Ex. 56 (Harfenist Tr.) at 227; Ex. 47 (Goolsby Rep.) at 5, 42. The SEC has no contrary evidence regarding Nobles ICFR, instead of Nobles anticorruption program controls. The SECs only expert who addressed any portion of internal controls was Mr. Harfenist, who explicitly testified that he was not opining on Nobles ICFR but instead only on Nobles separate set of anti-corruption controls, and he could not explain how, if at all, Nobles anti-corruption controls fit into or affected Nobles overall ICFR. Ex. 56 (Harfenist Tr.) at 21, 151-53, 159, 165; Ex. 58 (Harfenist Rebuttal Rep.) at 4.33 2. There was no evidence that Mr. Jackson circumvented Nobles ICFR
Factually, the SECs assertions that Mr. Jackson circumvented Nobles ICFR fall into three buckets: (1) Mr. Jacksons alleged approval of the resumption of the paper process in 2005 and his alleged failure to inform the Audit Committee and PWC about the resumption; (2) Mr. Jacksons approvals of the payments at issue in this case and allowing Mr. Ruehlen to circumvent Nobles policy of obtaining written pre-approval for facilitating payments; and (3)
33
The pending Daubert motion to exclude Mr. Harfenists opinion contains a thorough analysis of issues related to his opinions and the interaction between Nobles ICFR and its anti-corruption controls, and is incorporated herein by reference. See also Joseph P. Covington & Iris E. Bennett, Practicing Under the U.S. Anti-Corruption Laws, 2.03[B][2] n.52 (2013 Supplement) (Ex. 75) ([N]othing in the federal securities laws expressly applies the internal controls requirements to controls designed to prevent corrupt payments to foreign officials. No provision of the Exchange Act or the rules adopted thereunder mandate that internal controls prevent violations of the anti-bribery provisions of the FCPA.). 36
Mr. Jacksons communications with subsequent CFOs regarding the payments and his failure to disclose the alleged illicit nature of the payments. Ex. 21 at Int. 13. None of these allegations survived discovery. Regarding the paper process, which was discussed in detail supra Part I.B.3, the SEC cannot show any impropriety on Mr. Jacksons part in questioning the already-approved use of the paper process, being assured that it was deemed legal by local Nigerian counsel, and proceeding on that basis. See also Ex. 47 (Goolsby Rep.) at 38-39. Regarding Mr. Jacksons approvals of payments to government officials for TIPs and TIP extensions, the only evidence regarding Mr. Jacksons state of mind in approving the payments shows that he did so believing they were appropriate. See supra Part I.A. From Mr. Jacksons perspective, the approval process was working effectively and transparently: The payments were elevated for approval in accordance with the Companys policy, his subordinates recommended approval, no one raised concerns about the propriety of the payments, and many people within the organization were aware of the payments and the approval process. Id.; see also Statement of Facts Part E. In other words, the controls with respect to the approval process were working as designed.34 Ex. 47 (Goolsby Rep.) at 21-22; Ex. 48 (Goolsby Tr.) at 245-46, 250-52. Mr. Jacksons role in the approval process was also implemented as designed. Executives must rely on subordinates, and Mr. Jackson was no different; he used his independent judgment, but also relied on the opinions and representations of others in approving the payments. Ex. 47 (Goolsby Rep.) at 39; Ex. 85 (Gilson Tr.) at 190-92. Finally, Mr. Jacksons conversation with a later CFO, Mr. Mitchell, does not constitute a
34
There is no evidence that Mr. Jackson was aware of any intentional policy violations by Mr. Ruehlen, and in any event, a single policy violation does not necessarily constitute circumvention of a system of internal accounting controls, especially when the spirit of the policy is satisfied. Ex. 56 (Harfenist Tr.) at 356; Ex. 85 (Gilson Tr.) at 77-80; Ex. 8 (Bell Rep.) at 66. 37
circumvention of internal controls, and is yet another example of the SEC promising the Court something it could not deliver. The evidence does not support the SECs contention that Mr. Jackson encouraged the new CFO, Mr. Mitchell, to blindly rely on Mr. ORourke to approve facilitating payments. Ex. 21 at Int. 13; Ex. 18 at 12. Instead, Mr. Mitchell testified he had only limited recall of that conversation, and recalled no specifics, including whether the discussion centered on what Mr. Jackson had done to get comfortable about facilitating payments, or on what Mr. Mitchell should do. Ex. 11 (Mitchell Tr.) at 98-101. Mr. Mitchell went on to develop his own approval process, which included consultations with Mr. ORourke and, at times, Nobles General Counsel. Id. at 105-30, 172, 178. Again, this demonstrates the appropriate functioning of controls, in which Mr. Mitchell sought insight from Mr. Jackson, but maintained his independent judgment in subsequently approving payments. Ex. 47 (Goolsby Rep.) at 23. III. MR. JACKSON IS ENTITLED TO SUMMARY JUDGMENT ON THE AIDING AND ABETTING CLAIMS (CLAIMS 2 AND 3) In Claims 2 and 3, the SEC alleges that Mr. Jackson violated Section 20(e) of the Exchange Act, 15 U.S.C. 78t(e), by aiding and abetting Nobles violations of Section 30A and Section 13(b)(2)(A) of the Exchange Act.35 To establish aiding and abetting liability under Section 20(e), the SEC must prove (1) the existence of a securities violation by the primary (as opposed to the aiding and abetting) party; (2) knowledge of this violation on the part of the aider and abettor; and (3) substantial assistance by the aider and abettor in the achievement of the primary violation. SEC v. DiBella, 587 F.3d 553, 566 (2d Cir. 2009) (internal alterations omitted). Mr. Jackson is entitled to summary judgment because, as explained supra Parts I and II, the SEC cannot establish either a primary violation or knowledge of such violation by Mr.
35
Until three days ago, the SEC also alleged under Claim 3 that Mr. Jackson aided and abetted Nobles failure to maintain effective internal controls under Section 13(b)(2)(B). Ex. 25 at 191-92. The SEC appears to have conceded through its voluntary dismissal that Nobles ICFR were indeed adequate. 38
Jackson. SEC v. Johnson, 530 F. Supp. 2d 325, 334 (D.D.C. 2008); see also SEC v. Espuelas, 905 F. Supp. 2d 507, 518 (S.D.N.Y. 2012). IV. MR. JACKSON IS ENTITLED TO SUMMARY JUDGMENT ON THE MISREPRESENTATION CLAIMS (CLAIMS 5 AND 6) The SEC also claims that Mr. Jackson violated Exchange Act Rules 13b2-2 and 13a-14 by falsely representing to Nobles auditors and investors that he was unaware of any violations of law.36 17 C.F.R. 240.13b2-2 (Ex. 81); 17 C.F.R. 240.13a-14 (Ex. 82). Rule 13b2-2 requires the SEC to prove that the defendant knew that he was making misrepresentations, or at least that he acted unreasonably. SEC v. Todd, 642 F.3d 1207 (9th Cir. 2011) (requiring knowledge); SEC v. Das, 723 F.3d 943 (8th Cir. 2013) (requiring unreasonable conduct). Rule 13a-14 requires certain executives to certify to the best of his or her knowledge that there are no untrue statements or omissions of material fact in the issuers quarterly and annual reports. SEC v. Das, No. 8:10-CV-102, 2011 WL 4375787, at *9 (D. Neb. Sept. 20, 2011) (Ex. 13). These claims are similarly entirely dependent on the SECs claims that Jackson knew that the payments he had authorized were bribes. For the reasons stated in detail above, the SEC cannot establish that Mr. Jackson had such knowledge or belief, and the misrepresentation claims fail. In addition, though, Mr. Jackson is separately entitled to summary judgment on the SECs claim that he violated Rule 13b2-2 by signing representation letters to PWC on August 5, 2005 and November 9, 2005. Ex. 25 at 171. Mr. Jackson did not sign the November 9, 2005 representation letter, which was instead signed by Nobles CFO at the time, Mr. Busmire. Ex. 101 (11/9/2005 Management Representation Letter to PWC). There also was no representation letter dated August 5, 2005. There was a representation letter dated August 8, 2005, which Mr. Jackson signed, but that is not a letter contained within the SECs Complaint.
36
Until its dismissal motion, the SEC also alleged under Claim 6 that Mr. Jackson lied in his securities certifications by stating that Noble maintained effective internal controls. Ex. 25 at 172. 39
V.
MR. JACKSON IS ENTITLED TO SUMMARY JUDGMENT ON THE CONTROLLING PERSON CLAIM (CLAIM 7) Finally, the SEC alleges that Mr. Jackson is liable as a control person under Section 20(a)
of the Exchange Act for Noble and Mr. Ruehlens violations of Sections 30A and 13(b)(2)(A). Section 20(a) of the Exchange Act imposes liability on [e]very person who, directly or indirectly, controls any person liable under any provision of this chapter . . . unless the controlling person acted in good faith and did not directly or indirectly induce the act or acts constituting the violation or cause of action. 15 U.S.C. 78t(a).37 The SEC cannot prove a primary violation in this case, and without a primary violation, Mr. Jackson cannot be liable as a controlling person. Southland Sec. Corp. v. INSpire Ins. Solutions, Inc., 365 F.3d 353, 383 (5th Cir. 2004). Even assuming a primary violation exists, the undisputed record previously discussed establishes that Mr. Jackson acted in good faith and did not recklessly induce any violation, which is an affirmative defense under Section 20(a). G.A. Thompson & Co., Inc. v. Partridge, 636 F.2d 945, 959 (5th Cir. 1981). CONCLUSION The only reasonable conclusion that a jury could reach on this record is that Mr. Jacksons authorizations of facilitating payments were made without corrupt intent. In addition, there is no evidence that he aided and abetted or controlled any violations by Noble or Mr. Ruehlen, or took any actions to falsify Nobles books and records or circumvent Nobles system of internal controls. For these reasons, Mr. Jackson respectfully requests that the Court grant his motion for summary judgment.
Until its dismissal motion, the SEC also alleged under Claim 7 that Mr. Jackson controlled Noble and Ruehlens failure to maintain effective internal controls. Ex. 25 at 205-209. 40
37
Date: March 28, 2014
Respectfully submitted, __/s/______________________ David S. Krakoff, Esq. Attorney-in-Charge D.C. Bar No. 229641 BuckleySandler LLP 1250 24th Street NW, Ste. 700 Washington, D.C. 20037 Telephone: (202) 349-7950 Facsimile: (202) 349-8080 dkrakoff@buckleysandler.com
Of Counsel: Adam Miller, Esq. Lauren R. Randell, Esq. Paige Ammons, Esq. BuckleySandler LLP 1250 24th Street NW, Ste. 700 Washington, D.C. 20037
41
CERTIFICATE OF SERVICE
I certify that on March 28, 2014, I caused to be electronically filed with the Clerk of Court using the CM/ECF system, which will send notification of such filing to the counsel of record in this matter who are registered on the CM/ECF system, the foregoing Defendant Mark A. Jacksons Motion for Summary Judgment.
/s/ _______________ Lauren R. Randell
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SEC V Jackson (Jackson Moton For Summary Judgment)

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Case 4:12-cv-00563 Document 144 Filed in TXSD on 03/28/14 Page 1 of 46

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF TEXAS HOUSTON DIVISION

) ) ) ) ) Case No. 4:12-cv-00563 ) ) ) ) ) ) ) )

DEFENDANT MARK A. JACKSONS MOTION FOR SUMMARY JUDGMENT

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For ease of reference, these will all be referred to as joint ventures. 4

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Date: March 28, 2014

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/s/ _______________ Lauren R. Randell

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