Revenew International LLC v. PSC Industrial Outsourcing, LP

Opinion

ACCEPTED 01-15-00320-CV FIRST COURT OF APPEALS HOUSTON, TEXAS 6/12/2015 4:20:20 PM CHRISTOPHER PRINE CLERK

NO. 01-15-00320-CV __________________________________________________________________ FILED IN 1st COURT OF APPEALS IN THE COURT OF APPEALS FOR THE HOUSTON, TEXAS FIRST JUDICIAL DISTRICT 6/12/2015 4:20:20 PM HOUSTON, TEXAS CHRISTOPHER A. PRINE Clerk __________________________________________________________________

REVENEW INTERNATIONAL, LLC, Appellant,

vs.

PSC INDUSTRIAL OUTSOURCING, LP, Appellee.

On Appeal from the 281st Judicial District Court Harris County, Texas Trial Court Case No. 2013-59946

APPELLEE’S BRIEF

AHMAD, ZAVITSANOS, ANAIPAKOS, ALAVI & MENSING P.C. Todd W. Mensing Adam Milasincic Edward Goolsby 1221 McKinney, Suite 3460 Houston, Texas 77010 Phone: (713) 655-1101 Fax: (713) 655-0062 tmensing@azalaw.com amilasincic@azalaw.com egoolsby@azalaw.com

COUNSEL FOR APPELLEE

ORAL ARGUMENT CONDITIONALLY REQUESTED TABLE OF CONTENTS

I. Statement of the Case ......................................................................................1

II. Issues Presented ...............................................................................................1

III. Statement Regarding Oral Argument ..............................................................2

IV. Statement of Facts............................................................................................2

A. Revenew accuses PSC of overcharging Exelon by nearly $2 million, forcing PSC to either pay Exelon or lose the client. .............................2

B. Revenew designs an audit process that is tainted with conflicts of interest. ..................................................................................................4

C. Revenew removes low-dollar invoices from consideration, deletes samples that do not meet Revenew’s secretive criteria, and creates new samples until Revenew’s executives find one they like. ...............5

1. Revenew intentionally “cleans up” the data by deleting small- dollar invoices and considering only PSC’s higher-dollar invoices. ......................................................................................7

2. Revenew further inflates the appearance of overbilling by handpicking a sample with even more expensive invoices. .......8

3. Revenew discards its original samples—and its own rules—to choose smaller samples with still-higher dollar values. .............9

D. Revenew convinces Exelon to repudiate its prior billing agreements with PSC and multiplies PSC’s resulting “errors” by almost one- hundred fold. .......................................................................................12

E. After PSC is forced to pay Exelon, Revenew collects its “big fat check.” .................................................................................................14

F. Judge Matthews twice denies summary judgment, and Revenew then brings this interlocutory appeal, claiming that its emails to Exelon were somehow “published by the electronic or print media.” ............15

V. Summary of Argument ..................................................................................16

i

VI. Arguments and Authorities ............................................................................18

A. This Court lacks jurisdiction: The trial court’s order denying Revenew’s motion for summary judgment is interlocutory and non- appealable. ...........................................................................................18

B. Even if the Court were to address Revenew’s merits arguments, the order denying summary judgment should be upheld. .........................19

1. Revenew’s statements were false. .............................................19

a. PSC easily withstands Revenew’s no-evidence challenge. ........................................................................................19

b. Accusations of overbilling can be wrong; no rule of law (or logic) supports Revenew’s argument that, if a statement is paired with numbers, that statement can never be proven false. .....................................................23

2. Revenew exhibited all four variants of malice toward PSC. ....25

a. Revenew knew its accusations were false or was at least reckless about the truth. ..................................................25

b. Revenew acted with ill will toward PSC and intended to interfere with PSC’s economic interests.........................28

3. Revenew fails to prove its affirmative defense of justification. ...................................................................................................30

a. No justification defense is available because Revenew’s interference was accomplished by means of independent torts. ................................................................................31

b. There is, at minimum, a conflict in evidence about whether Revenew was acting pursuant to its contract with Exelon. ............................................................................31

c. Revenew did not exercise its rights in good faith. .........33

4. Revenew failed to conclusively prove its privilege defense.....35

Conclusion ...............................................................................................................37

ii

Certificate of Compliance ........................................................................................39

Certificate of Service ...............................................................................................39

iii

TABLE OF AUTHORITIES

Cases Am. Nat’l Petro. Co. v. Transcon. Gas Pipe Line Corp., 798 S.W.2d 274 (Tex. 1990) ..................................................................................................................................33

Bentley v. Bunton, 94 S.W.3d 561 (Tex. 2002) ........................................... 20, 24, 28

Calhoun v. Chase Manhattan Bank (U.S.A.), N.A., 911 S.W.2d 403 (Tex. App.— Houston [1st Dist.] 1995, no pet.) ...........................................................................36

Daystar Residential, Inc. v. Collmer, 176 S.W.3d 24 (Tex. App.—Houston [1st Dist.] 2004, pet. denied) ...........................................................................................35

Delta Air Lines, Inc. v. Norris, 949 S.W.2d 422 (Tex. App.—Waco 1997, no pet.) 25

Ernst & Young, LLP v. Pacific Mut. Life Ins. Co., 51 S.W.3d 573 (Tex. 2001) .......33

Ervin v. Mann Frankfort Stein & Lipp CPAs, L.L.P., 234 S.W.3d 172 (Tex. App.— San Antonio 2007, no pet.) .......................................................................................33

Fluor Enters., Inc. v. Conex Int’l Corp., 273 S.W.3d 426 (Tex. App.—Beaumont 2008, pet. denied) .....................................................................................................26

Gaylord Broad. Co., L.P. v. Francis, 7 S.W.3d 279 (Tex. App.—Dallas 1999, no pet.) .................................................................................................. 20, 23, 25, 27, 28

Gonzalez v. Hearst Corp., 930 S.W.2d 275 (Tex. App.—Houston [14th Dist.] 1996, no writ) .....................................................................................................................26

Hansen v. Jackson, No. 13-14-00039-CV, 2014 WL 5794872 (Tex. App.—Corpus Christi Nov. 6, 2014, pet. filed) ................................................................................27

Harte-Hanks Commc’ns, Inc. v. Connaughton, 491 U.S. 657 (1989).......................28

Hearst Corp. v. Skeen, 159 S.W.3d 633 (Tex. 2005) ................................................28

Hipsaver, Inc. v. Kiel, 984 N.E.2d 755 (Mass. 2013) ..............................................30

Hurlbut v. Gulf Atl. Life Ins. Co., 749 S.W.2d 762 (Tex. 1987) ................ 19, 25, 30

Jefferson v. Hackney, 406 U.S. 535 (1972) (Douglas, J., dissenting) .....................23

iv

Kipp v. LYV Aerospace & Defense, 838 F. Supp. 289 (N.D. Tex. 1993)..................37

Main v. Royall, 348 S.W.3d 381 (Tex. App.—Dallas 2011, no pet.) .......................18

Mensa-Wilmot v. Smith Int’l, Inc., 312 S.W.3d 771 (Tex. App.—Houston [1st Dist.] 2009, no pet.) .................................................................................................28

Milkovich v. Lorain Journal Co., 497 U.S. 1 (1990) ...............................................24

Moore & Assoc. v. Metro. Life Ins. Co., 604 S.W.2d 487 (Tex. Civ. App.—Dallas 1980, no writ) ...........................................................................................................23

Newspaper Holdings, Inc. v. Crazy Hotel Assisted Living, Ltd., 416 S.W.3d 71 (Tex. App.—Houston [1st Dist.] 2013, pet. denied) ...............................................22

Phillips v. State, 77 S.W.3d 465 (Tex. App.—Houston [1st Dist.] 2002, no pet.) ....18

Procter & Gamble Mfg. Co. v. Fisher, 449 U.S. 1115 (1981) (Rehnquist, J., dissenting) ................................................................................................................23

Prudential Ins. Co. of Am. v. Fin. Review Servs., Inc., 29 S.W.3d 74 (Tex. 2000) ..31, 34, 35

Randall’s Food Markets, Inc. v. Johnson, 891 S.W.2d 640 (Tex. 1995) ..............36

Scripps Texas Newspapers, L.P. v. Belalcazar, 99 S.W.3d 829 (Tex. App.—Corpus Christi 2003, pet. denied)..........................................................................................23

Serv. Emps. Int’l Union Local 5 v. Prof’l Janitorial Serv. of Houston, 415 S.W.3d 387 (Tex. App.—Houston [1st Dist.] 2013, pet. denied) .................................. 1, 2, 18

Stearns v. McManis, 543 S.W.2d 659 (Tex. Civ. App.—Houston [1st Dist.] 1976, writ dism’d) ..............................................................................................................29

Sterner v. Marathon Oil Co., 767 S.W.2d 686 (Tex. 1989)......................................30

Sw. Bell Tel. Co. v. Dixon, 575 S.W.2d 596 (Tex. Civ. App.—San Antonio 1978), writ dism’d w.o.j., 607 S.W.2d 240 (Tex. 1980) ....................................................36

Turner v. KTRK Television, Inc., 38 S.W.3d 103 (Tex. 2000) ................................19

Victoria Bank & Trust Co. v. Brady, 811 S.W.2d 931 (Tex. 1991) ................. 34, 36

v

Statutes 22 TEX. ADMIN. CODE § 501.62 .................................................................................4

RESTATEMENT (SECOND) OF TORTS § 651(2) (1977) ................................................35

TEX. CIV. PRAC. & REM. CODE § 51.014(a)(6) ......................................... 1, 15, 16, 18

Other Authorities DARRELL HUFF, HOW TO LIE WITH STATISTICS 11 (1954) ......................................24

vi

I. STATEMENT OF THE CASE PSC Industrial Outsourcing, L.P. cleans power plants for Exelon Corporation.

Revenew International, LLC scrutinizes vendor invoices for Exelon to identify alleged

overpayments in exchange for a cut of any proceeds recovered. Based on false data of

its own creation, Revenew told Exelon that (1) PSC systematically violated its deal

with Exelon and (2) overcharged Exelon by $1,899,213. Exelon believed Revenew

and demanded payment, forcing PSC to either pay Exelon or lose the account. The

problem? Revenew lied.

PSC sued Revenew for business disparagement and tortious interference. Judge

Sylvia Matthews twice denied Revenew’s motion for summary judgment on those

claims, and Revenew brought this interlocutory appeal. The appeal can, and should,

be resolved on purely jurisdictional grounds.

II. ISSUES PRESENTED 1. Revenew’s statements about PSC appeared only in private emails or conversations, never in the news media. Should the Court overrule its past decision in Service Employees International Union Local 5 v. Professional Janitorial Services of Houston, Inc., 415 S.W.3d 387 (Tex. App.—Houston [1st Dist.] 2013, pet. denied), by holding that Revenew is nonetheless entitled to an interlocutory appeal under a statute available only to people whose words “appear[ ] in or [are] published by the electronic or print media?” TEX. CIV. PRAC. & REM. CODE § 51.014(a)(6).

2. If the Court concludes that appellate jurisdiction exists over this order denying a motion for summary judgment:

a. Is Revenew entitled to no-evidence summary judgment on the issue of whether its disparaging statements were false despite (1) PSC’s analysis disproving the statements, (2) Revenew’s admissions

that some of its statements were “pretty gray,” and (3) expert testimony showing how Revenew’s statements were false?

b. Has Revenew negated all material factual disputes about whether Revenew made its accusations knowing they were false, with reckless disregard for the truth, with ill will, and with the aim of harming PSC?

c. Regarding the tortious interference claim, has Revenew conclusively proven its affirmative defense of justification?

d. Regarding the business disparagement claim, has Revenew conclusively proven its affirmative defense of privilege?

III. STATEMENT REGARDING ORAL ARGUMENT

Oral argument is not necessary because this Court’s precedent plainly compels

dismissal for lack of appellate jurisdiction. SEIU Local 5, 415 S.W.3d 387. The

jurisdictional defect is dispositive and plain to see, meaning that any oral argument—

let alone on the merits—would be inefficient at this premature stage. Nonetheless,

Revenew seeks oral argument. If the Court grants Revenew’s request, PSC seeks oral

argument for the sole purpose of responding.

IV. STATEMENT OF FACTS

A. Revenew accuses PSC of overcharging Exelon by nearly $2 million, forcing PSC to either pay Exelon or lose the client. PSC provides environmental, industrial, and consulting services. One of PSC’s

most important customers is Exelon Corporation, a large electric utility. (R. at 827.)

Until March 2012, Exelon had no issues with PSC’s billing practices and described

its relationship with PSC as “very good.” (R. 827, 830.) Then Revenew arrived.

Revenew performs audits despite having no certification from the American Institute

of Certified Public Accountants. (R. at 846-47.)

After a so-called “audit” of PSC, Revenew told Exelon that PSC overcharged

Exelon by $1,899,213 over a three-year period. (R. 869-70, 881.) Revenew also

accused PSC of breaking specific promises to Exelon, claiming, for example, that PSC

engaged in “excess billing” for certain laborers and double-billing for cancelled jobs.

(R. at 865-70.) Contrary to Revenew’s portrayal, the truth is that PSC underbilled

Exelon by $221,426 during the three years covered by the audit. (R. 827-28, 907-09,

Ex. G.)1 Thanks to Revenew, however, Exelon accepted the false accusations of

overbilling, forcing PSC to either lose Exelon’s future business or to pay Exelon based

on Revenew’s accusations. (R. 917-18.)

After PSC had to pay Exelon, Revenew’s founder and CEO, John Birks,

gloated that “I love it when those tough ones settle and they got a [sic] to write that

big fat check!” (R. at 924.) Revenew received $187,500 of the money PSC paid to

Exelon. (R. at 976). What follows are the facts showing how Revenew fabricated the

accusations of overbilling that led to Revenew’s “big fat check.”

1 Citations to sources other than the record are to the original summary judgment exhibit identifiers. The initial clerk’s record did not include all exhibits to PSC’s response to Revenew’s Second Motion for Summary Judgment. PSC filed a request to supplement the appellate record on May 22, 2015. After this request has been processed, PSC will submit an amended version of this brief with citations to the supplemental appellate record. 3

B. Revenew designs an audit process that is tainted with conflicts of interest. Revenew’s brand of audits should not be confused with the meticulous work

product one expects from “Big Four” accounting firms. Although Revenew’s CEO

concedes that a legitimate audit firm must be neutral, Revenew’s COO admits that

Revenew is not neutral. Compare R. at 932 (auditors should be neutral and objective)

with R. 950-52 (admitting that Revenew is not neutral). Instead, Revenew goads its

clients into taking whatever position yields the most money for the client and, by

extension, for Revenew. (R. 948-50.) Rather than searching for the objective amount

of over- or underbilling, Revenew views audits as a forceful means to a lucrative end.

For instance, Revenew’s CEO encouraged Exelon to treat the PSC audit as “a steel

hammer with a velvet glove.” (R. at 964.)

At least 75 percent of Revenew’s audits are performed on a contingent-fee

basis, with Revenew earning nothing unless substantial billing “errors” are found. (R.

849, 852, 896.) As a result, workplace culture at Revenew is infused with a relentless

focus on maximizing the appearance of supplier overbillings.2 Managers circulate a

daily “thermometer” to reflect auditors’ progress in “finding” the preset overbillings

2 Although Revenew decries the possibility that its contingent-fee structure could incentivize employees to inflate audit findings, the American Institute of CPAs disagrees. Certified public accountants are ethically barred from performing contingent-fee audits. (R. at 969-70.) Even non- CPA consultants are bound to conduct audits with “integrity and objectivity.” See 22 TEX. ADMIN. CODE § 501.62 (extending certain AICPA standards to consultants). Notably, a consultant’s duty of objectivity “imposes the obligation to be impartial, intellectually honest, and free of conflicts of interest.” (R. at 971.) Revenew’s COO concedes that Revenew is not impartial. (R. 950-52.)

total that Revenew has identified as its target for the month. (R. at 852-53.) Revenew

even developed a colorful term—“juice”—that it uses to describe Revenew’s lucrative

slice of the payments that audit targets are forced to make. (R. at 854-55.) When

Revenew employees identify too few billing “errors,” managers instruct them to “get

it revved up tomorrow and crank up the thermometer.” (Ex. TT.)

And employees have every incentive to comply. All Revenew workers who

touch an audit from start to finish receive bonuses that turn on the size of the payment

Revenew receives. (R. at 929-31.) For example, the Revenew employee responsible

for auditing PSC, earns a base salary of $75,000, but he received a bonus of roughly

$19,000—equal to 25 percent of his salary—based on the total overbillings he “found”

in Revenew’s audit of PSC. (See R. at 897-901.) That employee admits he would

receive no commission for an audit that showed no overbillings. Not surprisingly,

during his six-and-a-half-year tenure at Revenew, that employee has never conducted

a single audit in which he concluded that the supplier billed too little or billed properly.

(R. at 902-03.)

C. Revenew removes low-dollar invoices from consideration, deletes samples that do not meet Revenew’s secretive criteria, and creates new samples until Revenew’s executives find one they like. Revenew had its eyes on a large payment from PSC before starting the audit.

Throughout the process, Revenew was counting down to its “good pay day” from

PSC. (R. at 981.) In fact, Exelon’s “good spend” on PSC was one of the reasons that

Revenew agreed to perform the audit at all. (R. at 988-92.) Because Revenew had

audited PSC twice before, Revenew knew that PSC’s contracts involved large-dollar

projects and complex terms that Revenew could twist into “error” findings. (R. at 988-

92, 1006.)

The typical Revenew audit results in error findings of $100,000 to $200,000—

and thus contingency fees of just $30,000 to $60,000. (See R. at 953-55.) In this case,

however, Revenew accused PSC of nearly $2 million in overbillings and reaped

$187,500 in fees—more than five times Revenew’s typical cut. (R. at 861-69, 976.)

When the size of Revenew’s fee became clear, Revenew’s CEO, Birks, celebrated his

good fortune in receiving “that big fat check!” (R. at 924.)

To create some semblance of credibility for its accusation that PSC overbilled

Exelon by $1,899,213, Revenew crafted an elaborate matrix based on sampling

techniques made up by Revenew. (See R. at 1021.) Revenew singled out PSC as the

target of these sampling methods despite knowing that Exelon expected Revenew to

“quanti[f]y [alleged overbillings] dollar for dollar” and despite having performed

dollar-for-dollar audits of every Exelon vendor except PSC. (Ex. S.) Before starting

the audit, Revenew even assured PSC that “extrapolation will not be a major piece,

we want to quantify dollar for dollar.” (Ex. T.) When enticed by Exelon’s attractive

“spend” on PSC, however, Revenew resorted to “sampling” instead of reviewing all

invoices. (Ex. Q.) Revenew selected just 90 of PSC’s 8,044 bills, found only $31,090

in purported errors, but then told Exelon that PSC had overcharged by $1,899,213.

(See R. at 861-70; Ex. U.)

1. Revenew intentionally “cleans up” the data by deleting small-dollar invoices and considering only PSC’s higher-dollar invoices. Revenew’s incentive to falsify results was on display from the outset of the

PSC audit. Before the audit began, PSC supplied Revenew with a list of all invoices

for February 2009 to January 2012, ranging in price from $1.19 to $180,731.37. (R.

at 827; Ex. U.) Revenew’s first step was to delete from that list all 1,372 invoices that

were worth less than $100. (See R. at 997-1000.) In other words, nearly one out of

five PSC invoices had no chance of being included in Revenew’s purportedly

“random” sample. (R. at 997-1000.)

Not coincidentally, most of the 1,372 invoices that Revenew purposely ignored

were worth about $65. (Ex. U.) In contrast, the invoices that Revenew did consider

had a mean value exceeding $2,900. (Ex. U.) By manipulating the sample to include

only top-dollar invoices, Revenew enabled itself to “find” more expensive “errors.”

Revenew calls this practice of deleting low-dollar invoices its “clean up”

process. (Ex. W.) In other words, Revenew requires employees to consider the value

of each invoice in “cleaning up” data to exclude small-dollar invoices from the

purportedly random sample. (R. at 999.) Recognizing the implications of this

evidence, Revenew witnesses offered wildly different explanations about the “clean

up” process or denied even knowing the term.

For instance, Mike Nayebpour, who helped Revenew design its sampling

methods, candidly wrote that Revenew’s “clean up procedures are intended to remove

. . . items with small dollar amounts at or near zero.” (Ex. W.) But Aileen Jamir, the

Revenew employee responsible for performing the “clean up” process, says that

Nayebpour’s description is wrong and that she never discards low-dollar invoices.

(Ex. X, Jamir 54:25-56:22.) Revenew’s information technology director admits that

any discrepancies between Nayebpour’s descriptions and Revenew’s actual practices

could suggest suspicious or improper behavior. (Ex. V, Moore 166:5-166:13.)

Meanwhile, Jamir’s own supervisor says that Jamir did omit low-dollar invoices from

this very audit. (R. at 997-1000.) In sum, Revenew’s “clean up” process creates the

false appearance of overbilling by singling out only the largest invoices for scrutiny

and then passing off high-dollar “errors” on those bills as representative of all PSC

invoices. (R. at 1018-21.)

2. Revenew further inflates the appearance of overbilling by handpicking a sample with even more expensive invoices. Once it discarded all low-value invoices, Revenew was not done manipulating

the sample of PSC’s invoices. First, Revenew sliced the remaining invoices into three

categories, one for each line of business that PSC does with Exelon. (R. at 1008.)

From each of those categories, Revenew chose samples. In describing the samples,

Revenew represents that the “undisputed evidence in this case is that the invoices were

chosen randomly.” (R. at 499.) In truth, Revenew’s IT director and corporate

representative admits that “[t]he final product sample that is produced for auditing is

not a completely random sample.” (Ex. V, Moore 39:22-41:13) That is because

Revenew has programmed its software to delete any samples that do not satisfy the

selection criteria that Revenew baked into the software. (Ex. V, Moore 39:22-41:13.)

Revenew cloaks its deletion criteria in jargon, claiming that the software merely

discards samples that do not meet the “z-test” and “chi-squared test” (as opposed to

choosing samples likelier to yield bigger “errors”). (Ex. V, Moore at 118:17-119:1.)

Yet Revenew’s IT director, who picked the samples in this case, cannot explain how

either of the supposed selection criteria work. (Ex. V, Moore 48:19-49:13; 59:8-

60:10.) And Revenew’s president, Kris Westbrook concedes that, whatever these

“tests” do, they do not ensure the sample is representative of billing errors, which is

what Revenew claims to be looking for. (R. at 841-42.)

3. Revenew discards its original samples—and its own rules—to choose smaller samples with still-higher dollar values. Even after selecting non-random invoice samples using Revenew’s custom

criteria, Revenew’s executives then threw back the samples they did not like. (R. at

993-94; Ex. Y.) Revenew first drew 50-invoice samples for the two larger categories

of PSC business. (R. at 993-94; Ex. Y.) But after seeing the total dollar value of those

samples, Revenew’s executives threw out those samples and—contrary to Revenew’s

internal rules—created new samples of just 30 invoices apiece. (R. at 993-94, 1001-

02; Ex. Z.)

What did Revenew’s executives see in the original samples that caused them to

be thrown away in favor of smaller ones? Consider the discarded versus ultimately-

used samples for PSC’s “Peco” business segment:

Original 50-invoice Smaller 30-invoice sample that Revenew sample Revenew threw away chose to use

Invoices reviewed 50 out of 3,262 30 out of 3,262

Average value of $6,703 $7,814 invoice within sample

Population sum of $335,175 $234,424 all invoices within sample

By throwing away the larger sample, Revenew achieved two sleights of hand.

First, the invoices in the new, smaller sample have a higher average value. (Ex. Z; Ex.

AA.). Because the average invoice value jumped by more than $1,000 in the new

sample, Revenew set itself up to find more expensive “errors” on each bill reviewed.

(Ex. AA, REV001571.) More expensive bills offer more chances to claim more

expensive errors.

Second, Revenew threw away the sample with the larger population sum. That

sum is all-important because it is the denominator in Revenew’s extrapolation

equation. (Ex. Z.); (see also R. at 500.) (“The formula for the extrapolation factor is a

simple one: Population Sum ÷ Sample Sum.”). By taking the total value of all Peco

invoices ($21,148,657) and dividing it by the sum of the original 50-invoice sample

($335,175), Revenew arrived at an extrapolation factor of 63.10. (Ex. Z.) In other

words, if Revenew found a single $1,000 error, it would multiply that error by 63.10

to accuse PSC of overbilling by $63,310.

But Revenew was not happy with a multiplier of just 63. It wanted a larger

multiplier, so Revenew’s executives went back to the well for a new sample. (R. at

993-94, 1001-02; Ex. Y.) In the new sample, the population sum naturally dropped

to $234,424 because only 30 invoices were reviewed. (R. at 993-94, 1001-02; Ex.

Y.) The result is a smaller denominator. Dividing the value of all Peco invoices

($21,148,657) by the sum of the 30-invoice sample ($234,424) yields an

extrapolation factor of 90.22, rather than the original 63.10. (R. at 993-94, 1001-02;

Ex. Y.) Consequently, Revenew would take the same $1,000 error, for example, and

use it as the pretense for accusing PSC of $93,220 in overbillings instead of the

$63,310 that would have resulted from using the original 50-invoice sample. This

one trick of cutting samples to 30 invoices instead of 50 assured a larger

extrapolation factor, allowing Revenew to convey the false impression of even more

overbilling. (R. 1019-20.)

Revenew’s selective fishing for larger multipliers was contrary to Revenew’s

own rules. Because more than 500 invoices were at issue in two of PSC’s business

segments, Revenew’s “best practice” was to use a 50-invoice sample for each

segment. (R. at 1001-02; Ex. BB; Ex. CC.) But after seeing the average and

population values of the 50-invoice samples, Revenew’s Juliana Routzong and Dave

George twice ordered the creation of smaller samples containing just 30 invoices.

(Ex. EE.) Routzong did so despite admitting that she believed 50 was the correct

sample size for at least one of the categories. (R. at 995.) Moreover, Revenew’s

COO, who oversees the audit process, admits that it was contrary to his expectations

for Revenew to discard its own best-practice sample sizes. (R. at 956-58.)

D. Revenew convinces Exelon to repudiate its prior billing agreements with PSC and multiplies PSC’s resulting “errors” by almost one-hundred fold. Creating a larger multiplier or “extrapolation factor” is only the first step in a

Revenew audit. After deciding to multiply each error by 90.22, Revenew had to set

out in search of errors to multiply. This job belonged to Bill Shoemaker, who was

tasked with identifying as many “errors” as possible in each sample invoice. (See R.

at 879, 894-95.)

In PSC’s ComEd business segment, for example, Shoemaker found three

instances—out of 8,044 invoices—where he claimed that PSC overbilled for laborers.

(R. at 865, 869.) This “error” finding is emblematic of Shoemaker’s work. Three

times, PSC dispatched a three-man work crew in one truck. (R. at 865, 869.)

According to Shoemaker, the cost of the truck was reflected in the first two workers’

hourly rate, meaning that PSC “overbill[ed]” by not awarding a discount for the third

laborer’s time. (R. at 865, 869.) These three purported “errors” amounted to just

$2,290, but Shoemaker multiplied them by 70.22 (Revenew’s extrapolation factor for

the ComEd segment) to accuse PSC of $178,625 in overbillings. (R. at 865, 869-70.)

Similar examples abound (R. at 861-70), but one proves the point.

Revenew’s COO admits that some of Revenew’s “error” findings in this audit

were “pretty gray” and were worth as little as 25 percent of what Revenew told

Exelon. (Ex. GG, REV000496.) On one purported “overbilling” of $233,000, for

example, Revenew privately conceded that the Exelon-PSC “contract language

supports” PSC’s position. (Ex. HH, REV000013.) Yet Revenew still used that

purported overbilling as “leverage” for a higher payment from PSC. (Ex. HH,

REV000013.)

Importantly, Revenew did not identify pending invoices and convince Exelon

not to pay them. Instead, Revenew scoured long-ago-paid invoices years after the fact

to find line items that—with no reference to context or historical practice—it could

label as “errors.” Before Revenew’s involvement, Exelon had already chosen to pay

these invoices after passing them through several levels of internal approval. (Ex. II,

McDonald 40:16-40:24, 43:25-44:22, 49:16-49:23.)

Then Revenew convinced Exelon to repudiate its billing agreements with PSC

by supplying ammunition that Revenew knew was bogus: alleged contract

“violations” culled from non-representative samples, which Revenew then inflated by

nearly one-hundred-fold using extrapolation. (Supra § IV.C.3.) Revenew not only

“discovered” the errors, it sat in the driver’s seat for the rest of the audit—providing

behind-the-scenes coaching on how best to “soften up” PSC into paying, ghost-

writing Exelon’s demands to PSC, and even sending a Revenew employee to hide in

a nearby room while Exelon demanded money from PSC. (R. at 884-93.)

E. After PSC is forced to pay Exelon, Revenew collects its “big fat check.”

As the audit progressed, Revenew falsely told Exelon that PSC had overbilled

Exelon by exactly $1,899,213. Exelon accepted Revenew’s representations without

question, adopting verbatim Revenew’s accusations of overbilling and then sending

those accusations to PSC along with a demand for payment. Compare R. at 861-70

(Revenew draft) with Ex. JJ (Exelon copy); see also R. at 881-83 (confirming that

Exelon simply relays Shoemaker’s drafts to PSC).

The massive commercial pressure on PSC was well known to Revenew’s CEO.

Birks used that pressure to “soften” PSC executive Liz Crow in a telephone call,

telling Crow that PSC “need[s] to move the needle much further north” and that

“Exelon is not going to back off.” (R. at 964.) Birks then used confidential information

from Revenew’s past audits of PSC to assure Exelon that PSC would pay a higher

number to preserve the client relationship. (R. at 964) Birks further encouraged Exelon

to use a “steel hammer with a velvet glove” by emphasizing the future business that

PSC stood to do with Exelon. (R. at 964.)

Faced with the clear threat of losing Exelon’s business, PSC had no choice but

to defuse Revenew’s accusations by paying Exelon $620,000 and declining to collect

more than $220,000 that Exelon owed for past services. (R. at 709-11, 828.) In turning

over this money to Exelon, PSC specified that it was making a “customer satisfaction

payment”—the necessary cost to “continue the amicable relationship that the parties

enjoy” in the aftermath of the “irreconcilable issues” spawned by Revenew’s audit.

(R. at 709-10.) In return for forcing this payment, Revenew received $187,500 of the

money that PSC paid to Exelon. (R. at 976.)

F. Judge Matthews twice denies summary judgment, and Revenew then brings this interlocutory appeal, claiming that its emails to Exelon were somehow “published by the electronic or print media.” PSC sued Revenew for business disparagement, tortious interference, and

unjust enrichment. Judge Sylvia Matthews of the 281st Judicial District Court denied

Revenew’s first motion for summary judgment in May 2014. Revenew did not appeal.

Revenew moved again for summary judgment in November 2014. On March 18,

2015, Judge Matthews denied summary judgment as to PSC’s business disparagement

and tortious interference claims.

On April 7, Revenew appealed, citing section 51.014(a)(6) of the Texas Civil

Practice and Remedies Code as its only basis for appellate jurisdiction over an

interlocutory order. According to Revenew, its statements in the audit were “published

by the print or electronic media” because the “allegedly libelous statement appeared

in electronic or print form,” i.e., in a “medium.” (Resp. to Mtn. to Dismiss at 10, 19.)

On April 15, PSC moved to dismiss this appeal for lack of jurisdiction and to recover

attorneys’ fees from Revenew for its frivolous invocation of section 51.014(a)(6).

That motion is pending.

V. SUMMARY OF ARGUMENT

First and foremost, this Court lacks jurisdiction to hear this appeal because

Revenew does not satisfy the requirements of section 51.014(a)(6). Specifically,

Revenew’s disparaging comments never appeared in nor were published by “the

electronic or print media.” These comments only appeared in private letters,

conversations, or emails.

If the Court does decide to rule on the merits of this appeal, Judge Matthews

was correct in twice denying Revenew’s motion for summary judgment.

First, PSC provided ample evidence that Revenew’s allegations of PSC

overbilling Exelon were false. Revenew invented the “errors” by manipulating invoice

samples, violating its own “best practices,” and taking numerous other steps to inflate

the appearance of overbilling.

Second, PSC proved all four types of malice, and proof of even one type defeats

summary judgment. PSC showed, through a series of admissions from Revenew’s

own employees, that Revenew knew its statements were false or recklessly

disregarded their truth. Revenew also harbored ill will towards PSC and sought to

interfere with PSC’s economic interests because Revenew went out of its way to target

only PSC (as opposed to Exelon’s other vendors) and maximize the “errors” found to

capitalize on its contingency-fee fueled audit.

Third, Revenew failed to conclusively prove its affirmative defense of

justification. That defense is not available at all because Revenew interfered with the

PSC-Exelon relationship through independently tortious means: business

disparagement of PSC and fraudulent or negligent misstatements to Exelon.

Moreover, Revenew did not comply with the terms of its contract with Exelon, further

making this defense inapplicable. Furthermore, in light of its defective and tortious

audit, as discussed above, Revenew failed to act in good faith.

Fourth, Revenew failed to conclusively prove its affirmative defense of

privilege for the same reasons it failed to prove justification. Specifically, privilege

requires Revenew to adhere to the contract with Exelon in order to protect itself from

liability in a business disparagement case.

In light of these arguments, the Court should dismiss Revenew’s appeal, or, in

the alternative, affirm Judge Matthew’s denial of Revenew’s Second Motion for

Summary Judgment.

VI. ARGUMENTS AND AUTHORITIES

A. This Court lacks jurisdiction: The trial court’s order denying Revenew’s motion for summary judgment is interlocutory and non-appealable. PSC will not reargue its entire motion to dismiss in this space. But the

jurisdictional problem bears repeating. Before addressing the merits, this Court must

determine its appellate jurisdiction. Phillips v. State, 77 S.W.3d 465, 466 (Tex. App.—

Houston [1st Dist.] 2002, no pet.). Revenew cannot bring this interlocutory appeal

without showing that it published its disparaging comments in “the electronic or print

media.” TEX. CIV. PRAC. & REM. CODE § 51.014(a)(6).

There is no evidence that Revenew said anything about PSC except in private

letters, emails, and conversations. See PSC’s Reply in Support of Motion to Dismiss

at 5-7. This Court and others have already rejected Revenew’s fanciful view that,

merely by putting pen to paper or keystroke to keypad, Revenew published statements

“in . . . the media.” SEIU Local 5, 415 S.W.3d at 395 (holding that “self-published

statements in letters to third parties, flyers, handbills, newsletters, website postings,

press releases, reports, and oral testimony” cannot create jurisdiction under section

51.014(a)(6)); Main v. Royall, 348 S.W.3d 381, 386-87 (Tex. App.—Dallas 2011, no

pet.) (declining to hold that “anyone with a computer, typewriter or printer will . . .

have the right to file an interlocutory appeal”).

Based on the Court’s controlling opinion in SEIU Local 5, the Court can—and

should—stop reading here. Without jurisdiction, the merits are moot.

B. Even if the Court were to address Revenew’s merits arguments, the order denying summary judgment should be upheld.

1. Revenew’s statements were false. Judge Matthews was correct in denying Revenew’s motion as to PSC’s

business disparagement and tortious interference claims, as PSC introduced sufficient

evidence of falsity and malice. PSC demonstrated Revenew’s statements were false

and malicious. Moreover, Revenew failed to conclusively prove its affirmative

defenses of justification or privilege.

a. PSC easily withstands Revenew’s no-evidence challenge. A statement must be false to be disparaging. Hurlbut v. Gulf Atl. Life Ins. Co.,

749 S.W.2d 762, 766 (Tex. 1987). Revenew’s statements about PSC were false. To

defeat Revenew’s no-evidence motion on this issue, PSC’s burden is not a steep one.

PSC need only provide more than a scintilla of evidence that Revenew’s statements

were misleading enough to cast suspicion on PSC. Turner v. KTRK Television, Inc.,

38 S.W.3d 103, 117-18 (Tex. 2000). Among other ways, PSC can prove falsity by

showing that Revenew omitted material facts or misleadingly juxtaposed others,

leaving Exelon with a “substantially false impression.” Id.

Even ignoring PSC’s low burden, voluminous evidence shows that Revenew’s

statements were false. Revenew accused PSC of overbilling Exelon by $1,899,213

and of violating its contract with Exelon in numerous ways. (R. at 850, 862-864, 869-

70.) But PSC’s own analysis reflects that, in the aggregate, PSC actually underbilled

Exelon by at least $221,426 during the years covered by the audit. (R. at 827-28,

907-08; Ex. G.) That evidence alone requires denial of summary judgment. See

Bentley v. Bunton, 94 S.W.3d 561, 587 (Tex. 2002) (“If the evidence is disputed,

falsity must be determined by the finder of fact.”).

Revenew’s admissions further prove falsity. Revenew’s employee privately

identified the “fair” picture of PSC’s overbillings as $535,000, not the $1.9 million

that Revenew presented to Exelon. (Ex. NN, REV000009.) Revenew’s employees

also concede that some of Revenew’s accusations about PSC were “pretty gray” and

that Revenew’s “extrapolated total” for one purported overbilling could have been

higher than the real total. (Ex. GG; Ex. OO, REV001256.)3

Revenew’s president admits that Revenew’s conclusions are only as true as

the invoice samples that it draws. (R. at 839-40.) As detailed above, Revenew

purposefully skewed those samples, both in content and size, to falsely accuse PSC of

3 Revenew is correct that one conceivable way to disprove Revenew’s accusations would be for PSC to self-audit all 8,044 invoices. But Revenew takes that position to an illogical extreme, stating that such a burdensome exercise is the only way for PSC to prove the falsity of Revenew’s statements. (App. Br. at 20.) Of course, Revenew cites no authority for its proclamation that “[t]o prove actual falsity . . . PSC would have to compare the extrapolated amount with the actual amount obtained from a review of each invoice.” (Id.) No such authority exists. To the contrary, Texas courts have ruled that it is unnecessary to review each and every data point to determine whether a statement is false or substantially true. See Gaylord Broad. Co., L.P. v. Francis, 7 S.W.3d 279, 282, 285-86 (Tex. App.—Dallas 1999, no pet.) (holding that “evidence exists from which a jury could find that some of the statements made were false” instead of requiring plaintiff to re-examine all 9,000 entry and exit records upon which defendants’ false statements were based (emphasis added)). The mere fact that PSC could prove falsity with one form of evidence does not preclude PSC from proving falsity with different evidence—such as Revenew’s own admissions. Revenew’s position that a self- audit would be the “best” way to prove falsity is nothing more than a jury argument. 20

rampant overbilling. (Supra § IV.C.) First, Revenew set aside the 1,372 lowest-dollar

invoices, disregarding nearly 20 percent of PSC’s invoices and thus creating a

substantially false impression. (Supra § IV.C.1.) Next, Revenew jettisoned its own

“best practices” to delete purportedly random invoice samples that offered fewer

opportunities for Revenew to “find” high-dollar errors. (Supra § IV.C.3.) That one

ruse enabled Revenew to multiple $1 “errors” by 90.22, grossly inflating the

appearance of overbilling. (R. at 993-94, 1001-02, 1019-20; Ex. Y.) It is difficult to

imagine a scenario better fitting the phrase “garbage in, garbage out.”

Additionally, expert testimony confirms that Revenew reported false results.

(R. at 1009.) Dr. Charles Cowan was a director of PricewaterhouseCoopers, served as

chief statistician for three federal agencies, designed surveys for the U.S. Census

Bureau, and taught statistics courses at three universities. (R. at 1022-23.) By applying

this expertise and reviewing Revenew’s work, Dr. Cowan concluded that Revenew’s

accusation of $1,899,213 in overbillings was incorrect. (R. at 1009.)

First, Revenew’s manipulated invoice samples were far too small to yield any

true determination of errors. (R. at 1012-13.) If Revenew had actually applied the

methods that it purported to, it would have needed to review 5,037 invoices, not 90.

(R. at 1013-14.) Moreover, all of the samples that Revenew used were “upwards

biased,” meaning they had a higher dollar value relative to the total invoice population.

(R. at 1019.) If Revenew were really using random samples—instead of falsely

inflating the appearance of overbilling—there is only a 1.47 percent chance that it

would have drawn three out of three samples with above-average dollar values. (R. at

1020.) Finally, Revenew “found” just one invoice out of the 90 sampled that

reflected an undercharge by PSC. (R. at 1021.) In other words, 98.9 percent of the

“errors” Revenew found were in one direction—the direction that favored

Revenew’s bottom line. (R. at 1021.)

Revenew suggests that, if any overbilling existed, then Revenew’s accusation

of multi-million-dollar overbilling was no more harmful than an accurate report

would have been. (App. Br. at 21.) But when the truth is that few or no billing errors

occurred,4 painting a picture of systematic errors approaching $2 million is a far cry

from telling the “substantial truth.” Cf. Newspaper Holdings, Inc. v. Crazy Hotel

Assisted Living, Ltd., 416 S.W.3d 71, 84–85 (Tex. App.—Houston [1st Dist.] 2013,

pet. denied) (where water leaks occurred, describing result as “cascade” of water

was no more damaging than less vivid description would have been). Revenew’s

own COO confirms that an accusation of overbilling can hurt a company’s reputation.

(R. at 959.)

Taken together, PSC’s contrary analysis, Revenew’s admissions, Revenew’s

rigged audit process, and Dr. Cowan’s expert testimony amount to well more than a

scintilla of evidence that Revenew’s accusations were false. See, e.g., Scripps Texas

4 In reality, PSC underbilled Exelon by $221,426. (See R. at 827-28.) 22

Newspapers, L.P. v. Belalcazar, 99 S.W.3d 829, 836 (Tex. App.—Corpus Christi

2003, pet. denied) (finding sufficient evidence of falsity where newspaper accurately

reported that doctor left sponge in patient’s stomach but failed to mention that patient

dismissed resulting lawsuit); Gaylord, 7 S.W.3d at 286 (recognizing fact question on

falsity of reporter’s statement that judge left work early 67 percent of the time because

judge supplied “evidence that indicates his work habits are considerably better”).

b. Accusations of overbilling can be wrong; no rule of law (or logic) supports Revenew’s argument that, if a statement is paired with numbers, that statement can never be proven false. Citing nothing, Revenew argues that a report of billing errors “cannot, as a

matter of law, be a statement of fact that can be ‘true’ or ‘false.’” App. Br. at 19.

Revenew is wrong. See, e.g., Moore & Assoc. v. Metro. Life Ins. Co., 604 S.W.2d

487, 489 (Tex. Civ. App.—Dallas 1980, no writ) (finding material fact dispute over

defamation claim arising from insurer’s statement that doctor’s “charges were

excessive”). It is no secret that extrapolation and related statistical functions can

be—and often are—twisted to support false conclusions. See generally Procter &

Gamble Mfg. Co. v. Fisher, 449 U.S. 1115, 1118 (1981) (Rehnquist, J., dissenting)

(“Disraeli’s familiar statement that ‘there are three kinds of lies: lies, damned lies

and statistics,’ rings true in this case.”); Jefferson v. Hackney, 406 U.S. 535, 552

(1972) (Douglas, J., dissenting) (observing that state rerouted money to favored

recipients “by manipulating a mathematical formula”); DARRELL HUFF, HOW TO LIE

WITH STATISTICS 11 (1954) (“This book is a sort of primer in ways to use statistics

to deceive. . . . The crooks already know these tricks; honest men must learn them

in self-defense.”).

Beyond asserting that extrapolation is sacrosanct, Revenew claims to have

expressed only “opinions” about overbilling. App. Br. at 19. Yet Revenew nowhere

acknowledges the Texas Supreme Court’s test for distinguishing between facts and

opinions. To qualify as protected “opinion,” a statement cannot imply facts that are

objectively verifiable. Bentley, 94 S.W.3d at 580; Milkovich v. Lorain Journal Co.,

497 U.S. 1, 18–19 (1990) (courts recognize no “wholesale . . . exemption for anything

which might be labeled ‘opinion’” because, if “a speaker says, ‘In my opinion John

Jones is a liar,’ he implies a knowledge of facts which lead to the conclusion that

Jones told an untruth”).

In Bentley, for instance, a talk show host accused a judge of corruption. Bentley,

94 S.W.3d. at 566-67. In deciding that the host’s statements were not mere “opinion,”

the court considered the full context: in making the statement, the host (1) “cited

specific cases and occurrences,” (2) “pointed to court records and public documents”;

and (3) “made lengthy investigations and interviewed court employees and others.”

Id. at 583. Like the defendant in Bentley, Revenew did not simply claim that “in our

opinion, PSC billed too much.” Revenew instead pointed to a specific 90 invoices (30

for each of PSC’s audited business segments), 682 line items, and detailed

spreadsheets to assert PSC had overbilled Exelon by the precise amount of

$1,899,213. (R. at 869-70.) As a result, Revenew’s accusations of specific overbillings

were too laced with purported “facts” to qualify as mere opinions. See, e.g., Gaylord,

7 S.W.3d at 286 (holding that the following statement was not an opinion because it

implies assertions of fact: “Records suggest Francis leaves the courthouse early 67%

of the time and works only a half day 50% of the time.”).5

2. Revenew exhibited all four variants of malice toward PSC. In business-disparagement cases, malice exists if the defendant knew its

statement was false, displayed “reckless disregard” for the truth, acted with “ill will,”

or “intended to interfere in the economic interest of the plaintiff in an unprivileged

fashion.” Hurlbut, 749 S.W.2d at 766. Any one of these forms of malice is enough to

warrant trial, and PSC has sufficient evidence to establish all four varieties.

a. Revenew knew its accusations were false or was at least reckless about the truth.

Revenew told Exelon that PSC overbilled by $1,899,213. (R. at 869-70.)

Privately, however, Revenew identified the “fair” value of PSC’s alleged overbillings

as just $535,000. (Ex. NN.) Revenew’s COO admits that Revenew made “pretty gray”

5 Delta Air Lines, Inc. v. Norris, the only case identified by Revenew (App. Br. at 17-19), does not hold otherwise. 949 S.W.2d 422, 427 (Tex. App.—Waco 1997, no pet.). In Delta Air Lines, an employer said that former employees had “failed to meet [the employer’s] standards,” but the employer neither said what those standards were nor how the employees violated the standards. Id. Given their vagueness, the employer’s comments were nothing but “nonspecific statements lacking a defamatory meaning.” Id. In contrast, Revenew’s statements were specific to the penny and not of the vague nature sometimes held to constitute opinion. (R. at 861-70.) 25

accusations worth as little as 25 percent of what Revenew claimed. (Ex. GG; Ex. OO.)

Revenew even concedes that “it would have been easy to let up and say ‘nothing is

there’” in its audit of PSC. (Ex. PP.) Any of these statements are sufficient on their

own to show that Revenew was, at minimum, reckless about the truth of its

accusations. See Fluor Enters., Inc. v. Conex Int’l Corp., 273 S.W.3d 426, 439 (Tex.

App.—Beaumont 2008, pet. denied) (“Reckless disregard is established by evidence

that the defendant in fact entertained serious doubts as to the truth of the statements.”).

The evidence of Revenew’s reckless or intentional disregard for the truth does

not stop there. Revenew abandoned its own “best practice” when selecting the PSC

sample sizes, causing Revenew to magnify purported errors by a factor of 90. (Ex.

EE.) One of the employees who ordered this slashing of invoice samples admits that

she believes 50 was the correct sample size, and Revenew’s COO admits that such

deviation from best practices was against his expectations. (R. at 956-58, 1001-02.)

It makes no difference that some of Revenew’s most damaging admissions

came after the audit ended. Revenew suggests the Court cannot consider after-the-fact

admissions to determine Revenew’s mental state during the audit. App. Br. at 24. If

Revenew were correct, then even deposition and trial testimony could never prove

malice—simply because any admissions in such testimony are necessarily made long

after the disparaging statement at issue. Of course, that is not the law. See Gonzalez v.

Hearst Corp., 930 S.W.2d 275, 283 (Tex. App.—Houston [14th Dist.] 1996, no writ)

(“Refusal to print a retraction is evidence of an action after the publication, but it can

lend support to a claim that reckless disregard or knowledge existed at the time of

publication.”); Gaylord, 7 S.W.3d at 285 (finding malice based on defendant’s after-

the-fact testimony about what she did before making defamatory statement).6

Moreover, Revenew had already received complaints from past customers and

audit targets about the same methods used in this audit. (See Ex. V, Moore 162:13-

165:1.) Despite its knowledge of those complaints, Revenew kept on using the same

audit practices, never installing any quality-control mechanisms to determine whether

the billing “errors” relayed to Exelon were legitimate. (R. at 946-47.) Bill

Shoemaker—who has no legal training, is not an expert in industrial-cleaning

contracts like PSC’s, and has never worked in the industrial-cleaning sector—found

all “errors” on the PSC invoices with no oversight from his supervisor. (R. at 876-

878, 946-47.)

Courts routinely infer recklessness from defendants’ “improper[]

extrapolat[ion] from other evidence” or “obvious reasons to doubt the veracity of the

informant or the accuracy of his reports.” See Harte-Hanks Commc’ns, Inc. v.

6 To support its position, Revenew cites only Hansen v. Jackson, No. 13-14-00039-CV, 2014 WL 5794872 (Tex. App.—Corpus Christi Nov. 6, 2014, pet. filed). Nothing in Hansen indicates that documents dated after the disparaging statements are off limits when assessing malice. In Hansen, defendants recommended firing the plaintiff. Months later, they made disparaging comments about the plaintiff. Hansen merely holds that the defendants’ earlier desire to fire the plaintiff—by itself— is no proof that they knew their later statements about him were false. Id. at *10. How Revenew twists that holding into a rule that “statements . . . made after the allegedly false [statement] . . . do not constitute evidence concerning reckless disregard” is a mystery. See App. Br. at 24. 27

Connaughton, 491 U.S. 657, 666 (1989); Gaylord, 7 S.W.3d at 285 (finding fact issue

on malice when reporter misconstrued incomplete data on a judge’s entries and exits

into the courthouse parking garage). If the facts above are not enough to establish

recklessness, it is difficult to imagine any that do. See Hearst Corp. v. Skeen, 159

S.W.3d 633, 638 (Tex. 2005) (“[I]nherently improbable assertions and statements

made on information that is obviously dubious may show actual malice.”); Bentley,

94 S.W.3d at 591 (holding that sloppy research “contrary to a speaker’s usual

practice” may demonstrate recklessness to the truth).

b. Revenew acted with ill will toward PSC and intended to interfere with PSC’s economic interests.

Revenew’s discussion of ill will and intentional interference is notable for one

thing: its dearth of supporting law. App. Br. at 25-26. Rather than attempting to show

any entitlement to summary judgment, Revenew merely sets forth a host of jury

arguments that lay out alternative inferences one could draw from various evidence.

Id. Such arguments are immaterial to a no-evidence motion like this one. See Mensa-

Wilmot v. Smith Int’l, Inc., 312 S.W.3d 771, 781 (Tex. App.—Houston [1st Dist.]

2009, no pet.) (“We review a no-evidence summary judgment by construing the

record in the light most favorable to the nonmovant and disregarding all contrary

evidence and inferences.”).

In any event, evidence abounds concerning Revenew’s ill will toward PSC.

For instance, Revenew targeted only PSC—but none of the other Exelon vendors

that Revenew audited—for specious “extrapolation” techniques. (Ex. S.) Moreover,

Revenew viewed PSC as “good juice,” a “good pay day,” and rejoiced when PSC

had to “write that big fat check!” (R. at 924, 981; Ex. QQ.) Revenew also misused

confidential information from its past audits of PSC to (1) evaluate whether to audit

PSC for Exelon and (2) to pressure PSC into paying more money to Exelon. (R. at

963-68, 989-90.) These facts far exceed the generic evidence of “ill will” that is

needed to raise a fact dispute. See, e.g., Stearns v. McManis, 543 S.W.2d 659, 663

(Tex. Civ. App.—Houston [1st Dist.] 1976, writ dism’d) (finding fact question on

“ill will” where defendant said he could not get along with plaintiff and would quit

kennel club if plaintiff was admitted).

It is equally clear that Revenew intended to interfere with PSC’s economic

interests. Revenew ordered the creation of bogus samples to inflate the appearance of

overbillings. (Supra § IV.C.3.). Throughout the audit, Revenew used a “thermometer”

to keep track of the overbillings attributed to PSC, encouraging employees to “get it

revved up tomorrow and crank up the thermometer.” (Ex. TT.) Revenew was openly

awaiting its “good pay day” from PSC, and the high dollar-value of PSC’s account

with Exelon was among the reasons that Revenew agreed to perform the audit. (R. at

R. at 981-82, 990, 992.) In short, Revenew’s accusations of false billing had no

purpose but to enrich Revenew at the expense of PSC. Such evidence shows an intent

to harm PSC’s economic interests. See, e.g., Hipsaver, Inc. v. Kiel, 984 N.E.2d 755,

770-71 (Mass. 2013) (citing RESTATEMENT (SECOND) OF TORTS § 623A (1977))

(holding that remarks referring to product as “untested” and manufacturer as “the

biggest scam artist” showed an intent to interfere).7 Consequently, Revenew’s no-

evidence motion was properly denied.

3. Revenew fails to prove its affirmative defense of justification.

Justification is an affirmative defense to tortious interference, and Revenew

cannot use the defense to win summary judgment without conclusively proving all

elements of justification. Sterner v. Marathon Oil Co., 767 S.W.2d 686, 689 (Tex.

1989). Revenew fails to do so.

First, Revenew cannot even claim the defense because Revenew’s means of

interference amount to independent torts, which are never justified. Next, there

exists—at minimum—a factual dispute about whether Revenew was truly acting

pursuant to the contract terms that supposedly justified its behavior. Finally, Revenew

fails to prove that it acted in good faith when carrying out the audit of PSC.

7 The business disparagement cause of action in Texas is derived from the “injurious falsehood” claim described in the Second Restatement. Texas, like many jurisdictions, follows this Restatement provision. See Hurlbut, 749 S.W.2d at 766 (citing RESTATEMENT (SECOND) OF TORTS § 623A (1977)). Therefore, cases from other jurisdictions applying the same provision offer some guidance on what evidence establishes the four variants of malice. 30

a. No justification defense is available because Revenew’s interference was accomplished by means of independent torts. As a threshold matter, no justification defense is available to Revenew because

Revenew’s means of interfering with the PSC-Exelon contact included independent

torts—business disparagement of PSC and fraudulent or negligent misstatements to

Exelon. Prudential Ins. Co. of Am. v. Fin. Review Servs., Inc., 29 S.W.3d 74, 81 (Tex.

2000) (“[I]f the plaintiff pleads and proves methods of interference that are tortious in

themselves, then the issue of privilege or justification never arises.”); (R. at 7-9; Supra

§ IV.B-C.) In other words, there can be no “justification” defense because Revenew

interfered using tortious means. Prudential, 29 S.W.3d at 81. Interference that is

independently tortious is never justified. Id.

b. There is, at minimum, a conflict in evidence about whether Revenew was acting pursuant to its contract with Exelon. The only justification that Revenew claims is its right to perform audits under

its contract with Exelon. App. Br. at 27-31. Rather than attempting to carry its burden

of proving justification as a matter of law, Revenew only claims that “there is no

dispute that Revenew was acting pursuant to its own contract with Exelon” when it

made the disparaging statements. App. Br. at 29. No dispute?

The Exelon contract does not give Revenew a blank check to conduct audits

in whatever way Revenew sees fit. Instead, the contract requires Revenew to perform

an audit (1) “of high quality, free from any defects,” (2) “in accordance with the

applicable state-of-the-art industry standards and practices,” and (3) in compliance

with “the practices and professional standards used in well-managed operations

performing services similar to [the audit].” (Ex. RR, §§ 4.1, 4.2.) Revenew’s

president admits that Revenew is not acting within its rights under the Exelon

contract unless it meets all of these benchmarks. (R. at 843-45.) The evidence proves

Revenew did not.

For one, Revenew did not comply with the terms requiring an audit of the

highest quality, and thus was not acting within any legal privilege. As described

above, Revenew’s sampling practices in this audit were far below industry standards

and even violated Revenew’s own “best practice.” (Supra § IV.C.) Dr. Cowan has

testified, in essence, that Revenew’s conduct of this audit was as far from “state-of-

the-art” and “professional” as it is possible to be. (R. at 1021.) (concluding that this

audit was “completely inconsistent with good statistical practice, and ignores

statistical and audit convention”).

Revenew’s contract further requires a “random sample of invoices” from “the

population of invoices covering the 3-year review period.” (Ex. RR, REV007901, § B-

2-A.) Revenew also violated this provision. According to Revenew’s IT director,

Revenew’s invoice sample was not random. (Ex V, Moore 39:22-41:13.) Moreover,

Revenew did not draw the sample from “the population of invoices covering the 3-

year review period.” Instead, it drew the sample from an artificially restricted pool

that excluded 1,342 low-dollar invoices. (Supra § IV.C.1.) By defying its contract

with Exelon, Revenew cannot claim that same contract as the basis of its justification

defense. See Am. Nat’l Petro. Co. v. Transcon. Gas Pipe Line Corp., 798 S.W.2d 274,

279 (Tex. 1990) (“[Defendant] breached its contract to coerce [Plaintiff and third

party] to settle outstanding liability claims. Trying to coerce a party into a favorable

settlement by threats under existing…contracts with third parties is not privileged.”).

Just as they show Revenew’s lack of compliance with its contract, these facts

demonstrate—or at least raise a genuine issue of material fact about—Revenew’s lack

of justification.8

c. Revenew did not exercise its rights in good faith. Even if Revenew had identified any text in the Exelon contract that permits

Revenew to behave as it did, such text would not entitle Revenew to summary

judgment on its affirmative defense of justification. According to Revenew, tortious

interference is always justified as a matter of law so long as the defendant can link its

actions to some contractual right of its own. App. Br. at 27-31. According to the Texas

8 Revenew twists this evidence into an argument that PSC, as a non-party to the Revenew- Exelon contract, is trying to sue Exelon for malpractice. See App. Br. at 30. Not so. As the party rebutting Revenew’s justification defense, PSC merely relies on the Exelon contract to show that Revenew’s defense lacks merit. Moreover, it is well-settled that a party not in privity with an auditor can sue the auditor for tortious misconduct. Ernst & Young, LLP v. Pacific Mut. Life Ins. Co., 51 S.W.3d 573, 575–78 (Tex. 2001); Ervin v. Mann Frankfort Stein & Lipp CPAs, L.L.P., 234 S.W.3d 172, 177 (Tex. App.—San Antonio 2007, no pet.). Revenew’s position—that any intentional tort committed behind the façade of an audit cannot give rise to liability to non-clients—is not the law. Taken to its logical conclusion, Revenew’s argument would allow it to conduct audits by falsely imprisoning suppliers, assaulting its targets into paying, invading its subjects’ privacy, or—as alleged here—disparaging suppliers and interfering with suppliers’ customer contracts. 33

Supreme Court, however, no contract allows Revenew—or anyone else—to “say or

do anything under the guise of exercising” contractual rights. Prudential, 29 S.W.3d

at 81. Instead, “the defense of legal justification or excuse only protects good faith

assertions of legal rights.” Victoria Bank & Trust Co. v. Brady, 811 S.W.2d 931, 939

(Tex. 1991) (emphasis added).

The Supreme Court’s opinion in Prudential demonstrates why Revenew’s

motion fails as a matter of law. In that case, Prudential contracted with certain

hospitals to pay medical bills and enjoyed a contractual right to challenge any bill. 29

S.W.3d at 81. On behalf of those hospitals, a collection agency billed Prudential for

hundreds of invoices. Id. at 76. Prudential responded with “sham audits” and false

accusations against the collection agency. Id. at 81. The agency sued Prudential for

tortious interference. Despite Prudential’s contractual right to challenge any bill, the

Supreme Court refused to conclude that Prudential was privileged, as a matter of law,

to “say or do anything” in furtherance of that right. Id.

The result should be no different here. Instead of simply performing a

legitimate audit as its contract with Exelon demands, Revenew took the bad-faith

steps of (1) making “gray” accusations, (2) telling Revenew that PSC had billed

almost four times as much as Revenew thought was the “fair” estimate of true

overbillings, and (3) instructing auditors to intentionally skew the samples, both in

terms of size and content, of PSC billings to inflate the purported error rate. (Ex.

DD; Ex. NN; Ex. GG.) Under Prudential, such evidence presents a fact dispute

concerning Revenew’s justification defense. 29 S.W.3d at 83.

4. Revenew failed to conclusively prove its privilege defense. Just as justification is an affirmative defense to tortious interference, privilege

is an affirmative defense to business disparagement. See Daystar Residential, Inc. v.

Collmer, 176 S.W.3d 24, 28-29 (Tex. App.—Houston [1st Dist.] 2004, pet. denied);

RESTATEMENT (SECOND) OF TORTS § 651(2) (1977) (in business disparagement case,

the “defendant has the burden of proving, when the issue is properly raised, that the

publication was absolutely or conditionally privileged.”). Revenew concedes as much.

App. Br. at 31 (calling privilege an “affirmative defense”).

PSC and Revenew agree about one thing: “the issue of ‘privilege’ overlaps

with the issues of justification.” App. Br. at 32. For the same reasons that

Revenew’s statements were not justified, they are not privileged. In sum, Revenew

asserts—without citing evidence—that “Revenew did exactly what it was retained

and entitled to.” Id. But extensive evidence shows that Revenew did not conform

to its contract with Exelon, as by failing to comply with “applicable state-of-the-

art industry standards and practices,” not completing an audit “free from any

defect,” and not choosing a “random sample of invoices” from “the population of

invoices covering the 3-year review period.” (See supra § IV.B-C.) These facts

destroy Revenew’s privilege defense or at least prevent Revenew from

conclusively proving its defense. See Victoria Bank, 811 S.W.2d at 939 (“[T]he

defense of legal justification or excuse only protects good faith assertions of legal

rights.”).

Revenew relies on the Calhoun and Randall’s opinions, but both are

inapposite. (App. Br. 32.) First, the Calhoun court merely concluded that credit-

reporting agencies enjoy a conditional privilege to share credit reports with

banks—so long as the agency acts in “good faith.” See Calhoun v. Chase

Manhattan Bank (U.S.A.), N.A., 911 S.W.2d 403, 408 (Tex. App.—Houston [1st

Dist.] 1995, no pet.). Revenew’s work has nothing to do with credit reporting, and

there is a substantial dispute of fact about whether Revenew performed its work in

“good faith.” (See supra § VI.B.3.c.) Randall’s is even further afield. That opinion

merely applies a policy-based rule, unique to the employment context, that “[a]ny

reasonable employer would investigate” reports of “serious wrongdoings” in the

workplace, making such investigations conditionally privileged. Sw. Bell Tel. Co.

v. Dixon, 575 S.W.2d 596, 599 (Tex. Civ. App.—San Antonio 1978), writ dism’d

w.o.j., 607 S.W.2d 240 (Tex. 1980); see also Randall’s Food Markets, Inc. v.

Johnson, 891 S.W.2d 640, 646 (Tex. 1995) (citing and applying Dixon). Neither of

those opinions even hints that firms such as Revenew enjoy an absolute privilege

to falsify data to complete a vendor-invoice audit.9

In sum, PSC established numerous fact issues concerning Revenew’s assertion

of privilege, and Revenew falls far short of conclusively establishing this affirmative

defense as a matter of law.

CONCLUSION For the reasons above and in its Motion to Dismiss, PSC asks the Court to

dismiss this appeal, to award damages, costs, and attorneys’ fees for responding to

this frivolous appeal, and to grant PSC any other relief to which it may be justly

entitled.

9 Revenew also relies on a federal district court opinion issued 22 years ago. See Kipp v. LYV Aerospace & Defense, 838 F. Supp. 289 (N.D. Tex. 1993). In addition to having little persuasive value, Kipp turned on a fact missing from this case. The defendant in Kipp had “superior” contractual rights to the plaintiff, an at-will employee with no written contract. Id. at 295. As a result of its contractual trump card, the defendant was justified in interfering with the plaintiff’s at-will employment relationship. Id. Revenew has not alleged—and could not allege—any such “superior” right in this case. 37

Respectfully submitted,

AHMAD, ZAVITSANOS, ANAIPAKOS, ALAVI & MENSING P.C.

By: /s/ Todd W. Mensing Todd W. Mensing Texas Bar No. 24013156 tmensing@azalaw.com Adam Milasincic Texas Bar No. 24079001 amilasincic@azalaw.com Edward Goolsby Texas Bar No. 24092436 egoolsby@azalaw.com 1221 McKinney, Suite 3460 Houston, Texas 77010 (713) 655-1101 – Phone (713) 655-0062 – Fax

ATTORNEYS FOR APPELLEE, PSC INDUSTRIAL OUTSOURCING, LP

CERTIFICATE OF COMPLIANCE I certify that this Response complies with the typeface and word-count requirements set forth in the Rules of Appellate Procedure. This Response has been prepared, using Microsoft Word, in 14-point Times New Roman font for the text and 12-point Times New Roman font for any footnotes. This Response contains 9,250 words, as determined by the word count feature of the word processing program used to prepare this document, excluding those portions of the notice exempted by TEX. R. APP. P. 9.4(i)(1).

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CERTIFICATE OF SERVICE I certify that on June 12, 2015, a true and correct copy of the above and foregoing document was served upon the following counsel by electronic service through the state-provided EFSP Efile.txcourts.gov:

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