An Officer or Employee Embezzled From My Company. Civil Remedies in Texas

First week: secure the evidence and the money

What the company does in the first days decides most of what it recovers later. Three steps come before any lawsuit or confrontation.

• Preserve the records. Image the person's computer and phone if the company owns them, lock their email account rather than deleting it, and pull bank statements, payroll runs, vendor master files and check images for the whole suspected period. Nothing gets "cleaned up."
• Cut off access quietly. Remove banking authority, change signatories and passwords, and tell the bank in writing. A person who knows they are suspected can move money in an afternoon.
• Notify the insurer. Most commercial policies with employee dishonesty or crime coverage require notice within a fixed number of days after discovery. Missing that notice can forfeit the coverage regardless of the merits. Read the policy on day one, not after the lawsuit.

Whether to confront or terminate the person immediately is a judgment call. Termination ends the access problem but also ends the chance of an admission and may trigger a wrongful termination or unpaid wages claim that the company then has to defend. Many companies suspend with pay while a forensic review runs, then terminate on documented grounds. The usual rules on preserving data for a lawsuit apply from the day of discovery.

The civil claims that fit embezzlement

Embezzlement is not itself a Texas civil cause of action. The conduct is pleaded under several established claims, usually all at once, because each has a different advantage.

Conversion

Conversion is the wrongful exercise of control over another's property. It fits stolen equipment, inventory and checks cleanly. For money it has a limit: Texas courts treat money as convertible only when it is specifically identifiable, such as a particular check, a segregated account or funds entrusted for a specific purpose. A general claim that "she took $200,000 over three years" is usually pleaded as something else. Conversion carries a two-year limitations period under section 16.003 of the Civil Practice and Remedies Code.

Civil theft under the Texas Theft Liability Act

Chapter 134 of the Civil Practice and Remedies Code makes a person who commits theft, as the Penal Code defines it, liable for the resulting damages, plus up to $1,000 in additional damages, and it requires the court to award costs and reasonable attorney's fees to the prevailing party. No criminal conviction is needed; the civil jury decides by a preponderance of the evidence whether the employee appropriated property without consent and with intent to deprive. The fee award is the reason the claim is pleaded in nearly every embezzlement case, and the reason it should not be pleaded on thin facts: a defendant who prevails is also awarded fees. The claim is covered in depth in the Texas Theft Liability Act in business disputes.

Breach of fiduciary duty

Officers owe fiduciary duties to the company. An ordinary employee does not owe a full fiduciary duty, but Texas recognizes that an employee who is entrusted with the employer's money or given authority over it owes a duty of loyalty in that role, and a controller or bookkeeper with signature authority typically qualifies. The fiduciary claim matters because it opens equitable remedies: disgorgement of what the person gained, forfeiture of compensation paid during the period of disloyalty, and a constructive trust over property bought with the money. The limitations period is four years.

Fraud

Where the person falsified invoices, forged approvals or created ghost vendors, each false record is a misrepresentation to the company, and fraud is available with its four-year period and the possibility of exemplary damages on clear and convincing proof.

Money had and received, and unjust enrichment

These equitable claims ask a simple question: does the defendant hold money that in fairness belongs to the plaintiff? They need no proof of intent and are often the cleanest path against people who received the money without stealing it themselves, such as a spouse or a company the employee controlled.

Can the company freeze the money now?

Sometimes. A temporary restraining order and temporary injunction under Rules 680 to 684 of the Texas Rules of Civil Procedure can bar a defendant from dissipating specific, identifiable funds or property that are the subject of the suit, and a court can order an accounting. Texas courts will not freeze a defendant's assets generally to secure a future money judgment; the request has to be tied to property the company claims an interest in, such as the account where its funds landed or the house bought with them. Prejudgment attachment and garnishment are separate statutory tools with strict requirements and a bond. The options are compared in freezing assets before judgment in Texas.

Following the money to other people and property

Employees who embezzle at scale rarely keep the money in their own checking account. It goes to a spouse, a new LLC, a mortgage payoff, a vehicle, a brokerage account. Texas gives three tools to reach it.

• Constructive trust. Where the money was taken in breach of a fiduciary duty or by actual fraud and can be traced into specific property, the court can declare that the holder owns it for the company's benefit. This defeats other creditors and reaches property titled in someone else's name.
• Fraudulent transfer claims. Under the Texas Uniform Fraudulent Transfer Act, transfers made with intent to hinder creditors, or for less than reasonably equivalent value while insolvent, can be unwound against the recipient, generally within four years.
• Knowing participation. A person who knowingly helped the employee breach a fiduciary duty, such as a vendor who split kickbacks or a relative who ran the shell company, is liable as a joint tortfeasor.

How tracing works and what it requires is in recovering stolen business assets through constructive trusts.

Example

Suppose the controller of a Dallas distribution company set up a vendor called a familiar-sounding name, approved its invoices herself, and paid it $340,000 over four years into an account she owned with her husband. She used part of it to pay down their mortgage and part for a boat titled to the husband. The company's suit pleads civil theft and fiduciary breach against her, money had and received against the husband, a constructive trust over the boat and the equity her payments created in the house, and a fraudulent transfer claim for the mortgage payments. The temporary injunction application targets the vendor account and the boat, not her wages. Her bank records, obtained by subpoena, and the company's own vendor file carry most of the proof.

What about the police?

The company can report the theft and sue at the same time. A criminal case can produce restitution and makes a later civil case easier if there is a conviction, but the company does not control it and it can take years. A civil case gives the company discovery, control and a judgment it can enforce, at its own cost. The two also interact: a defendant facing charges may refuse to testify in the civil case on Fifth Amendment grounds, and a lawyer may not threaten criminal charges solely to gain advantage in the civil matter. The choice is worked through in whether to report business fraud to the police or sue.

Insurance is often the fastest recovery

A commercial crime or employee dishonesty policy pays the company directly, up to its limit, once the loss is documented, and the insurer then pursues the employee itself. The policy will set the proof it wants, often a sworn proof of loss within a stated period and cooperation with its investigator. A forensic accountant's report usually serves both the claim and the lawsuit. Policies commonly exclude losses discovered before the policy period, losses by owners, and amounts proven only by an inventory shortfall, so the policy wording should be read with the facts in hand.

Deadlines

Conversion must be filed within two years of accrual under section 16.003. Fraud and breach of fiduciary duty have four years under section 16.004. The Theft Liability Act does not state its own period. In long-running embezzlement, the discovery rule and fraudulent concealment can delay accrual where the theft was inherently undiscoverable, but each month of delay after discovery is a month a defendant will use against the company. Counting from the day of discovery is the safe planning assumption.

When to bring in a litigator

Before the confrontation, if possible. The sequence of preservation, insurance notice, termination, demand and injunction has to be planned so that each step does not undercut the next, and the first weeks are when a defendant's assets are most reachable. Tina Wysk represents companies pursuing business fraud and theft claims in Dallas state and federal courts.