The Texas Theft Liability Act in Business Disputes

What the Act does

Most civil claims for stolen property, such as conversion, carry no fee recovery: each side pays its own lawyers under the American rule. The Texas Theft Liability Act changes that. Section 134.003 makes a person who commits theft liable for the resulting damages. Section 134.005 fixes the recovery: actual damages found by the trier of fact, plus additional damages of up to $1,000, plus court costs and reasonable and necessary attorney's fees to each person who prevails. The statute does not say "plaintiff." It says each person who prevails, and Texas courts read that to mean a successful defendant recovers fees too.

The Act is therefore two things at once: the only common route to fee recovery in a business theft case, and a liability for the business that pleads it and loses.

What counts as theft

Section 134.002 defines theft by reference to the Penal Code: unlawfully appropriating property or unlawfully obtaining services as described in sections 31.03 (theft), 31.04 (theft of service), 31.06 (the check presumption), 31.07 (unauthorized use of a vehicle) and several provisions on cable and telecommunications devices. In business cases the first three carry the load.

• Theft of property, section 31.03. A person commits theft by unlawfully appropriating property with intent to deprive the owner of it. Appropriation is unlawful when it is without the owner's effective consent, or when the actor knows the property was stolen by another. Consent obtained by deception or coercion is not effective consent.
• Theft of service, section 31.04. Obtaining services by deception, threat or false token with intent to avoid payment, or holding property of another under a rental agreement and failing to return it after demand. This is how a contractor or service business sometimes frames a customer who never intended to pay.
• Theft by check, section 31.06. A presumption of intent to deprive where a check was passed on an account with insufficient funds and not paid within ten days after written notice.

The element that decides most civil theft cases is intent to deprive at the time of the appropriation. That is a criminal mental state, and the civil plaintiff must prove it, though only by a preponderance of the evidence rather than beyond a reasonable doubt.

Where the Act fits in a business dispute

The claim is pleaded in nearly every embezzlement case, because an employee who moved company funds to herself took property without effective consent and intended to keep it. It fits a partner who transfers company money to a personal account without authority, a vendor who was paid for goods it never shipped and never intended to ship, a tenant who removes the landlord's fixtures, a departing employee who takes equipment, and a customer who obtained services by a deception he planned from the start. The remedies for an insider who took company money are set out in civil remedies when an officer or employee embezzled.

It also fits the recovery side of a theft of trade secrets in some circumstances, though the Texas Uniform Trade Secrets Act displaces other civil remedies for misappropriation of trade secrets and is the usual vehicle there.

Where it does not fit: debt is not theft

The most common misuse of the Act is pleading it against a party who simply owes money. A customer who received goods and did not pay, a borrower in default, a contractor who was paid and did poor work: none of these is a thief unless the plaintiff can prove that, at the moment the property or service was obtained, the defendant intended not to pay or not to perform. Later failure to pay is not evidence of that intent, for the same reason a broken promise is not fraud. The point is developed in fraud versus a broken promise.

Pleading the Act against a debtor is not just weak; it is expensive. The defendant who defeats the civil theft claim is entitled to fees for defending it, even if the plaintiff wins its contract claim on the same facts. Texas courts have awarded fees to defendants in exactly that situation. A business should plead civil theft when it can prove intent, not as a pressure tactic.

Example

Suppose a Dallas printing company sues two defendants. The first is a former production manager who created a fake paper supplier, approved its invoices and routed $90,000 to his own account. The second is a customer that took delivery of a $40,000 order and has not paid, citing a cash shortfall. Against the manager, the civil theft claim is strong: the fake supplier and the diverted payments show appropriation without consent and intent to deprive, and the company will recover its fees. Against the customer, the same claim is weak: the customer ordered in good faith, received the goods and fell behind. If the company pleads civil theft against the customer and loses that count, the customer recovers its fees for defending it, even while losing the contract claim. The right pleading is civil theft against the manager and breach of contract against the customer.

No conviction required, but the criminal case matters

The civil claim stands on its own. A plaintiff need not report the theft, and an acquittal or a prosecutor's decision not to charge does not bar the civil claim, because the standards of proof differ. A conviction helps: under article 42.037 of the Code of Criminal Procedure a convicted defendant is estopped from denying the essential allegations of the offense in a later civil action by the victim, and restitution paid under a criminal order reduces the civil recovery by the same amount. The choice between the two tracks is covered in whether to report business fraud to the police or sue.

Damages under the Act

Actual damages are the value of what was taken or the loss it caused, measured as in a conversion case: the fair market value at the time and place of the taking, or the cost to replace or repair, plus consequential losses proven with reasonable certainty. The additional damages are capped at $1,000 regardless of the size of the theft, so they rarely drive a business case. Exemplary damages are not awarded under the Act itself, but the same conduct usually supports fraud or conversion claims for which exemplary damages are available, and the cap on exemplary damages is lifted where the conduct amounts to felony theft committed knowingly. Those rules are in punitive damages for fraud in Texas.

The fee award in practice

The award is mandatory, not discretionary: the court shall award costs and reasonable and necessary fees to the prevailing party. Three questions recur.

• Who prevailed? A plaintiff who proves theft and recovers damages prevailed. A defendant who obtains a take-nothing judgment on the theft count prevailed on it, even if the plaintiff won other claims. A plaintiff who nonsuits the theft claim before trial may, depending on timing and the court, leave the defendant as the prevailing party.
• How much? Fees must be reasonable and necessary and proven with evidence of the hours, rates and tasks, segregated from work on claims that do not carry fees, unless the work was intertwined.
• Against whom? Fees run against the losing party on the theft count. Where a company pleads civil theft against a defendant and loses, the company pays.

Deadline

Chapter 134 does not state a limitations period. Because a civil theft claim is in substance a claim for taking personal property, Texas courts have treated it as governed by the two-year period in section 16.003 of the Civil Practice and Remedies Code, the same period that applies to conversion. The companion fraud and fiduciary claims carry four years, so an older theft is usually pursued under those theories instead.

Defending a civil theft claim

The defense centers on intent and consent. A defendant who had permission, who believed in good faith they were entitled to the property, who took it under a claim of right in a genuine ownership dispute, or who received it in a transaction and later failed to pay has not committed theft. A partner who draws funds the partnership agreement arguably allows has a consent defense even if the draw was excessive. Because the prevailing defendant recovers fees, a well-founded defense of a civil theft count is worth asserting firmly rather than settling into. Tina Wysk represents plaintiffs and defendants in business fraud and civil theft cases in Dallas state and federal courts.