For business fraud cases, companies have four years to bring a claim, according to the Texas Civil Practice and Remedies Code 16.004(a)(4). This may seem like a long time, but preparing a case can take several months to years. Those who commit fraud likely have done everything they can to cover their tracks and make their crime undetectable. Investigating and uncovering how it was done, who was involved, and what was lost is often complicated and time-consuming in these cases.
What Is the Statute of Limitations and What Is Its Purpose?
Every state has a set of laws that describe how long a person or company has to bring a lawsuit against another party. In Texas, the statute of limitations varies depending on the circumstances of the claim. For example, a defamation case must be filed within one year and personal injury lawsuits within two years, but a case involving sex offenses has up to five years.
The purpose of a statute of limitations is to benefit both the claimant and the defendant. Claimants must act within the timeframe to ensure their evidence is of the highest quality before it is lost, forgotten, or degraded. Defendants can be assured that legal action will occur within a timely manner rather than decades after the incident when they may be less able to represent themselves in court.
How the Discovery Rule Affects When the Statute of Limitations Begins
For business fraud cases, the statute begins when you discover you have been defrauded. This discovery rule allows the statute to be tolled (delayed) to the day that you realized or should have realized fraud occurred. This puts part of the onus on the business to perform due diligence and review contracts before signing them.
The Supreme Court of Texas indicates that application of the discovery rule should be rare, except in cases where the fraud was “inherently indiscoverable.” It stresses that courts must examine what actions plaintiff companies took to avoid or repair contractual conditions that could result in fraud. Courts will also ask plaintiffs to show how they instituted policies or procedures to root out fraudulent activity and prevent it.
In some instances, the statute may begin before the contract is completed, especially in the case of a continuing or renewable agreement.
Defendants May Try to Use the Statute of Limitations to Escape Civil Action
To avoid being held accountable, the defendant may argue that you exceeded the statute of limitations and have forfeited the right to seek compensation. Both sides must present evidence indicating when the statute should begin, with the court first establishing whether the case should proceed.
If the defendant is able to successfully show you should have known about the fraud at an early enough date to outlast the statute of limitations, your case could be moot. Alternatively, the court itself could determine the case was brought too late and refuse to hear it.
How Widespread is Business Fraud?
The accounting firm PriceWaterhouseCoopers released its annual Global Economic Crime and Fraud Survey, showing that 51% of responding organizations experienced fraud in 2022, an increase from the 47% reported in 2020. While the majority of fraud reports focus on individual consumers, businesses suffer substantial losses that affect not only the bottom line but every employee and customer. Recovering from the economic impacts is more than simply selling more, it involves shoring up technology to prevent future attacks.
Discovering the full extent of the fraudulent activity can take months or even years, potentially reducing your window for taking legal action. The most critical step is identifying the source so your business fraud legal team can begin filing a lawsuit to recover compensation. They must also collect, analyze, and prepare evidence to build a powerful case demonstrating how your business deserves justice.
Common Factors in Business Fraud
Regardless of the type of business you own, it likely revolves around contracts with other businesses and individuals for goods and services. The details of these agreements ensure that a relationship will function smoothly and profitably for all parties involved. However, contracts are frequently a source of business fraud when a party fails to act in good faith.
Violating the contract purposely can lead to criminal penalties, as well as a civil lawsuit. Fraud is essentially theft, and Texas law considers it theft of any of the following:
- Real property
- Any tangible or intangible personal property
- Any item representing value, including money or documents
- Labor or other professional service
- Lodging, food service, or entertainment
- Use of motor vehicles or other property
- Utilities, telecommunication, or transportation
Parties may commit fraud by intentionally misrepresenting information, behaving in a deceptive manner, or failing to disclose material information.
Statutory fraud involves engaging in activities deemed fraudulent by state or federal statutes, such as in real estate or insurance transactions or by use of the U.S. mail.
Finally, a fraudulent transfer happens when a party defrauds a creditor by transferring assets out of reach after a judgment against the party.
When Failure to Disclose Counts as Fraud
One of the most common forms of fraud is when one party fails to disclose or make clear certain elements that may cause the other party to refuse the contract. This is common in real estate transactions when a seller does not list defects they’re aware of, leaving the buyer to discover them after the papers are signed. It can also apply to purchases of vehicles or other commercial assets for your business.
While it’s imperative that sellers operate in good faith, it’s also part of the buyer’s duty to perform the necessary due diligence prior to signing the contract or completing a purchase. This involves hiring inspectors and having an attorney perform a title search to verify a property or asset is legally transferable by the seller. If the business took these actions yet still fell victim to fraud, the diligence could reflect positively on them during a civil fraud recovery trial.
Proving Business Fraud Can Be Challenging
It’s essential to act immediately when you suspect your company has experienced fraud. Your first step is to preserve all documentation, evidence, and communications relating to the suspected activity, then contact a qualified business fraud law firm, such as Feldman & Feldman. Our attorneys will investigate and help you determine who is at fault and how to hold them accountable. You will need to establish proof the fraud occurred and how by demonstrating the following elements to the court:
- The other party made one or more representations of a fact.
- The fact was false.
- The other party was aware the fact was false when they represented it or exhibited reckless disregard for the truth.
- The fact was material (meaning the other party suffered quantifiable damage) to the decision involved.
- The other party intended for the recipient to act on the misrepresentation as if it were true.
- The recipient did act on the false information.
- The recipient suffered monetary or other damages.
Again, because fraud is typically meant to be secretive, uncovering the details can be difficult. It may take a substantial amount of research by a professional legal team working with experts to collect all relevant evidence. By speaking with a business fraud lawyer right away, your company improves its chances of securing the necessary information to build a case and file within the four-year statute of limitations for business fraud in Texas.
Getting Help When You Suspect You’ve Been a Victim of Business Fraud
Managing the aftermath of fraud and its effects on your company can be overwhelming. There can be long-lasting impacts that require aggressive action and could even threaten your business’s existence. Seeking compensation from those at fault is necessary to prevent further harm to your organization and others.
At Feldman & Feldman, our business fraud attorneys are highly skilled in all aspects of fraud litigation and prevention. We can assist your company in developing its current fraud case, as well as instituting action plans that will strengthen it against further business legal issues that could cause additional damage in the future. Our team focuses on all aspects of contract and commercial law, and we are able to draft, review, and revise business agreements to head off potential pitfalls before they become dangerous.
Although four years seems like a generous timeframe to bring legal action, it’s never too soon to reach out for help when you first suspect your company has experienced fraud. Contact us by calling or using our online form to schedule a consultation with Feldman & Feldman and learn more today.