Please see my more recent summary on this story, “Will California Gamble in Las Vegas?”
This should never happen to anyone, and the taxpayers of California will pay for the damage caused by a rogue FTB employee.
From various sources:
$146.88 Million and Counting
Back in October 1991 Gilbert Hyatt moved from California to Nevada. California’s Franchise Tax Board didn’t think he did, so they commenced a residency audit. California determined that Mr. Hyatt didn’t establish residency in Nevada until April 1992. Normally, six months wouldn’t be a big deal; however, Mr. Hyatt had invented a microprocessor and received a substantial amount of income during that time period. California assessed $49 million in taxes.
Mr. Hyatt fought the judgment through administrative appeals. He also wasn’t happy about the methods the FTB used to investigate him. Mr. Hyatt filed a lawsuit against the FTB in Nevada, alleging
…that [FTB] directed “numerous and continuous contacts … at Nevada” and committed several torts during the course of the audit, including invasion of privacy, outrageous conduct, abuse of process, fraud, and negligent misrepresentation.
The FTB fought the case, arguing that they were immune from being sued. (As an aside, had the actions that Mr. Hyatt alleged took place in California, the FTB would be immune.) The case went all the way to the US Supreme Court; the Court ruled unanimously that the FTB could be sued in Nevada. The case was remanded back to the Nevada District Court for trial.
The first phase of the trial ended last week, and the FTB suffered a ringing rebuke. According to Bill Leonard’s Leonard Letter, Mr. Hyatt prevailed on every claim and was awarded $137 million in damages plus $1.08 million in legal fees. The jury is now looking at potential punitive damages which could easily be another $400 million or so.
What did the FTB do? From the Leonard Letter:
Tax agents rummaged through his trash without warrants, visited business partners and doctors, and shared his Social Security Number and other personal information with the media. This is outrageous behavior and I call on the FTB to rein in their agents. What really galled me is the FTB testified in open court that this level of harassment was only a typical audit. If true, then the stormtroopers are alive and well at the FTB.
I have little to add to what Mr. Leonard stated. And he should know; Bill Leonard is an elected member of California’s Board of Equalization. The BOE hears administrative appeals on FTB cases after an individual (or organization) exhausts appeals at the FTB.
What’s the cost to California? To date, the FTB has spent $8.8 million fighting Mr. Hyatt. Add the $138.88 million that is now owed to Mr. Hyatt and the total is $146.08 million. If we add another $250 million for punitive damages the total is nearly $400 million. And while Mr. Leonard is hopeful that the FTB won’t appeal the case, I am almost 100% certain that the FTB will appeal. Thus, unless the FTB gets lucky in Nevada this case could easily cost California taxpayers over half a billion dollars.
Welcome to the Bronze Golden State….
Related Posts (on one page):
3. $146.88 Million and Counting
Judge Rejects FTB Requests for New Trial and Reduced Award in Gil Hyatt Case
Nevada District Court Judge Jessie Walsh on January 29 rejected a motion by the Franchise Tax Board for a new trial in Hyatt v. FTB, and also rejected the FTB’s motion asking her to reduce a Las Vegas jury’s award of more than $388 million to inventor Gil Hyatt.
Rejecting the motion for a new trial based on alleged judicial errors, Judge Walsh said, “FTB essentially relies on previously unsuccessful arguments.”
Completing the day’s good news for Mr. Hyatt, the judge ruled that the FTB must post a bond in order to keep Mr. Hyatt from executing his judgment against the state while the FTB appeals the case to the Nevada Supreme Court, as the tax agency plans to do. In Nevada, there is no appellate court before the Supreme Court, and thus the court cannot refuse to hear cases.
“After 11 years of litigation, justice is served,” Mr. Hyatt said after the hearing.
During Thursday morning’s session, Judge Walsh also appointed a special master to go over attorney costs submitted by Mr. Hyatt’s legal team for reimbursement by the FTB. Mr. Hyatt is seeking $3.2 million for legal costs, but the FTB says he should get nothing due to a late filing, or a maximum of $53,000 if the court allows the late filing but knocks out all the charges the tax agency views as improper.