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Archive for the ‘FTB vs Gilbert Hyatt’ Category

I have been following the case of Gilbert Hyatt vs the FTB for almost two years.

The core of this case involves torts committed or authorized by an overly aggressive FTB auditor against Hyatt.  Hyatt moved from California to Nevada.  The FTB claims he was a resident of California when he earned millions for a patent.

For a complete history of the case, please go to my archives on the subject

It appears that the case is in the Nevada Supreme Court queue.  A final decision might come within a year.

The FTB has lost every court case on this matter.

At a Cal CPA event last December, I asked the Executive Officer of the FTB Selvi Stanislaus if the state was going to settle. As I expected, she could not provide an answer because of the appeal.

$500 million is a large amount, budget crisis or not.

The state should settle rather than face a potentially devastating hit next year.

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Nothing really new, but this author provides a very concise summary of the case and the potential damage to California’s financial state.

Sure hope someone at the FTB gets fired for this.

I will continue to stay in contact with Bill Leonard of the California State Board of Equalization until this gets resolved.

Please read my previous post on this subject.

Contact your Assembly Member or State Senator and demand answers as to what the FTB is doing to prevent a debacle such as this from occurring again. 

$500 million is a lot of money for one department to blow.

It is time to settle; interest is accruing and legal fees are mounting.  This makes the Greuel/Trunanich legal battle look like a friendly game of penny ante poker.

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The Gilbert Hyatt vs. the Franchise Tax Board Case has reached another benchmark. 

The case involves the residency status of Mr. Hyatt.  The crux of the issue is when he became a Nevada resident.  Within the disputed timeframe, Hyatt developed a microprocessor chip that earned him a considerable sum of money.

It is actually two cases –the original dispute over residency and its related tax liability (he earned $40 million on the chip), and the tort case involving the FTB’s misconduct.

Please review my summary of the events and court rulings.

California is already at risk of losing $500 million on the tort case.  A Las Vegas court ruled in favor of Mr. Hyatt; California is appealing.

Bill Leonard of the California State Board of Equalization got back to me regarding my inquiry into the case.  Mr. Leonard is as frustrated as I am with the FTB’s irresponsible behavior and its unwillingness to settle. He has repeatedly requested a settlement, but the FTB is ignoring him.

According to him, the cost of the appeal is now approaching the amount the FTB says is due on the residency dispute.  The last account I read in a Forbes Magazine article pegged the amount due at $50 million! 

That is an awfully high amount to pay for stubbornness on top of the tort liability.   

Do we really need this when the state is sinking deeper into the hole?

It is time to settle and cut California’s losses on this folly.

Please write your Assembly Member and insist on action!

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This is a case I reported on earlier in my blog.  I cannot fathom how this story has not been covered by 60 Minutes or made the front page of any major daily.  I’m just as surprised that it has not surfaced in any major daily in California during the budget crisis.  Why?  Because this could cost the State over half a billion dollars.  In fact, a verdict has been delivered against California by a Nevada jury and is awaiting appeal- in the State of Nevada.

The events are covered in detail in any of the following sources:

Forbes, Oyez: US Supreme Court Media

To summarize, the California FTB sued Gilbert Hyatt, an inventor of a microprocessor chip, for tax fraud.  The FTB claimed that Mr. Hyatt did not file a return for the income derived from his invention.  Mr. Hyatt claimed he was already a Nevada resident at the time he invented the chip; California claimed otherwise.  Whether that case has merit is still to be decided and could lead to a recovery of around $50M for the FTB, including penalties and interest, which account for over 80% of the total.

 The real issue, however, is the FTB’s misconduct in pursuing Mr. Hyatt in Nevada.  According to Bill Leonard, a member of the California State Board of Equalization, as published in his newsletter:

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.

 Mr. Hyatt sued the FTB for torts and other misconduct.  The FTB claimed it was immune from being sued under the doctrine of comity- defined by the Nevada Supreme Court as “an accommodation policy, under which the courts of one state voluntarily give effect to the laws and judicial decisions of another state out of deference and respect, to promote harmonious interstate relations.”

The Nevada Supreme Court sided with Hyatt.  The FTB appealed to the United States Supreme Court who ruled 9-0 against the agency, stating in its unanimous opinion:

“The State of Nevada is undoubtedly “competent to legislate” with respect to the subject matter of the alleged intentional torts here, which, it is claimed, have injured one of its citizens within its borders.”

“The Nevada Supreme Court sensitively applied principles of comity with a healthy regard for California’s sovereign status, relying on the contours of Nevada’s own sovereign immunity from suit as a benchmark for its analysis.”

Now the stage was set for Mr. Hyatt’s suit for damages.  He won his case in Nevada District Court in August 2008 and was awarded almost $400 million. 

The FTB requested a whole new trial.  The request was rejected. Judge Walsh of the District Court in Las Vegas said, “FTB essentially relies on previously unsuccessful arguments.”

What’s more, Judge Walsh ruled that the FTB must post a bond equal to 10% of the settlement, or around $39 million, if it wants to appeal.

I asked Assemblyman’s Feuer’s office to follow up on this case in February; it was referred to Judy Chu of the Board of Equalization.  I have not heard back.

There are two key questions that the taxpayers of California need answered:  were any employees of the FTB disciplined?  Will California continue to pour money in this case by appealing in what could be called a hostile environment?  Don’t forget- Nevada convicted OJ Simpson on criminal charges; California failed.

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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):

1.     Good Summary of Hyatt Case

2.    $396.08 Million…and the Meter Is Still Running

3.    $146.88 Million and Counting

4.    The Gilbert Hyatt Case Inches Forward

Posted by Russ on Monday August 11, 2008 at 5:26pm. 0 Comments 0 Trackbacks

Courts:
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.

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