Saturday, September 20, 2014

Nevada Supreme Court Upholds Fraud Verdict Against The California Franchise Tax Board

The Franchise Tax Board’s Shande
This is case that has been more than two decades in the making.  It began in the 1990s when inventor Gilbert Hyatt filed a California tax return showing that he relocated from California to Nevada.  Consequently, he reported licensing payments for only part of the year.  California was suspicious because his return reflected no moving expenses and it opened an audit.  This was really some audit, the Franchise Tax Board sent over 100 letters to third parties.  Many of these letters included Hyatt’s social security number, home address or both.  The FTB also interviewed Mr. Hyatt’s ex-wife and estranged brother and daughter.

Mr. Hyatt eventually had enough and sued the FTB in Nevada (state) District Court.  The FTB sought complete immunity based on the U.S. Constitution’s Full Faith and Credit Clause (Art. IV, § 1) and comity.  In an unpublished order, the Nevada Supreme Court said no and the FTB appealed to the U.S. Supreme Court. In Franchise Tax Bd. of Cal. v. Hyatt, 538 U.S. 488 (2003), the U.S. Supreme Court upheld the Nevada Supreme Court’s conclusion that the FTB was only entitled to partial immunity under comity principles. (California accords full immunity to the FTB in Government Code Section 860.2(b)).

When Mr. Hyatt’s case finally went before a jury, the case lasted four months.  The jury returned a verdict awarding Mr. Hyatt damages in the amount of $85 million for emotional distress, $52 million for invasion of privacy, a little over $1 million as special damages for fraud, and $250 million in punitive damages.  No one should be surprised to learn that the FTB appealed the verdict to the Nevada Supreme Court.

Yesterday, the Nevada Supreme Court affirmed the special damages award for fraud and the finding of liability for intentional infliction of emotional distress.  Franchise Tax Bd. of Cal. v. Hyatt, 130 Nev. Adv. Op. 71 (2014).   The court, however, found error in the trial court’s damage award and remanded the case for a new trial on damages on the emotional distress claim.  The FTB, however, was successful in obtaining reversals of Mr. Hyatt’s other causes of action.  More importantly, the Nevada held as a matter of first impression that because punitive damages would not be available against a Nevada government entity, the FTB is immune under comity principles for punitive damages.

Although the FTB dodged a punitive damage bullet, the opinion is recounts numerous instances of misconduct on the part of the FTB.  For example, the FTB represented that it would protect Mr. Hyatt’s confidential information and then distributed his personal information to numerous third parties and revealed that he was being audited.  Without determining which doctor actually treated Mr. Hyatt, the FTB sent letters to all doctors with the same last name.  The FTB should be ashamed.

More On Yiddish And The Law

One reader wrote to let me know about a 1993 article entitled “ “Lawsuit, Shmawsuit” by Judge Alex Kozinski and UCLA Law School Professor Eugene Volokh that discusses the use of other Yiddish words in U.S. legal opinions.  You can find the article at 103 Yale Law Journal 463 (1993).  Other readers pointed out that “knell” is not the antonym of kvetch.  I had intended to type kveln.  Rather than take responsibility, I’ll blame the autocorrect function.  
Finally, I must not let a discourse on kvetch pass without mention of this 2011 speech by former SEC Commissioner Elisse Walter in which she asserts:
Let’s face it — many of us lawyers were born to kvetch. It’s simply part of our DNA...

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