Nevada Supreme Court Rules CA FTB Immune from Punitive Damages | Los Angeles Income Tax Planning & Income Tax Litigation Attorney Bruce Givner

by Bruce Givner on September 25, 2014

On September 18, the Supreme Court of Nevada ruled that the California Franchise Tax Board (FTB) is immune from punitive damages under Nevada law for intentional torts and bad-faith conduct. These damages had been imposed as a result of an audit of the state tax returns of Gilbert Hyatt, inventor of the microprocessor.

After learning of Hyatt’s substantial earnings from a computer chip patent in a newspaper article published in 1993, the FTB began an audit of Hyatt’s 1991 and 1992 tax returns. Although Hyatt claimed to have moved from California to Nevada in September of 1991, the FTB held that the move occurred in April of 1992, and that Hyatt therefore owed California income taxes for 1991 and 1992.

Hyatt filed a lawsuit in a Nevada court in 2008 claiming that the FTB had committed several torts against him during its audit and while pursuing a case against him. These torts included invasion of privacy, outrageous conduct, abuse of process, fraud, and negligent misrepresentation. After being presented with evidence that the FTB had sent information demands about Hyatt’s case, which included personal information such as his Social Security number and home address, to third parties, the Nevada jury awarded Hyatt $250 million in punitive damages and $139 million in compensatory damages and attorneys’ fees for the agency’s conduct during the audit.

In Franchise Tax Bd. Of Calif. V. Hyatt, the Nevada Supreme Court reversed the lower court’s decision, stating that the FTB is immune from punitive damages based on comity, as such damages wouldn’t be available against a Nevada government entity. Furthermore, the Court reversed the 2008 jury verdict finding regarding invasion of privacy, breach of confidential relationship, and abuse of process.

Nevertheless, the Court affirmed the jury’s findings of fraud and intentional infliction of emotional distress. The court held that Nevada’s exception to immunity for intentional torts and bad-faith survived the adoption of the federal discretionary-function immunity test as such conduct isn’t based on public policy.

Givner & Kaye focuses on sophisticated income tax planning and compliance, tax litigation and procedure, estate planning, and asset protection plans for individuals and businesses in Beverly Hills, Calabasas, West Los Angeles, Hollywood, and other areas of Los Angeles, Orange, Ventura, San Bernardino, Riverside and Santa Barbara Counties. Call Los Angeles Estate Planning and Asset Protection Plan Attorneys Givner & Kaye at (310) 207-8008 today.

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