Franchise Tax Bd. vs. Hyatt (Nev. Supreme Ct. – Sep. 14, 2017)
In 1998, inventor Gilbert Hyatt sued the Franchise Tax Board of the State of California (FTB) seeking damages for intentional torts and bad-faith conduct committed by FTB auditors during tax audits of Hyatt’s 1991 and 1992 state tax returns. After years of litigation, a jury awarded Hyatt $139 million in damages on his tort claims and $250 million in punitive damages. In this appeal, the Supreme Court of Nevada determined, among numerous other issues, whether medical records are mandatory in order to establish a claim for intentional infliction of emotional distress (IIED).
In 1993, after reading a newspaper article regarding Hyatt’s lucrative computer-chip patent and the large sums of money that Hyatt was making from the patent, a tax auditor for FTB decided to review Hyatt’s 1991 state income tax return. The return revealed that Hyatt did not report, as taxable income, the money that he had earned from the patent’s licensing payments and that he had only reported 3.5 percent of his total taxable income for 1991. Hyatt’s tax return showed that he had lived in California for nine months in 1991 before relocating to Las Vegas, Nevada, but Hyatt claimed no moving expenses on his 1991 tax return. Based on these discrepancies, FTB opened an audit on Hyatt’s 1991 state income tax return.