August 17, 2008

$250 million in Punitive Damages Awarded Against Cal Franchise Tax Board

The Sacramento Bee reports that a jury in federal district court in Nevada last week awarded not only $138.1 million to Las Vegas inventor Gilbert P. Hyatt for invasion of privacy and emotional distress, but also an additional $250 million in punitive damages against the California Franchise Tax Board. The Tax Board began investigating Hyatt in 1993 in an attempt to get him to pay a multi-million dollar California income tax bill---Hyatt apparently moved from California to Nevada, which has no income tax, right around the time he started cashing in big from a computer-related patent. Hyatt disputed the claimed tax obligation and sued the Tax Board on a variety of intentional tort theories. According to the Sacramento Bee article, Hyatt's complaint alleged that "board auditors went through his garbage and mailbox, spread the word he was being audited to his business associates, and sent letters containing his Social Security number to third parties that included newspapers and doctors who had never treated Hyatt."

This case has already gone up once to the US Supreme Court, which ruled Hyatt could sue the California agency in a Nevada court. If the state appeals to the Nevada Supreme Court, it'll be interesting to see whether the unprecedented $138 million emotional distress award holds up and, if so, whether any of the justices think that award is punishment enough so as to obviate the need for any punitive damages, or at least is sufficiently "substantial" within the meaning of State Farm v. Campbell to warrant reducing the punitive damages to a 1:1 ratio. No offense to Mr. Hyatt but, as a California taxpayer, I have to hope this windfall verdict goes away---there have got to be better ways (maybe something involving the democratic process?) to punish and deter bad behavior by folks within a state agency like the FTB.

[Note: I should add that California's Government Code section 818 provides, "Notwithstanding any other provision of law, a public entity is not liable for damages awarded under Section 3294 of the Civil Code or other damages imposed primarily for the sake of example and by way of punishing the defendant." Nevada apparently doesn't have a counterpart to that statute. - LP]