Investigations into your company’s records can be a drain on both time and processes. After this ordeal, it resulted in a massive windfall — but not for the state.

In the state’s largest verdict to an individual, Gilbert P. Hyatt, an engineer and inventor with more than 70 patents, was awarded $388 million. A Las Vegas jury found the Franchise Tax Board of California liable for fraud, abuse of process, breach of a confidential relationship, invasion of privacy and intentional infliction of emotional distress.

Hyatt, a former resident of California, moved to Nevada in October 1991. Soon after, he began receiving millions of dollars in licensing fees from several of his inventions — the most famous of which was a microprocessor patent filed in 1990. After reviewing his income tax return for the year, the California tax board decided Hyatt was actually a resident in the state until April 1992, and assessed taxes and penalties totalling over $51 million.

The inventor filed suit against the tax board, accusing auditors of both fraud and negligence. Over the next decade, California’s collection efforts kicked into high gear. Shelia Cox, the main tax agent who pursued Hyatt, took several questionable approaches to getting Hyatt’s money.

Regular audits would have been enough of a hindrance, but California’s agents:

• Went through Hyatt’s trash and incoming mail
• Disclosed his Social Security number and credit card information to third-parties, who then pressured him to hand over the money
• Allegedly e-mailed and gossiped to co-workers about Hyatt’s personal life, and
• Relied heavily on misleading information from Hyatt’s ex-wife and disgruntled relatives.

When the case finally went to court, the defense’s job was simple, according to Hyatt’s main lawyer, Mark Hutchison. “The Franchise Tax Board wanted to focus on Gil Hyatt and make him out to be a villain,” said Hutchison. When it came to pointing out the FTB’s misconduct, they “went through and cataloged 20 or 30 outrageous acts and instances.”

Hyatt was first awarded $138.1 million in compensatory damages, including:

• $85 million for emotional distress
• $52 million for invasion of privacy, and
• $1.1 in attorney’s fees.

A week later, a jury awarded him another $250 million in punitive damages, stating the tax agency had acted with oppression, fraud and malice.

Cite: Hyatt v. Franchise Tax Board of California, 8th Judicial District Court, Clark County Courts, NV, 8/6/08.

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Tags: Credit card, Emotional distress, FTB, Gil Hyatt, Social Security