Gilbert Hyatt In New York

The decision on the Gilbert Hyatt appeal here in Nevada has still not come out. However, when I did my weekly check I discovered that the Gilbert Hyatt case has now reached New York State.

The entire Gilbert Hyatt case revolves around when Mr. Hyatt moved from California to Nevada. Mr. Hyatt said he became a Nevada resident in September 1991; the Franchise Tax Board said he left California in April 1992. Usually, seven months don’t make much difference. Here, though, that’s not the case. Mr. Hyatt is a successful investor and received a substantial payment in late 1991 (after September).

The Franchise Tax Board (California’s state income tax agency) audited Mr. Hyatt and assessed taxes and penalties. In 1996, Mr. Hyatt protested the audit. The Protest Division did not complete its review until 2007; Mr. Hyatt then appealed the FTB’s decision to the Board of Equalization. (The BOE hears appeals from the FTB).

Meanwhile, Mr. Hyatt filed a lawsuit against the FTB in Nevada (back in 1998). Before the case was tried, the FTB asked the Nevada courts to throw out the case based on sovereign immunity. That went up to the US Supreme Court; the Supreme Court ruled unanimously that Nevada does not have to immunize the FTB for intentional torts. The case was decided in 2009, and the FTB lost. The Appeal of that was heard in May 2012, and the decision has not yet been announced. The judgment to Mr. Hyatt totals $490 million.

So what is the litigation in New York? It stems from the appeal to the BOE by Mr. Hyatt. The FTB served a subpoena duces tecum on attorneys for U.S. Philips Corporation in New York, asking for information on Mr. Hyatt’s patents, income received in 1991 and 1992, his relationship to Philips, licensing of patents, and related items; they also asked for depositions of individuals. Mr. Hyatt asked the New York court to stop the subpoenas and depositions; the FTB contended that Mr. Hyatt did not have standing to challenge the subpoenas.

At the lower court (the New York Supreme Court), the Court ruled that Mr. Hyatt did have standing, that the FTB couldn’t asks for information on a patent infringement case, but that it could ask for information related to his residency and income in 1991 and 1992 (and related items). The Supreme Court modified the subpoena duces tecum to just that information. Both Mr. Hyatt and the FTB appealed; the appellate court upheld in all respects the original order. This decision came out in March.

The New York case relates to the BOE appeal. Presumably, the subpoenas have been served and the depositions have been taken (or soon will be taken). Sometime in 2014 the actual BOE appeal would occur…only 18 years after the protest was made!

That’s the key takeaway from this post. If you fight the FTB, the FTB will delay, delay, and delay some more in the hope that you can’t afford the litigation. Mr. Hyatt has deep pockets and can afford to litigate; many (most) individual and entities fighting the FTB don’t have the deep pockets to do so.

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