a win for the good guys

[varmint]

Nevada jury says California owes inventor $388 million over 'outrageous' audit
By Steve Wiegand - swiegand@sacbee.com
Published 12:00 am PDT Saturday, August 16, 2008
Story appeared in MAIN NEWS section, Page A1

Print | E-Mail | Comments (33) | |

California taxpayers could be on the hook for a staggering $388 million because of a state tax collection agency's vigorous pursuit of a former California taxpayer.

In a case that one tax expert called "completely unprecedented," jurors in a Clark County, Nev., District Court trial awarded Las Vegas inventor Gilbert P. Hyatt $250 million in punitive damages Thursday for the "outrageous conduct" of Franchise Tax Board auditors in an investigation that began in 1993.

The award was on top of $138.1 million in compensatory damages that jurors gave Hyatt last week for "invasion of privacy" and "emotional distress."


Hyatt's suit 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.

The tactics were portrayed as part of efforts to harass and intimidate Hyatt into paying a $7.4 million California tax bill that has grown to $49 million with interest and penalties – and the meter is still running.

Hyatt's lead counsel, Mark A. Hutchison, called the jury's awards "the shot heard 'round the world " for taxing agencies that abuse their power. "Government agencies should pause and reflect on the significance of this verdict," he said.

In a prepared statement, Hyatt said he "hoped this will prevent other taxpayers from going through the same nightmare that I have had to endure for over a decade."

A spokesman for the FTB, which contends Hyatt was a California resident when one of his inventions earned him $40 million, said Friday that officials are mulling over their options and would have no comment.

But a former chief counsel for the board, Brian Toman, said the case was "completely unprecedented."

"As far as I know, and I've been around a long time, there has never been an award of tort damages against the Franchise Tax Board in any kind of audit," said Toman, who worked for the agency for 20 years before entering private practice in 2002.

Toman, who focused mainly on corporate tax matters at the FTB, said he didn't learn of the agency's pursuit of Hyatt until Hyatt filed his suit against the board in 1998.

In fact, the 15-week trial flew under nearly everyone's radar. Virtually the only media coverage came from California Taxpayers Association communications director David Kline, who wrote two articles for the CTA's newsletter.

"The FTB has kept this one real quiet," said Board of Equalization member Bill Leonard, a former legislator and sometimes-outspoken critic of the tax collection methods used by the FTB and BOE, which administers sales, property and some other taxes. "They (FTB auditors) made this into a vendetta on their part, and it backfired big time."

The roots of the Hyatt case, which has already cost the state more than $8.8 million in audit and legal fees, are buried in the living room of a modest tract house in the Los Angeles County town of Northridge.

An electrical engineer educated at UC Berkeley and the University of Southern California, Hyatt worked from his home on various projects. In late 1970, he filed for a patent on a device that packed all the main components of a computer onto a single silicon chip – a microprocessor.

The patent application began a 20-year odyssey for Hyatt that included fights with computer firms such as Intel and Texas Instruments, charges and countercharges of industrial espionage, and maddening delays by the federal bureaucracy.

Finally, on July 17, 1990, Hyatt was awarded his patent. Although parts of the patent were rescinded in 1996, Hyatt made tens of millions of dollars licensing his device.

He also moved to Las Vegas – he says in October 1991 – and contends that was before he began harvesting payoffs from his patent. Nevada has no state income tax.

But state income tax collectors disagreed. After a two-year investigation, the FTB decided Hyatt owed California back taxes for 1991 and part of 1992.

In 1998, Hyatt, who is now 70 years old and the holder of more than 70 patents, filed suit against the board in Nevada, claiming that auditors' actions had hurt his business dealings and damaged his reputation.

"I've got better things to do than to take on other people," he told a Bee reporter in a 2003 interview, "but when I've got to, I defend myself. I will never submit to blackmail or extortion."

The board moved to have the lawsuit dismissed, contending it could not be sued in a Nevada court, and that under California law, FTB employees were immune from litigation for actions that were part of their jobs.

But in 2003, the U.S. Supreme Court unanimously rejected the FTB's challenge, and Hyatt's suit was allowed to proceed.

Toman, the former FTB counsel, pointed out that the jury's awards are subject to appeal by the state.

"The case is not final," he said. "It's a trial court decision."

But Leonard thinks the FTB should quit while it's behind.

In a letter to the board this week, Leonard said that rather than appeal, the board should seek a settlement with Hyatt.

"The decision to continue litigating Mr. Hyatt has already proved an epic disaster to California," he wrote. "I call on you to change course immediately."

[pwd72s]

The sad thing is that Hyatt had to sue in the first place...

[sammyg2]

Let me see if I got this right.
This lowlife owes $49 million in taxes that he refuses to pay.
A stupid jury from Nevada (I know, redundant) decides to give this deadbeat 388 million dollars that honest, hardworking taxpayers will have to pay to someone who doesn't pay taxes. And you think that's a good thing? You do realize that when the government gets sued and looses, that's the exact same thing as saying that WE got sued and lost. If the government has to pay, that means the people who live there have to pay.
I seriously don't understand how people can think like that. If you cared so much about this guy you could have just gave him all your money and left us out of it. Right and wrong should still mean something.

This guy belongs in prison, not on easy street or on a pedestal. And this deadbeat graduated from bezerkely. Figures.

[pwd72s]

Sammy, you're serious? Sounds like a case of wrongful taxation to me...then harassment by the taxing body.

After all, as an Oregon resident who uses no California government services, I'd be a little miffed if California sent me a tax bill.

[Moses]

Originally Posted by sammyg2

This guy belongs in prison, not on easy street or on a pedestal. And this deadbeat graduated from bezerkely. Figures.

Originally Posted by varmint

...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.

You've got it wrong, Sammy. The California tax auditors belong in jail.

Sounds like he moved to Nevada in anticipation of sudden wealth in order to avoid the ridiculous tax rates in California. Smart move. Many, many businesses have done the same.

[island911]

Hardly a lowlife. It sounds like he was a key electrical engineer in bringing us the microprocessor.
The 70 year old says; "I've got better things to do than to take on other people, but when I've got to, I defend myself. I will never submit to blackmail or extortion."

Engineers can be nasty on that whole 'principle' thing.

[island911]

California is not going to tax its way out of problems. Like PWD recently posted; they don't have a revenue problems, they have spending problems. (paraphrasing)

This story, IMO, is more evidence that CA is pushing away the best and the brightest with draconian taxation.

[kstar]

Originally Posted by island911

Hardly a lowlife. It sounds like he was a key electrical engineer in bringing us the microprocessor.
The 70 year old says; "I've got better things to do than to take on other people, but when I've got to, I defend myself. I will never submit to blackmail or extortion."

Engineers can be nasty on that whole 'principle' thing.

We got along just fine without the stupid microprocessor; put the old fool in jail!

Also, make the tax collecting authorities immune from law suits - and the government too! It only costs us honest, law abiding tax payers more money!

Additionally, I'll never be mistreated or wrongfully attacked by the government because I follow the rules!

Now, GOT OFF MY LAWN!!!

(to those who missed it, the above is "green" )

Best,

[Danny_Ocean]

The CA FTB filed a lien against me TWO YEARS after I left California. I didn't discover it until I applied for a home loan and the lender insisted I get it straightened out.

I wrote them as directed and no reply.

I called them and discovered they filed the lien because my professional license was still active and they had assumed (their word, not mine) I was still earning money within the state, but they hadn't received my state income tax return(s).

Here's to you, CA:

[Tobra]

They tried to do that to me when I moved to Texas. Sent me a bill for what they estimated I owed. Had to write them a certified letter, thought I had it straightened out, then they did the same thing the next year.

[Danny_Ocean]

Originally Posted by Tobra

They tried to do that to me when I moved to Texas. Sent me a bill for what they estimated I owed. Had to write them a certified letter, thought I had it straightened out, then they did the same thing the next year.

Yes, they filed the lien again the following year, after dismissing the one I called them on.

[Tobra]

they are persistent, I will give them that. Even when their persistence costs me, what was it again, $388 million?

[DARISC]

Originally Posted by kstarnes

Now, GOT OFF MY LAWN!!!

Well.....I'M NOT GETTING OFF MINE!!!

[Danny_Ocean]

Originally Posted by Tobra

they are persistent, I will give them that. Even when their persistence costs me, what was it again, $388 million?

Right. Everyone's cheering like that $$$ is coming out of the pockets of the employees of the CA FTB and from no-one else. Looks like some of y'all will be getting a tax-hike next year...

[sammyg2]

He was a resident of Northridge, California and as such was responsible for paying taxes. It sure looks to me (and to the tax board) that he moved to Nevada to avoid paying taxes that he owed. The article does not state if he lived in California or Nevada at the time he made the money but the officials indicate he was a resident of California at the time. He denies that and he has motivation to do so, millions in back taxes that he doesn't want to pay. I tend to believe the officials before this guy, he has millions of reasons to lie.

Moving to another state and then denying that you lived in California when you made that money makes you a deadbeat and a lowlife. Suing for hundreds of millions of dollars also makes you a lowlife.

So thanks to 12 stupid Nevada residents, California has to pay this asshat 388 million dollars. That means that I have to take money out of my wallet and give it to him, and so does every other Californian who pays taxes. it'd be allot cheaper just to make him disappear.
This will be tied up in appeals for years, this guy will be dead before he sees a penny of that money and that is how it should be. Hopefully he doesn't have any heirs.

[sammyg2]

Originally Posted by island911

Hardly a lowlife. It sounds like he was a key electrical engineer in bringing us the microprocessor.

a key electrical engineer that never actually made a computer chip, just patented the concept which he was accused of stealing. Later the patent was denied as it turns out this guy wasn't even the original designer. Looks like it was a submarine patent, this guy got wind of work going on in the industry and was the first to obtain a patent on it even though someone else was doing all the work. If he had done that to you or me we'd be plenty pissed off. Nope, this guy doesn't appear to the on the up and up, not a straight shooter.
He made a killing by stealing someone else's patent out from under them, then tried to hide his tax liability by claiming he didn't live in California. Not a good guy at all.

For Texas Instruments, Some Bragging Rights

By JOHN MARKOFF
Published: June 20, 1996

Texas Instruments claimed victory yesterday in a bitter six-year dispute over the invention of the computer on a chip, a crucial component that has fueled the microelectronics era.

The company said the United States Patent Office had recently affirmed that one of its former engineers, Gary W. Boone, was the inventor of the single-chip microcontroller, a device that is now embedded in millions of electronic products.

The Patent Office ruling is the result of a five-year proceeding to determine whether a patent awarded in 1990 to a a Southern California inventor, Gilbert P. Hyatt, took precedence over the Boone-Texas Instruments patent.

Texas Instruments said the Patent Office's decision, which grants the company's request by officially recognizing Mr. Boone and the company as the inventors of the single-chip microcontroller, would not have a financial impact because the patent has expired.

"This is Texas and this is for bragging rights," said Neil McGlone, a spokesman for the company. "What this does is remove any doubt about who the inventor was, and it was T.I."

The decision could, however, have a profound impact on Mr. Hyatt's financial fortunes. The initial announcement of the Hyatt award, made in August 1990, threw the computer industry into turmoil.

As early as 1992 Mr. Hyatt had been successful in licensing the microcontroller design to a number of Japanese and European companies and had received at least $70 million in royalties. A number of legal specialists said that whether Mr. Hyatt would now be able to keep his royalties would depend on the individual terms of his contracts with his licensees.

Mr. Hyatt's lawyer did not return telephone calls yesterday.

Mr. Hyatt's patent is an example of a class of "submarine" patents that may be issued years after competitive commercial development has taken place. Since the Hyatt patent was issued, however, a number of changes have been made in Federal patent law in order to bring the United States patent system into line with international law.

For example, American patents now expire 20 years after they are initially applied for rather than 17 years after the patent has issued. Legislation is also now pending that would force disclosure of all patent applications within 18 months after they are filed.

A microcontroller is like a microprocessor. However, the microcontroller contains its owns software. Microprocessors are programmed externally. Credit for inventing the microprocessor has generally been given to Ted Hoff, who developed the first such chip at the Intel Corporation in 1971. Texas Instruments, however, also built a microprocessor that year. Mr. Boone's computer on a chip included a software program that was stored permanently in read-only memory that was part of the chip. This permitted both a significant cost reduction and increased reliability and convenience so that all-in-one devices could be built into low-cost electronic appliances.

Mr. Boone completed building the first working single-chip microcontroller in the early morning hours of July 4, 1971.

Mr. Hyatt, in contrast never actually built a microcontroller, but instead based his claim to the invention in a series of patent applications in the 1970's and 1980's. While Mr. Hyatt contended that he had first described the idea for a computer on a chip in December 1970, the Patent Office determined that he had first mentioned the invention in an application that was not filed until December 1977, six years after Texas Instruments introduced the product.

As a result of the Patent Office ruling, a notice will be attached to Mr. Hyatt's United States Patent No. 4,942,516 explaining that his claims have been canceled.

[9dreizig]

Oh yeah that money is best spent in CA where the government will use it wisely NOT!!!! I'll keep my residency in NV errr I mean NH well anyway, where ever there's no income taxes hehehe..

[island911]

Originally Posted by sammyg2

a key electrical engineer that never actually made a computer chip, just patented the concept which he was accused of stealing. Later the patent was denied as it turns out this guy wasn't even the original designer. . . snip....

Wow.

You are right; he's a sca/umbag.

[Gogar]

Originally Posted by sammyg2

H The article does not state if he lived in California or Nevada at the time he made the money but the officials indicate he was a resident of California at the time.

Sammy, the article does state that he was

Awarded the patent in 1990,
Moved to Nevada in 1991,
Began collecting income from his invention in 1991 and 1992, after he moved (he says. And proved, apparently).

California tried to send him a tax bill for his income in 1991 and 1992. I say if he followed the rules and was a resident of Nevada when he generated the income, he can live wherever he wants and make money wherever he wants.

I will agree it's a shame the taxpayers will have to buy the ego of some overzealous CA FTB employees.

[Danimal16]

IMHO this action by the FTB is indicative of the State's dealings in other areas. Any of you ever dealt with the Central Coast Water Quality Control Board? And their are others. These guys are out of control and they extort concessions for the state all the time. The FTB seems to operate similarly. The Governator stated that he would eliminate some of the redundant agencies such as the regional boards and consolidate it under the State board. What has he done? Nothing. Wouldn't vote for Arnold ever. He's no RR.