Tuesday, February 25, 2003
Copyright © Las Vegas Review-Journal

Nevada ruling in U.S. high court

California argues against tax lawsuit

WASHINGTON -- A California state attorney urged U.S. Supreme Court justices on Monday to overturn a Nevada Supreme Court ruling that he said would allow former Californians in other states to file lawsuits to avoid paying taxes.

Felix Leatherwood, a deputy attorney general based in Los Angeles, charged the Nevada ruling last year violates California's sovereignty and interferes with its authority to collect taxes.

By allowing Gilbert Hyatt of Las Vegas to pursue a lawsuit against the California tax board, "Nevada is allowing (Hyatt) to use (the lawsuit) both as a wall and a battering ram that creates a whole new class of lawsuits," Leatherwood said.

Hyatt, a computer microprocessor inventor, sued the Franchise Tax Board of California and one of its agents, Sheila Cox, alleging that in 1995 she trespassed on his Las Vegas property, searched his trash and mail, and spread inaccurate information about him and his family. His lawsuit alleges fraud, abuse of process, invasion of privacy, outrage and negligence.

The California tax board claims Hyatt owes taxes on $40 million in patent licensing fees, but he says he received the income after he moved to Las Vegas in 1991.

The Nevada Supreme Court declined to apply a California statute which would have immunized Cox and the tax board from Hyatt's lawsuit, and sent the case back to a Clark County trial court.

The issue before the U.S. Supreme Court is whether the full faith and credit clause of the Constitution required the Nevada Supreme Court to apply California's immunity statute and toss Hyatt's case.

The clause says each state should give full faith and credit to the public acts, records, and judicial proceedings of every other state.

Justices peppered Leatherwood with questions during the hearing.

"You're not saying that it's all right if somebody came over to Las Vegas from California and beat somebody up just because they didn't pay their taxes, are you?" Chief Justice William Rehnquist asked Leatherwood.

Nevada should not allow Hyatt's lawsuit to proceed until his tax dispute with California is resolved, Leatherwood said.

"What if California allowed the use of thumb screws in tax collection authority when its agents were in Nevada?" Justice David Souter asked.

Leatherwood said the California immunity statute does not apply to criminal acts committed outside the scope of a tax audit.

H. Bartow Farr, a Washington, D.C., attorney representing Hyatt, told the justices the Nevada Supreme Court sought to respect the sovereignty of California and Nevada in Hyatt's case.

For example, Farr said, the Nevada Supreme Court did not issue a ruling on the issue of Hyatt's residency in 1991. The Nevada Supreme Court also observed California's immunity statute for unintentional or negligent acts by its agents, he said.

But Nevada drew the line at intentional misconduct to protect its own sovereignty, Farr said.