A sticky lawsuit

A lawsuit by a former employee against slot machine powerhouse International Game Technology moved forward Tuesday with the submittal of a document answering and refuting the legal argument of Attorney General Brian Sandoval.

Sound complicated? OK, here goes.

Jim McAndrews worked at IGT as an accountant. He claims he discovered a problem with the state taxes IGT was paying on a computer chip that was installed in various slot machines (IGT is the largest manufacturer of slot machines in the world).

IGT’s lawyers have maintained the corporation does not owe money for an untaxable software licensing fee.

When McAndrews discovered the problem, he estimated IGT’s unpaid taxes were growing at a rate of $9 per minute.

So, after attempting to rectify the problem, he filed suit under Nevada’s False Claims Act on Feb. 28, 2003. The error, according to McAndrews and his attorneys, John S. Bartlett, Mark Mausert and Fred Atcheson, could be a $30 million error. Or it could grow.

Now, here’s the kicker. The False Claims Act, NRS 357, is a whistleblower law that allows plaintiffs who file suits on behalf of the state to receive between 25 and 50 percent of any damages that are recovered.

Also, the Act has a damage clause: “…a civil action pursuant to this chapter, the court may give judgment for not less than twice or more than three times the amount of damages sustained.”

That $30 million could double or triple, and the corporation could owe the cash-strapped state of Nevada up to $90 million—or perhaps nothing.

That’s where things stood until Nevada Attorney General Brian Sandoval filed a motion to dismiss the lawsuit in the Second Judicial Court on Jan. 26.

McAndrews’ attorneys were upset by what they saw as interference by the AG’s Office. Mausert says the AG, former Nevada Gaming Commission chairman, stepped in to protect powerful, election-contributing friends.

“If he’s not in bed with IGT, then why hasn’t he done a thing to collect on the taxes?” asked the flint-eyed Mausert, as the final commas were placed onto the rebuttal to the Attorney General’s motion to dismiss. “There’s not a lot to audit. The statute is either applicable or not. And it’s not ambiguous. The law created a financial carrot to turn in tax cheats.”

Mausert said Sandoval’s claim went beyond the simple legal issues to attack McAndrews’ reasons for coming forward.

“He said we’re after the money. Mr. Sandoval is absolutely right. We’re after the money. But we don’t get paid until the public gets paid.”

For his part, Sandoval says the reason his office filed the motion is because the False Claims Act is the wrong method for tax redress.

“I think they’ve misconstrued the intent of the False Claims Act,” Sandoval said.

“First, I applaud Mr. McAndrews for bringing this issue to the attention of the Department of Taxation. However, Nevada law provides that the collection of taxes is exclusively within the jurisdiction of the Nevada Department of Taxation. The Nevada Department of Taxation is aggressively pursuing an audit of IGT. If it finds that the tax is due, the Department of Taxation will seek collection of the tax, as well as the applicable penalties. Those penalties can be up to 30 percent for an intentional evasion of the payment of taxes and 10 percent for negligent failure to report taxes.”

If the $30 million sum is accurate and the case falls under the Attorney General’s interpretation of the law, IGT could owe as much as $44 million to the state—less than half the amount McAndrews and his attorneys believe the state is due. Of course, he says, the state wouldn’t have to share that money with McAndrews.

Still, Sandoval believes it’s not just about the money. It’s also about fairness. He says the Nevada system for collecting taxes has to be fair to all—regardless of who the taxpayer is.

“We’re very concerned about opening a Pandora’s box where any citizen could file a lawsuit against any other citizen for failure to pay taxes,” he said. “It’s a little disingenuous to say I’m trying to protect IGT. If IGT is found to owe that tax, it will be our office that prosecutes it.”

Sandoval says there is no truth to the rumor that he received big money for his campaign from IGT, and a search of his contributions and expenditures reports seems to bear this out.

“It is more than $2,000, I will tell you that, but it can’t be more than $10,000 because the campaign laws prohibit that. Just to be conservative, I’m pretty confident that IGT as a corporation donated $10,000 for my campaign.”