Judge refuses to drop tax lawsuit against IGT

Brendan Riley

Friday, July 2, 2004 | 10:54 a.m.

CARSON CITY -- A Reno judge refused Thursday to dismiss a whistleblower's claim that slot machine giant International Game Technology filed false tax returns and owes up to $30 million in back state taxes.

Washoe County District Judge Peter Breen said the dismissal, sought by IGT and state Attorney General Brian Sandoval, would undermine the state's 1999 whistleblower law, which gives people with inside knowledge about such cases a percentage of any amount eventually collected by the state.

"First, the very purpose of the False Claims Act is to provide an incentive for persons to come forward and expose frauds upon the government," Breen wrote in his 6-page order favoring former IGT employee Jim McAndrews.

"Furthermore, the interests of Mr. McAndrews would surely be impacted by a dismissal because he would lose all the protections afforded him under the act."

Breen also said the merits of McAndrews' claim are unclear at this point because a state Taxation Department audit of Reno-based IGT has not yet been completed.

McAndrews' attorney, John Bartlett, said he looked forward to pursuing the case in Breen's court. He also said McAndrews would like to help the Taxation Department with its audit but the agency "has completely ignored his assistance up to now."

There was little comment from IGT or Sandoval's office.

"Right now, we're reviewing this and considering what our response will be," said Sandoval spokesman Tom Sargent.

IGT spokesman Ed Rogich said company attorneys "have not yet received the full transcript and have not been able to review it."

The state and IGT wanted the case handled by the taxation agency. Sandoval had argued that McAndrews deserved praise for bringing up the tax issue, but Nevada law says tax collections are exclusively within the jurisdiction of the agency.

But the agency's involvement doesn't warrant excluding the case from litigation, Breen said, adding the attorney general "provided little, if any, legitimate governmental purpose that is rationally related to dismissing this action."

Bartlett contends the case involves "massive tax fraud" by the big, politically connected slot machine manufacturer and if the $30 million claim holds up a treble damages clause could push the total amount to $90 million.

Whistleblowers are entitled to as much as 50 percent, although Bartlett said 20 percent is more common.

In his dismissal motion, Sandoval said the Taxation Department was the proper forum for resolving the dispute. His motion, written by Assistant Attorney General Ann Wilkinson, also said that by relying on the False Claims Act, there's no way to keep financial details confidential.

IGT lawyers filed a separate motion that rejected the claims by McAndrews and agreed that the Taxation Department should handle the case.

To let such cases go forward in court rather than in the tax agency could result in people like McAndrews effectively becoming private tax collectors for the state, they said.

Rejecting what he termed a "plethora of arguments" by IGT and Sandoval, Breen said he could always issue a protective order to ensure IGT's taxpayer rights aren't violated by certain financial disclosures in open court.

McAndrews, hired by IGT to work on tax matters, is now on administrative leave from the company. His complaint says he tried to bring tax compliance issues to the company's attention "but has been rebuffed in these attempts."

McAndrews alleges that IGT and Anchor Coin Inc. were involved in a joint venture and since 1997 filed false sales and use tax returns with the state on sales and leases of slot machines and slot components. Anchor Coin later was acquired and merged into IGT.