In 2020, two Las Vegas communications consultants brought a lawsuit against a group of top online booking companies. The complaint alleges that the defendant travel companies avoided paying hundreds of millions of dollars in hotel room taxes by buying the rooms as discounted prices, selling them to consumers at higher rates, and then, paying taxes only on the discounted price — not the actual sale price. On July 13, Clark County District Court Judge Mark Denton refused to reconsider his denial of the defendants’ motion for summary judgment, and earlier in the year, he denied the defendant’s motion to dismiss the qui tam plaintiffs’ claim under the Nevada False Claims Act (Nevada FCA). However, as of August 3, those companies appealed the lower court’s decision to the Nevada Supreme Court, arguing that a qui tam lawsuit cannot be maintained when the government subsequently files a lawsuit on the same conduct (but alleging different claims).[1]

This case emphasizes the power of using state False Claims Act statutes to enforce a state’s tax laws. While the federal False Claims Act bans tax enforcement cases, there is a growing trend among states to allow tax cases to be brought under their state False Claims Act statutes, notably New York, Illinois, and Washington, D.C. The Nevada FCA, unlike the federal False Claims Act and many other states, is silent on the question of whether qui tam plaintiffs may bring an action for tax fraud, but this silence has been interpreted by Nevada courts as permitting lawsuits in some circumstances.

I. Overview of the Nevada FCA

The Nevada FCA, modeled after the federal False Claims Act, creates civil and criminal penalties for anyone who knowingly presents a false claim to the Nevada government. The word “knowingly” for purposes of this statute is defined to encompass deliberate ignorance or reckless disregard.[2] The Nevada FCA allows both the Nevada attorney general and private citizens to file suit to enforce the statute’s provisions.

Moreover, like the federal False Claims Act, to incentivize whistleblowers to file qui tam suits, the Nevada FCA allows individual qui tam plaintiffs to recover anywhere between 25% and 30% of the proceeds of the Nevada’s recovery in cases where the attorney general does not intervene.[3] The statute permits recovery in the form of treble damages, costs of the civil action, and civil penalties of $5,500 to $11,000 per violation.[4]

Unlike other state statutes and unlike the federal act, the Nevada FCA does not have a provision that expressly bars tax liability from falling within the scope of the Nevada FCA’s reach. Rather, Nev. Rev. Stat. 357.040(1) generally imposes liability on any person who, “with or without specific intent to defraud,” does one or more of several enumerated acts, such as knowingly submitting to the government a falsified claim for payment. In 2006, the Supreme Court of Nevada analyzed whether the silence in the act implicitly allowed qui tam realtors to bring an action, alleging tax fraud against the government under the Nevada FCA.[5] The state’s highest court held that “fact-based legal issues … are best left to the Department of Taxation,” but “allegations that state money was fraudulently withheld by a company that keeps two sets of books reporting the same transactions — one that accurately reflects the sales’ gross receipts and one that does not — and then underreports its state sales tax liabilities based on the untrue data” would be able to be brought in court.[6]

II. Rogich v. Orbitz

In Rogich v. Orbtiz, the qui tam relators sued under the Nevada FCA,[7] alleging that the defendants knowingly avoided their obligation to remit the transient lodging tax when the companies calculated the tax based on the discounted price hotels offered to online travel companies instead of the amount the online travel companies actually had charged to consumers.[8] Based on the Nevada FCA claim, the qui tam relators seek treble damages and civil penalties of $5,500 to $11,000 per violation for the state and seek 15% to 30%[9] of that recovery for themselves as the relator’s share.[10][11] Pursuant to Nev. Rev. Stat. 37.070, the qui tam relators filed this complaint under seal, and later, the Nevada attorney general notified the court that the office declined to intervene after investigating the allegations. Despite not intervening, Nevada Attorney General Aaron Ford lent his support to the lawsuit, writing a letter to Judge Denton to oppose the defendants’ motions. In addition, Clark County also sued the defendant in a separate case after the qui tam relators filed their case. The Clark County action is now pending in federal court.[12]

In the motion to dismiss, the defendants argued, among other things, that the relators should not be barred from bringing this lawsuit because they are not the “original sources” of the fraud, rather the defendants allege that news outlets uncovered this issue. The court found that this factual question was not “ripe for resolution on a motion to dismiss.”[13] Additionally, the defendants brought a motion for summary judgment, asserting that Nev. Rev. Stat. 357.080(3)(b) bars this action because it is “based upon allegations or transactions that are the subject of a civil action … to which the State or political subdivision is already a party,” referencing the current federal lawsuit filed by Clark County. The court rejected this argument because the Clark County action was filed after the qui tam lawsuit.[14] However, the defendants filed a writ of mandamus, arguing that Nevada’s highest court should reverse the lower court’s holding and find that a qui tam lawsuit cannot be maintained when the government subsequently files a lawsuit on the same conduct (but alleging different claims).

Although not advanced as a basis for dismissal, the defendants highlight International Game Technology to argue that the complaint is “an inappropriate effort to change state and local tax law for online travel companies” and thus runs afoul of the Nevada Supreme Court’s ruling in International Game Technology, which places the obligation for legal interpretation of the revenue statutes with state tax agencies, instead of the courts.[15]

III. Potential Significance of the Nevada FCA in Rogich v. Orbitz

While not all state False Claims Acts include liability for tax avoidance, Nevada joins a growing trend of states that allow for public and private enforcement of the tax code through their state False Claims Act statutes. In fact, counsel for the state in this matter are aware of the fact that recovery would be “an enormous windfall for state and local governments,” especially as they “deal[] with an unstable economy and the ongoing COVID-19 pandemic.” Specifically, taxes paid by online travel companies go into the Las Vegas Convention and Visitors Authority (LVCVA), the Clark County School District, the Nevada Department of Tourism, and other public agencies and funds. Given the pandemic, the LVCVA reported it was expecting a drop of $200 million in revenue and has slashed its budget. But as local officials have commented, the recovery from these two lawsuits, “could be a windfall for the city, which would be desperately needed.” As previous articles predicted, this exemplifies how state and local governments make use of private actions through the state False Claims Act to recover funds from the private sector to augment state and local budgets. Additionally, if the Nevada Supreme Court affirms the lower court, the government can receive money from both their civil lawsuit, as well as the False Claims Act lawsuit advanced entirely by the qui tam plaintiffs.

Businesses and individuals must be alert to these developments and take steps to reduce liability and defend against both public and private enforcement actions. Companies and individuals in Nevada should monitor this case closely for the potential of precedent in this matter, broadening enforcement potential under the Nevada FCA. Additionally, for those in states outside of Nevada, this case represents a continued enforcement trend as states and localities look for creative ways to increase revenue. There are several general steps for companies to protect against enforcement actions:

• Monitor developments in this case and generally across states. Watching federal, state, and local action will provide visibility into ongoing regulatory and enforcement trends. Qui tam plaintiffs in other states will likely take note of these developments. And state legislators may view this case as further ammunition for amending their state False Claims Act statutes to explicitly include tax-related actions. Continue to follow regulatory oversight for updates on this case and analysis.

• Seek outside advice. Find someone with expertise in this area of the law when confronting novel or thorny issues.

[1] See Rogich v. Orbitz, No. A-20-814111-B, Pet. Writ Mandamus at 1, 16 (Aug. 3, 2022).

[2] Nev. Rev. Stat. § 357.040(3).

[3] Nev. Rev. Stat. § 357.210(2).

[4] Nev. Rev. Stat. § 357.040(2).

[5] Int’l Game Tech., Inc. v. Second Jud. Dist. Ct. of Nevada, 122 Nev. 132 (2006).

[6] See Int’l Game Tech., 122 Nev. at 158-59.

[7] In the original complaint, the qui tam relators also brought claims for declaratory judgment, Clark County ordinances, conversion, breach of fiduciary duty, unjust enrichment, constructive trust, and a violation of the Nevada Deceptive Trade Practices Act, Nev. Rev. Stat § 598.0903, et seq., but those were dropped in the amended complaint filed on May 16, 2022. The defendants argued that the qui tam relators did not have standing to bring these claims on behalf of the government, and the relators conceded the motion and amended the complaint. Order Granting in Part and Den. in Part Defs. Mot. to Dismiss ¶ 2 (Jun. 2, 2022).

[8] See Rogich v. Orbitz, No. A-20-814111-B, Am. Compl. ¶¶ 51-53 (May 16, 2022).

[9] While the amended complaint seeks 15% to 30%, the Nevada statute says that when the attorney general does not intervene, “the private plaintiff is entitled to receive not less than 25 percent or more than 30 percent of any recovery, as the court determines to be reasonable.” Nev. Rev. Stat. § 357.210.

[10] Nev. Rev. Stat. 357.190 defines recovery as inclusive of civil penalties but does not include expenses or attorney’s fees.

[11] See id. ¶¶ 54-55; Nev. Rev. Stat. 357.210.

[12] The federal lawsuit brought by Clark County alleges claims for declaratory judgment, violation of certain Clark County ordinances, conversion, breach of fiduciary duty, unjust enrichment, constructive trust, and a violation of the Nevada Deceptive Trade Practices Act, Nev. Rev. Stat § 598.0903, et seq.

[13] See Rogich v. Orbitz, No. A-20-814111-B, Order Granting in Part and Den. in Part Defs. Mot. to Dismiss ¶ 3 (Jun. 2, 2022).

[14] See Rogich v. Orbitz, No. A-20-814111-B, Order Den. Defs. Motion for Summ. J. ¶¶ 5-6 (Apr. 29, 2022).

[15] See id.