Franchise Tax Bd. of Cal. v. Hyatt
194 L. Ed. 2d 431, 2016 U.S. LEXIS 2796, 136 S.Ct. 1277 (2016)
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Rule of Law:
The Full Faith and Credit Clause prohibits a state from applying a special, discriminatory legal rule that subjects a sister state's agency to greater liability than its own agencies would face in a similar lawsuit, as such a rule constitutes an impermissible 'policy of hostility' to the public acts of the sister state.
Facts:
- Gilbert P. Hyatt claimed he moved from California to Nevada in September 1991.
- The Franchise Tax Board of California (FTB), a state agency, audited Hyatt, claiming he actually moved in April 1992.
- Based on its audit, the FTB asserted that Hyatt owed California over $10 million in back taxes, penalties, and interest.
- During its investigation, FTB agents allegedly engaged in abusive tortious conduct against Hyatt in Nevada, including searching his garbage and private mail.
Procedural Posture:
- Gilbert P. Hyatt sued the Franchise Tax Board of California (FTB) in a Nevada state trial court.
- On a preliminary issue, the case reached the Nevada Supreme Court, which held that Nevada comity principles would determine the extent of California's immunity.
- The U.S. Supreme Court affirmed that decision in Franchise Tax Bd. of Cal. v. Hyatt (2003), allowing the suit to proceed under Nevada law.
- Following a trial, a jury in the Nevada trial court awarded Hyatt nearly $500 million in damages and fees.
- FTB, as the appellant, appealed the verdict to the Nevada Supreme Court, with Hyatt as the appellee.
- The Nevada Supreme Court reversed most of the award but upheld a $1 million judgment for fraud and held that Nevada's statutory $50,000 damages cap, applicable to its own agencies, did not apply to California's FTB.
- The FTB petitioned the U.S. Supreme Court for a writ of certiorari, which was granted.
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Issue:
Does the Full Faith and Credit Clause prohibit a state from applying a special damages rule that subjects a sister state's agency to greater liability than its own agencies would face in a similar suit?
Opinions:
Majority - Justice Breyer
Yes. The Full Faith and Credit Clause prohibits a state from applying a special rule of law that reflects a constitutionally forbidden 'policy of hostility' toward a sister state. While a state is not required to substitute another state's conflicting law for its own, it cannot create a special, discriminatory rule that treats a sister state's agency less favorably than its own. Here, Nevada law caps damages against its own agencies at $50,000, yet the Nevada Supreme Court refused to apply this cap to the California agency, creating a special rule inconsistent with its own general principles of immunity. The court's justification—that California's internal controls are inadequate—is a conclusory disparagement that cannot justify a discriminatory rule that violates the principle of 'constitutional equality' among the states.
Dissenting - Chief Justice Roberts
No. The Full Faith and Credit Clause does not prevent a state from applying its own law to provide redress for an injury that occurred within its borders, so long as it has a sufficient policy reason for doing so. Nevada's interest in 'providing adequate redress to Nevada citizens' for torts committed within the state is a sufficient policy justification. Nevada articulated a rational basis for treating the California agency differently: Nevada can exercise legislative and administrative control over its own agencies, but has no such control over California's. The majority's decision improperly returns to a discredited 'balancing-of-interests' approach and creates a hybrid remedy not found in either state's law, contrary to the text of the Clause.
Analysis:
This decision clarifies the 'policy of hostility' exception within Full Faith and Credit Clause jurisprudence, establishing that the principle of comity and equal dignity among states limits a forum state's ability to create targeted, discriminatory laws against a sister state. The ruling prevents states from using their courts to penalize other states for having different immunity statutes by refusing to apply their own generally applicable liability caps. It reinforces that while states have significant leeway in choice-of-law decisions, this discretion is not absolute and cannot be exercised in a way that is overtly hostile and prejudicial to another sovereign state.
