Franchise Tax Bd. of Cal. v. Hyatt
203 L. Ed. 2d 768, 139 S. Ct. 1485, 2019 U.S. LEXIS 3399 (2019)
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Rule of Law:
The U.S. Constitution implicitly grants States sovereign immunity from private suits brought in the courts of other States. This overrules the precedent set in Nevada v. Hall, 440 U.S. 410 (1979).
Facts:
- Gilbert Hyatt, a long-time California resident, earned millions of dollars in royalties from a technology patent.
- In 1991, Hyatt moved to Nevada, selling his California house, renting a Nevada apartment, and obtaining a Nevada driver's license and voter registration.
- Hyatt claimed Nevada, which has no personal income tax, as his primary residence on his 1991 and 1992 tax returns.
- The Franchise Tax Board of California (the Board), suspecting Hyatt's move was a sham to avoid taxes, initiated an audit in 1993.
- During the audit, employees of the Board allegedly committed several torts, including disclosing Hyatt's personal information to third parties and making intrusive inquiries.
- The Board ultimately determined that Hyatt remained a California resident for part of the period in question and owed California millions in back taxes, interest, and penalties.
Procedural Posture:
- In 1998, Gilbert Hyatt sued the Franchise Tax Board of California (the Board) in a Nevada state trial court, alleging torts committed during a tax audit.
- The Board moved to dismiss, claiming sovereign immunity, but the trial court denied the motion.
- The Nevada Supreme Court affirmed, holding that the Full Faith and Credit Clause did not require Nevada to apply California's immunity laws.
- In Franchise Tax Bd. of Cal. v. Hyatt (Hyatt I, 2003), the U.S. Supreme Court affirmed the Nevada Supreme Court's decision.
- On remand, a jury trial resulted in a verdict exceeding $490 million for Hyatt. The Board appealed to the Nevada Supreme Court.
- The Nevada Supreme Court reduced the award but refused to apply Nevada's statutory cap on damages to the California agency.
- In Franchise Tax Bd. of Cal. v. Hyatt (Hyatt II, 2016), the U.S. Supreme Court reversed, holding that Nevada must grant the Board the same limited liability it affords its own agencies. The Court was equally divided on whether to overrule Nevada v. Hall.
- On the second remand, the Nevada Supreme Court ordered the trial court to enter damages consistent with Nevada's statutory cap.
- The Board filed a petition for a writ of certiorari for a third time with the U.S. Supreme Court, solely on the question of whether to overrule Nevada v. Hall.
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Issue:
Does the U.S. Constitution grant states sovereign immunity from private suits brought in the courts of other states, thereby requiring the overruling of Nevada v. Hall?
Opinions:
Majority - Justice Thomas
Yes, the Constitution provides States with sovereign immunity from private suits in the courts of other States. Nevada v. Hall misinterpreted the constitutional design and historical record. At the nation's founding, it was universally understood that a sovereign could not be sued without its consent, a principle derived from both common law and the law of nations. The Constitution did not strip States of this immunity; rather, it fundamentally altered their relationships, embedding interstate sovereign immunity as integral to the federal structure. The swift ratification of the Eleventh Amendment following Chisholm v. Georgia confirms the original understanding was to preserve state immunity. Stare decisis does not require adherence to Hall because it was poorly reasoned, an outlier in sovereign immunity jurisprudence, and has not generated significant reliance interests sufficient to justify perpetuating a constitutional error.
Dissenting - Justice Breyer
No, the Constitution does not require States to grant immunity to sister States in their courts. Nevada v. Hall was correctly decided and should not be overruled. Historically, sovereign immunity among nations was a matter of comity and consent, not an absolute right, a principle this Court affirmed in early cases like Schooner Exchange. The Constitution contains no explicit provision altering this rule for States, and implying such a right intrudes on the forum State's own sovereign power to define the jurisdiction of its courts, a power reflected in the Tenth Amendment. Overruling a 40-year-old precedent that has not proven unworkable, solely because the Court's composition has changed, is a dangerous practice that undermines legal stability and the principle of stare decisis.
Analysis:
This decision represents a significant consolidation of state sovereign immunity doctrine, effectively closing the last remaining jurisdictional avenue for private individuals to sue a non-consenting State. By overruling the 40-year-old precedent of Nevada v. Hall, the Court established that interstate sovereign immunity is not a matter of comity but a structural principle of the Constitution. This ruling aligns the treatment of States in sister-state courts with their immunity in federal courts (Eleventh Amendment) and their own courts (Alden v. Maine), creating a near-absolute shield from private lawsuits.
