SALT Blog - SALT Blawg

On January 9, 2019, the U.S. Supreme Court heard oral arguments in the case of Franchise Tax Board of California v. Hyatt, No. 17-1299.  A copy of the oral argument transcript can be accessed here.

In Hyatt, the Supreme Court is again revisiting the question of whether one state can be sued in another state’s courts.  The Hyatt litigation has been ongoing for two decades and has been before the U.S. Supreme Court on two previous occasions.  The case involves damages sought by Gilbert P. Hyatt for several torts allegedly committed by the Franchise Tax Board of California (“FTB”) in its audits of him.  During April 2016 the U.S. Supreme Court split 4-4 on whether it should overrule its 1979 decision in Nevada v. Hall, 440 U.S. 410 (1979), allowing states to be sued in the courts of other states.  However, the majority held that Nevada is limited by its own laws when awarding damages against California.  On remand, the Nevada Supreme Court reduced the damages awarded to Hyatt. The FTB filed a cert petition seeking U.S. Supreme Court review of the state high court’s December 26, 2017 judgment on rehearing, which the Court granted.  Since there are now 9 Justices on the Court, the FTB, the 45 amici states, and the Multistate Tax Commission are seeking a majority opinion overturning Hall.

During oral argument, the Justices raised the question of the importance of stare decisis and adhering to the prior precedent of Nevada v. Hall which had been relied on for the past forty years.  The Justices also highlighted the fact that 45 states joined in the amicus brief in support of the FTB – questioning whether that indicates that the states think their sovereign immunity power is more important than the power to protect their own citizens from other state agencies in their own courts, but also questioning why the States do not seek to amend the Constitution instead of asking the Courts to take up their battle.

The Court also questioned both parties on the "evidence" that supported their positions.  Both parties attempted to craft the silence in the Constitution regarding the ability of a state to be sued in the court of another state as support for their position.  Counsel for the FTB argued:

“The reference to the former colonies as states, the reference to in the privileges and immunities clause of citizens of states, the limitation, the express limitations in the Constitution, including Section 10 of Article I, and, of course, the Eleventh Amendment itself, make sense only if the states are sovereign.”

Conversely, counsel for Hyatt argued:

“Where the text of the Constitution wanted to limit state power, it did so explicitly: the full faith and credit clause, the fugitive slave clause, the privilege and immunities clause. There is no textual provision in the Constitution that limits the power of a state under the Tenth Amendment to define its own jurisdiction provide a remedy for others when they're injured.”

This case is important for a number of reasons.  First, the Justices' analysis of the stare decisis issue may shine important light on how this Court will rule in other cases that rely strongly upon prior precedent.  Second, important issues of states’ sovereignty are at play for both California and Nevada – on one hand there is the interest in allowing states to protect their citizens harmed by other states, while on the other hand there is the interest in the right of states not to be hauled into the courts and subject to the rule of other states.  Finally, the outcome of this case has the potential to affect not only the remedies taxpayers have in challenging state agencies, but also the remedies available in various other personal injury and tort cases.  The U.S. Supreme Court will issue its opinion in this case by late June.