Franchise Tax Bd. of Cal. v. Hyatt

• Court: United States Supreme Court
• Citation: 139 S.Ct. 1485
• Docket Number: No. 17-1299.,17-1299.
• Parties: FRANCHISE TAX BOARD OF CALIFORNIA, Petitioner v. Gilbert P. HYATT
• Decision Date: 13 May 2019

139 S.Ct. 1485

FRANCHISE TAX BOARD OF CALIFORNIA, Petitioner
v.
Gilbert P. HYATT

No. 17-1299.

Supreme Court of the United States.

Argued January 9, 2019
Decided May 13, 2019

Seth P. Waxman, Washington, DC, for the petitioner.

Erwin Chemerinsky, Berkeley, CA, for the respondent.

William C. Hilson, Jr., Scott W. DePeel, Ann Hodges, Franchise Tax Board of the State of California, Sacramento, CA, James W. Bradshaw, Pat Lundvall, Debbie Leonard, McDonald Carano LLP, Las Vegas, NV, Seth P. Waxman, Paul R.Q. Wolfson, Daniel Winik, Joshua M. Koppel, James Barton, Wilmer Cutler Pickering Hale and Dorr LLP, Washington, DC, for petitioner.

Erwin Chemerinsky, University of California, Berkeley School of Law, Berkeley, CA, Mark D. Rosenbaum, Alisa Hartz, Public Counsel, Donald J. Kula, Perkins Coie LLP, Los Angeles, CA, Paul Hoffman, Schonbrun Seplow Harris & Hoffman LLP, Hermosa Beach, CA, Joel W. Nomkin, Perkins Coie LLP, Phoenix, AZ, for respondent Gilbert P. Hyatt.

Justice THOMAS delivered the opinion of the Court.

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This case, now before us for the third time, requires us to decide whether the Constitution permits a State to be sued by a private party without its consent in the courts of a different State. We hold that it does not and overrule our decision to the contrary in Nevada v. Hall , 440 U.S. 410, 99 S.Ct. 1182, 59 L.Ed.2d 416 (1979).

I

In the early 1990s, respondent Gilbert Hyatt earned substantial income from a technology patent for a computer formed on a single integrated circuit chip. Although Hyatt’s claim was later canceled, see Hyatt v. Boone , 146 F. 3d 1348 (C.A. Fed. 1998), his royalties in the interim totaled millions of dollars. Prior to receiving the patent, Hyatt had been a long-time resident of California. But in 1991, Hyatt sold his house in California and rented an apartment, registered to vote, obtained insurance, opened a bank account, and acquired a driver’s license in Nevada. When he filed his 1991 and 1992 tax returns, he claimed Nevada—which collects no personal income tax, see Nev. Const., Art. 10, § 1 (9)—as his primary place of residence.

Petitioner Franchise Tax Board of California (Board), the state agency responsible for assessing personal income tax, suspected that Hyatt’s move was a sham. Thus, in 1993, the Board launched an audit

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to determine whether Hyatt underpaid his 1991 and 1992 state income taxes by misrepresenting his residency. In the course of the audit, employees of the Board traveled to Nevada to conduct interviews with Hyatt’s estranged family members and shared his personal information with business contacts. In total, the Board sent more than 100 letters and demands for information to third parties. The Board ultimately concluded that Hyatt had not moved to Nevada until April 1992 and owed California more than $ 10 million in back taxes, interest, and penalties. Hyatt protested the audit before the Board, which upheld the audit after an 11-year administrative proceeding. The appeal of that decision remains pending before the California Office of Tax Appeals.

In 1998, Hyatt sued the Board in Nevada state court for torts he alleged the agency committed during the audit. After the trial court denied in part the Board’s motion for summary judgment, the Board petitioned the Nevada Supreme Court for a writ of mandamus ordering dismissal on the ground that the State of California was immune from suit. The Board argued that, under the Full Faith and Credit Clause, Nevada courts must apply California’s statute immunizing the Board from liability for all injuries caused by its tax collection. See U.S. Const., Art. IV, § 1 ; Cal. Govt. Code Ann. § 860.2 (West 1995). The Nevada Supreme Court rejected that argument and held that, under general principles of comity, the Board was entitled to the same immunity that Nevada law afforded Nevada agencies—that is, immunity for negligent but not intentional torts. We granted certiorari and unanimously affirmed, holding that the Full Faith and Credit Clause did not prohibit Nevada from applying its own immunity law to the case. Franchise Tax Bd. of Cal. v. Hyatt , 538 U.S. 488, 498–499, 123 S.Ct. 1683, 155 L.Ed.2d 702 (2003) ( Hyatt I ). Because the Board did not ask us to overrule Nevadav.Hall , supra , we did not revisit that decision. Hyatt I, supra, at 497, 123 S.Ct. 1683.

On remand, the trial court conducted a 4-month jury trial that culminated in a verdict for Hyatt that, with prejudgment interest and costs, exceeded $ 490 million. On appeal, the Nevada Supreme Court rejected most of the damages awarded by the lower court, upholding only a $ 1 million judgment on one of Hyatt’s claims and remanding for a new damages trial on another. Although the court recognized that tort liability for Nevada state agencies was capped at $ 50,000 under state law, it nonetheless held that Nevada public policy precluded it from applying that limitation to the California agency in this case. We again granted certiorari and this time reversed, holding that the Full Faith and Credit Clause required Nevada courts to grant the Board the same immunity that Nevada agencies enjoy. Franchise Tax Bd. of Cal.v.Hyatt, 578 U.S. ––––, –––– – ––––, 136 S.Ct. 1277, 1280–1283, 194 L.Ed.2d 431 (2016) ( HyattII ). Although the question was briefed and argued, the Court was equally divided on whether to overrule Hall and thus affirmed the jurisdiction of the Nevada Supreme Court. Hyatt II, supra, at ––––, 136 S.Ct. at 1278. On remand, the Nevada Supreme Court instructed the trial court to enter damages in accordance with the statutory cap for Nevada agencies. 133 Nev. ––––, 407 P. 3d 717 (2017).

We granted, for a third time, the Board’s petition for certiorari, 585 U.S. ––––, 138 S.Ct. 2710, 201 L.Ed.2d 1095 (2018). The sole question presented is whether Nevadav.Hall should be overruled.¹

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II

Nevadav.Hall is contrary to our constitutional design and the understanding of sovereign immunity shared by the States that ratified the Constitution. Stare decisis does not compel continued adherence to this erroneous precedent. We therefore overrule Hall and hold that States retain their sovereign immunity from private suits brought in the courts of other States.

A

Hall held that the Constitution does not bar private suits against a State in the courts of another State. 440 U.S. at 416–421, 99 S.Ct. 1182. The opinion conceded that States were immune from such actions at the time of the founding, but it nonetheless concluded that nothing "implicit in the Constitution" requires States "to adhere to the sovereign-immunity doctrine as it prevailed when the Constitution was adopted." Id., at 417–418, 424–427, 99 S.Ct. 1182. Instead, the Court concluded that the Founders assumed that "prevailing notions of comity would provide adequate protection against the unlikely prospect of an attempt by the courts of one State to assert jurisdiction over another." Id., at 419, 99 S.Ct. 1182. The Court’s view rested primarily on the idea that the States maintained sovereign immunity vis-à-vis each other in the same way that foreign nations do, meaning that immunity is available only if the forum State "voluntar[ily]" decides "to respect the dignity of the [defendant State] as a matter of comity." Id., at 416, 99 S.Ct. 1182 ; see also id., at 424–427, 99 S.Ct. 1182.

The Hall majority was unpersuaded that the Constitution implicitly altered the relationship between the States. In the Court’s view, the ratification debates, the Eleventh Amendment, and our sovereign-immunity precedents did not bear on the question because they "concerned questions of federal-court jurisdiction." Id. , at 420, 99 S.Ct. 1182. The Court also found unpersuasive the fact that the Constitution delineates several limitations on States’ authority, such as Article I powers granted exclusively to Congress and Article IV requirements imposed on States. Id., at 425, 99 S.Ct. 1182. Despite acknowledging "that ours is not a union of 50 wholly independent sovereigns," Hall inferred from the lack of an express sovereign immunity granted to the States and from the Tenth Amendment that the States retained the power in their own courts to deny immunity to other States. Ibid.

Chief Justice Burger, Justice Blackmun, and Justice Rehnquist dissented.

B

Hall ’s determination that the Constitution does not contemplate sovereign immunity for each State in a sister State’s courts misreads the historical record and misapprehends the "implicit ordering of relationships within the federal system necessary to make the Constitution a workable governing charter and to give each provision within that document the full effect intended by the Framers." Id. , at 433, 99 S.Ct. 1182 (Rehnquist, J., dissenting). As Chief Justice Marshall explained, the Founders did not state every postulate on which they formed our Republic—"we must never forget, that it is a

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constitution we are expounding." McCulloch v. Maryland , 4 Wheat. 316, 407, 4 L.Ed. 579 (1819). And although the Constitution assumes that the States retain their sovereign immunity except as otherwise provided, it also fundamentally adjusts the States’ relationship with each...