May a private citizen sue a state agency in a foreign state’s court? If so, must that state’s court treat the foreign state agency at least as favorably as it would a similar agency from its own state?
The Supreme Court must determine the boundaries of Eleventh Amendment sovereign immunity and comity as applied to a state that has been unwillingly brought into another state’s courts. The Franchise Tax Board of the State of California (“FTB”) looks to reverse Nevada v. Hall by expanding sovereign immunity to suits brought by private citizens in other states or, alternatively, to find that Nevada violated principles of full faith and credit, comity, and equality, by treating the FTB differently than it would a similar Nevada agency. Conversely, Hyatt argues that Nevada v. Hall must be upheld as a matter of stare decisis and that the privilege of comity does not require the forum state, in all circumstances, to treat another state’s agency the same as the forum state’s equivalent agency. The Supreme Court’s decision will determine where states may be haled into court by a private citizen and to what degree states can be civilly liable for violating the law.
Questions as Framed for the Court by the Parties
- May Nevada refuse to extend to sister States haled into Nevada courts the same immunities Nevada enjoys in those courts?
- Should Nevada v. Hall, 440 U.S. 410 (1979), which permits a sovereign State to be haled into the courts of another State without its consent, be overruled?
In 1991, Gilbert P. Hyatt (“Hyatt”) began to receive large amounts of income from licensing fees for a computer chip patent. In his 1991 tax return, Hyatt stated that just prior to receiving the licensing fees, he relocated from California to Nevada. Consequently, Hyatt did not include the fees as taxable income in his 1991 or 1992 tax returns. In 1993, the Franchise Tax Board of the State of California (“FTB”) began an audit of Hyatt’s 1991 and 1992 state income tax returns. The FTB first informed Hyatt that he was to be audited and later completed an investigation. The investigation included interviews with several family members, over 100 letters sent to professional colleagues and banks, and trips to his home in Nevada. The FTB later concluded that Hyatt had not actually moved to Nevada until April 1992, and therefore was in violation of the tax code for not filing returns in California during that period. The final determination of the audit committee is still pending in California.
After the audit investigation, Hyatt filed suit against the FTB in Nevada state court for a declaratory judgment in the tax investigation and for various torts that occurred during the course of the investigation, including fraud and intentional infliction of emotional distress. In the early stages of the litigation, the FTB sought immunity from the lawsuit, arguing that the state of California would provide immunity if the suit had been brought there and accordingly, the principle of comity should require the same treatment of a California government agency in the state of Nevada. The Supreme Court of Nevada concluded that California should be treated the same as a Nevada tax agency, that is the FTB was given partial immunity for negligent acts, but the immunity did not extend to intentional acts such as fraud. In 2003, this debate went up to the United States Supreme Court in Hyatt I, which decided that comity did not require Nevada to provide complete immunity for the FTB and instead, that the Nevada Supreme Court’s decision to treat the FTB the same as a similarly-situated agency in Nevada was sufficient.
On remand from the Supreme Court in 2008, a jury found the FTB liable for all tort claims and awarded Hyatt damages of over $300 million. The Nevada Supreme Court later reversed several of the tort claims for being legally insufficient and reduced the damages for the remaining fraud claim to roughly $1 million. The Nevada Supreme Court found that as a matter of comity, the FTB was not liable for punitive damages. However, the court concluded that comity did not apply to a cap on damages, as the state of California would have applied. Rather, Nevada’s interest in protecting its citizens against intentional torts by other states superseded the normal Nevada practice of imposing a damages cap against state agencies. Given that Nevada citizens have other avenues of recourse against their own officials (e.g., voting officials out of office and lobbying), the application of the Nevada rule did not apply. Following that decision, the FTB petitioned for certiorari; the United States Supreme Court granted certiorari in 2015.
In this case, the Supreme Court will consider the protections afforded to foreign states, including state government entities, haled into the courts of another sovereign state by a private citizen. The FTB argues that when a state is involuntarily haled into the court of a sister state, it should be granted at least the same rights and protections that the forum state enjoys in accordance with the Full Faith and Credit Clause as well as the principles of comity and equality. Alternatively, Hyatt argues that the degree of immunity granted to a foreign state haled into the court of another state depends on the consent granted by the home sovereign state based on both precedent and historical evidence.
Additionally, the Court will review the merits of its decision in Nevada v. Hall, in which it held that the Constitution does not prohibit a sovereign state from involuntary suit in the court of another state. FTB contends that the Hall decision should be overturned as it departs from the Framers’ original view of sovereign immunity, constitutional structure, and decisions made both pre- and post-Hall. Hyatt counters that the Court should uphold the principles of Hall as a matter of stare decisis as the FTB is unable to demonstrate any special justification for overruling the decision.
WHAT, IF ANY, SOVEREIGN IMMUNITIES DOES A FORUM STATE NEED TO AFFORD TO FOREIGN STATE ENTITIES SUED IN THE FORUM STATE COURT?
The FTB asserts that, while not required to apply California’s law that would have afforded the FTB greater protections, the Nevada Supreme Court should have granted the FTB the same baseline protection from negligence-based torts it affords to its own state agencies. The FTB claims that the Nevada Supreme Court’s decision to authorize unlimited compensatory damages against the FTB not only demonstrated a “policy of hostility” towards California, but also cannot be reconciled with the principles of full faith and credit, comity, and equality rooted in constitutional design that the Court espoused in Hyatt I. Firstly, the FTB states that the Nevada Supreme Court exhibited a “policy of hostility” when the state refused to provide a California government entity with the same level of sovereign immunity afforded by Nevada law and, instead, relied on a unilateral interest to compensate Nevada citizens at the expense of California taxpayers that resulted in a damages award twenty times greater than Nevada’s straightforward cap.Additionally, the FTB maintains that the Nevada Supreme Court failed to honor the principle of comity by choosing to apply an ad hoc approach to liability for compensatory damages that deviated from both California and Nevada law. Furthermore, the FTB argues that the Nevada Supreme Court’s choice of law decision directly contradicts the intent of the Full Faith and Credit Clause, which is to bring independent sovereigns together under one nation, and equal sovereignty principles because it fails to extend a California government entity the same immunity enjoyed by Nevada.
Conversely, Hyatt argues that states do not necessarily have a right to sovereign immunity in the courts of other states unless consented to by the forum state. Hyatt contends that the concept of forum state consent is grounded in the fundamental principles of sovereignty itself as articulated in the 1812 case Schooner Exchange v. McFaddon, which states that sovereign states were granted immunity as a matter of comity rather than as of right. Hyatt maintains that while the idea of equal application of forum state law discussed in Hyatt I might be useful, there is no recognized legal basis requiring either comity or equitable treatment by the forum state, particularly because the fact that states are equal sovereigns does not necessarily mean that they have the same authority within the territory of another state. Rather, Hyatt asserts that the Full Faith and Credit Clause places only mild restrictions on a forum state and, in fact, gives a state the ability to apply its own laws to subject matters it has legislative jurisdiction over. As Nevada provides no immunity to foreign states, Hyatt argues that the Nevada Supreme Court was justified in determining the degree of immunity afforded to the FTB on a case-specific basis. Hyatt argues that it is rational that states are given this broad power to govern the individuals entering and actions occurring inside their boarders to prevent other states from acting with impunity within forum state’s territory. Additionally, Hyatt asserts that the FTB’s accusation that the Nevada Supreme Court exhibited a policy of hostility against California is unfounded because it merely applied Nevada’s own law to a subject matter over which it had jurisdiction, which is in line with constitutional bounds, and explained to reason for applying such law in order to give affirmative relief to a claim that arose in its territory. Furthermore, Hyatt suggests that the Court should refrain from applying the FTB’s poorly defined “hostility” test so as to avoid the weighing of state interests.
CONSIDERING THE MERITS OF THE NEVADA V. HALL PRECEDENT: MAY A SOVEREIGN STATE BE INVOLUNTARILY HALED INTO THE COURT OF ANOTHER STATE?
The FTB argues that the Court’s decision in Nevada v. Hall was fundamentally incompatible with the residual sovereignty of the states as well as the core foundations of our constitutional system and, therefore, should be overruled. The FTB maintains that a belief in preserving interstate sovereign immunity whereby states would not and could not be haled in any court, including the court of another state, by a private citizen, dictated the Framers’ drafting of Article III. The FTB claims that since the Court’s decision in Hall, a myriad of subsequent sovereign immunity cases have treated this concept as inherent in constitutional bounds absent conflicting evidence, making Hall a jurisprudential outlier. Further, the FTB asserts that Hall is an unworkable precedent because it fails to provide states with a predictable and consistent indication of the extent of their sovereign immunity within the court of another state in addition to demeaning state dignity and creating friction between states. Finally, the FTB claims that Hall should not warrant the application of stare decisis because the Court’s reasoning lacked the careful analysis of the aforementioned considerations of historical evidence, constitutional structure, and precedent.
On the other hand, Hyatt argues that the Court should uphold its decision in Hall because the FTB fails to meet the demanding standard of a special justification required by the Court to overrule a prior decision. Hyatt first contends that the FTB is incorrect in its assertion that prior to the formation of the Union, states had sovereign immunity as a right because, as recognized in both Schooner Exchange and Hall, immunity was provided for only as a matter of comity. Hyatt also counters that the precedent decisions concerning sovereign immunity that the FTB points to are irrelevant to the case at hand because they only deal with the question of state immunity in federal tribunals. Furthermore, Hyatt maintains that the states experience minimal, if any, serious economic or political consequences as a result of the Hall ruling to warrant the Court overturning it. Rather, Hyatt suggests that Hall provides states with the opportunity to obtain various degrees of sovereign immunity in other states through normal political channels, voluntary intra-state agreements, or congressional mandate. Ultimately, Hyatt argues that the FTB’s failure to sufficiently demonstrate a “special justification” for overturning Hall warrants the Court upholding its decision for the purposes of stare decisis.
In this case, the Supreme Court will determine how a forum state can treat a foreign state agency that has been unwillingly brought into the forum state’s courts. The FTB asks the Supreme Court to overrule their earlier decision in Nevada v. Hall to extend sovereign immunity to suits brought by private citizens in other states; or, alternatively, to find that the state of Nevada failed to adhere to the standard of Hyatt I by treating the FTB differently than it would a similar Nevada agency. Conversely, Hyatt argues that sovereign immunity does not extend to states in another state’s court and that the principles of comity do not require the forum state to treat another state’s agency the same as the forum state’s equivalent agency in all circumstances. The Supreme Court’s decision in this case will impact the current definition of comity and will determine the extent to which one state has sovereign immunity in a foreign state’s courts.
THE EFFECTS OF REVERSING NEVADA V. HALL
West Virginia and forty-three other states (collectively, “West Virginia”), the Multistate Tax Commission (“the Commission”), and the South Carolina State Ports Authority (“Ports Authority”), on behalf of the FTB, contend that the Supreme Court must overrule its decision in Nevada v. Hall to accurately reflect the legislative intent of the Eleventh Amendment. West Virginia argues that Eleventh Amendment sovereign immunity was intended to protect states from non-consensual suit anywhere in the United States. West Virginia contends that although there is no express reference to the current situation in the legislative record surrounding the Eleventh Amendment, state immunity from suit was assumed to apply to any United States court. Moreover, Ports Authority contends that it is nonsensical to allow a citizen of a state to sue a foreign state in the citizen’s home court, but that the same citizen could not bring suit the same in a federal court for the citizen’s home state. West Virginia and Ports Authority both argue that sovereign immunity does not turn on the forum of a suit and, without this protection, forum states’ judiciaries can control the policy goals of defendant states as well as the defendant state legislature’s power of the purse. More explicitly, the Commission contends that Nevada v. Hall provides an incentive for citizens to cheat the tax system by escaping to the judiciary of other states, delaying resolution of tax audits, and costing taxpayers huge sums in litigation costs.
Conversely, Professors of Federal Jurisdiction (“the Professors”), in support of Hyatt, contend that the Court’s ruling in Hall was properly decided and therefore there is no reason to overturn. The Professors assert that state sovereignty in another state’s courts is an issue of comity and was viewed as such at the time the Eleventh Amendment was passed. Given the large amount of precedent in support of this conclusion, the Professors argue that reversing the Hall ruling would be extremely disruptive to the judicial system. Moreover, the Professors contend that if the Court were to reverse Hall, the only recourse for citizens injured by another state would be to hope that their home state would be willing to sue the other state. The Professors assert that such a proposition is unlikely and, even if a state were willing to sue a sister state, the case would have original jurisdiction at the United States Supreme Court—imposing costs on the appellate review process and for the states individually. The Professors therefore conclude that overruling Hall would mean that states had no effective legal deterrent to mistreat citizens of other states, even though citizens of the same state have recourse through the election process.
APPLICATION OF FORUM STATE LAW
If the Court decides not to overrule Nevada v. Hall, the National Council of State Governments, National Association of Counties, National League of Cities, United States Conference of Mayors, International City/County Management Association, and International Municipal Lawyers Association (collectively, “CSG”), in support of the FTB, contend that the Nevada Supreme Court improperly ignored Nevada’s own practice of imposing a damages cap on state agencies for intentional torts, in direct conflict with the Court’s holding in Hyatt I. CSG argues that the Nevada Supreme Court was required to apply a damages cap under principles of comity because, although comity did not require the forum to provide greater protection to a foreign state than it would for itself, the forum state may not provide less protection to the foreign state than it would a domestic agency. Alternatively, CSG contends that the Nevada Supreme Court violated anti-discrimination principles because the decision intentionally discriminates against a class of litigants, other states’ agencies, by not treating them the same as a similar Nevada agency. CSG asserts that the practical consequences of failing to reverse Nevada’s ruling include unreasonable litigation risks for state and local governments, as well as high costs to taxpayers.
On the other hand, Hyatt asserts that states must be able to apply their own law on any matter that the state has the ability to legislate in order to protect public policy interests. In this instance, Hyatt argues that the state of Nevada appropriately believed it was more important to have recourse for citizens injured by other states, than to adhere to a statutory damages cap. Additionally, Hyatt contends that permitting Nevada to ignore the in-state damages cap does not institute a discrimination policy and would not have a negative impact on state relationships. Rather, Hyatt contends that strictly requiring equal treatment of all states could result in lopsided suits in the statutorily favorable state, rather than a specific determination of how the forum state would choose to legislate on the matter.
The Supreme Court will determine what, if any, protections are afforded to foreign states, including state government entities, haled into the courts of another sovereign state by a private citizen. The FTB argues that a state should extend the same immunities it enjoys to sister states that have been involuntarily haled into the forum state. In opposition, Hyatt contends that a foreign state may only receive sovereign immunity if the forum state consents to such immunity. In resolving this issue, the Court will also have to determine whether its decision in Nevada v. Hall, which held that the Constitution does not prohibit a sovereign state from being involuntarily sued in the court of another state, is still good law. The FTB argues that Hall should be overturned as it is in direct conflict with the historic underpinnings of the United States as well as other precedent decisions that deal with sovereign immunity. Alternatively, Hyatt maintains that Hall should be upheld as a matter of stare decisis because the FTB has provided no compelling justification for overturning the decision. The Supreme Court’s decision will clarify the definition of comity and determine the extent to which one state has sovereign immunity in a foreign state’s courts.
- Debra C. Weiss: Supreme Court Agrees to Reconsider Whether Unwilling State Can Be Hauled Into Another State's Court, ABA Journal (Jun. 30, 2015).
- Richard Wolf: Supreme Court to Decide New War Between the States, USA Today (Jun. 30, 2015).
- Stacy Newman, Jennifer Odell, Jaymes Orr, and Patrick Phippen: Summary of Franchise Tax Board of the State of California v. Hyatt, 130 Nev.Adv.Op.71, Nevada Supreme Court Summaries, Paper 823 (Sept. 18, 2014).