Franchise Tax Board of California v. Hyatt

LII note: The U.S. Supreme Court has now decided Franchise Tax Board of California v. Hyatt.


Should Nevada v. Hall, which held that a sovereign state can be sued in another state’s courts without its consent, be overruled?

Oral argument: 
January 9, 2019
Court below: 

The Supreme Court will determine whether or not to overrule Nevada v. Hall, which held that states do not enjoy immunity from suit in the courts of their sister states. Petitioner Franchise Tax Board of California (“Franchise Tax Board” or “the Board”) contends that historical evidence and Hall’s inconsistency with the Court’s other precedent regarding sovereign immunity require that the Court overrule Hall. Franchise Tax Board further argues that preserving Hall’s holding, thereby allowing states to be sued in the courts of other states, infringes on state sovereignty and unfairly burdens state tax collection practices. Respondent Gilbert Hyatt (“Hyatt”) counters that the Constitution does not grant states sovereign immunity in each other’s courts and that Hall is consistent with the Court’s jurisprudence on sovereign immunity. Hyatt also asserts that states have a vested interest in protecting their citizens and providing them with a forum to vindicate their rights—if Hall were overruled, individuals similarly situated to Hyatt would have no means of litigating this type of dispute. From a policy perspective, this case is important because it will determine whether states can be sued in the courts of other states without their consent.

Questions as Framed for the Court by the Parties 

Whether Nevada v. Hall, which permits a sovereign state to be hailed into another state’s courts without its consent, should be overruled.


Respondent Gilbert P. Hyatt filed suit against Petitioner Franchise Tax Board of California (“Franchise Tax Board”) in 1998, alleging that it had committed certain intentional torts, causing him damages, and claiming that its tax auditors acted in bad faith while auditing Hyatt’s 1991 and 1992 state tax returns. In 1993, Franchise Tax Board opened an audit into Hyatt’s finances in 1991 after discovering discrepancies related to his taxable income from patent licensing payments and moving expenses. Despite promising confidential treatment of Hyatt’s personal and financial information in relation to the audit, Franchise Tax Board sent out over a hundred letters to third parties requesting information related to Hyatt’s finances, many of which included confidential information such as Hyatt’s home address and social security number. Franchise Tax Board conducted interviews with three of Hyatt’s estranged relatives. But Franchise Tax Board failed to speak with any relatives Hyatt maintained relationships with, despite Hyatt identifying several of them as contacts.

Based on its investigation, Franchise Tax Board determined at the conclusion of the audit that Hyatt had staged his move from California to Nevada in order to avoid state income tax liability and that the sale of his house in California was also a sham. As a result, Franchise Tax Board concluded that Hyatt owed $4.5 million in delinquent taxes, interest, and penalties to California. These findings led to Franchise Tax Board filing a second audit for Hyatt’s 1992 taxes, which ultimately resulted in a finding that Hyatt owed California over $6 million in taxes for that year. Hyatt formally challenged the audits through Franchise Tax Board’s internal dispute process. This process lasted over eleven years, and Hyatt filed suit against Franchise Tax Board in both California and Nevada after Franchise Tax Board upheld the validity of the audits.

Franchise Tax Board initially argued that it was owed the same total immunity from suit in Nevada that it would be given if it were sued in California. The Nevada trial court ruled that Franchise Tax Board was not owed total immunity on this basis. Franchise Tax Board then petitioned the Nevada Supreme Court for a writ of mandamus. The Nevada Supreme Court rejected Franchise Tax Board’s argument, holding that it was only entitled to the partial immunity that a Nevada agency would be entitled to. Franchise Tax Board then petitioned the United States Supreme Court for certiorari and the United States Supreme Court granted certiorari. The United States Supreme Court affirmed the Nevada Supreme Court and the case was remanded for trial.

After trial in Nevada state court, the jury awarded Hyatt $139 million for his tort claims and $250 million in putative damages. Franchise Tax Board appealed to the Supreme Court of Nevada, which held that Franchise Tax Board was not entitled to the cap on damages that a Nevada agency would be entitled to under similar circumstances. Subsequently, Franchise Tax Board petitioned the United States Supreme Court for certiorari. The Court first affirmed the Supreme Court of Nevada’s jurisdiction over Franchise Tax Board, despite the fact that Franchise Tax Board was a California state agency. But the Court later held that refusing to afford Franchise Tax Board the same damages cap that a Nevada agency would be entitled to violated the Constitution’s Full Faith and Credit Clause. The Court then remanded the case back to the Supreme Court of Nevada for further consideration in light of the Court’s decision.

The Supreme Court of Nevada reissued its original opinion, amending the damages portion to afford Franchise Tax Board the damages cap in accordance with the Supreme Court of the United States’ ruling. Franchise Tax Board again filed a petition for certiorari with the Supreme Court of the United States, asking it to overrule its prior decision in Nevada v. Hall. The Supreme Court of the United States granted certiorari on June 28, 2018.



Franchise Tax Board contends that Hall is inconsistent with sovereign immunity as understood when the Framers ratified the Constitution and the Court’s subsequent sovereign immunity jurisprudence. Although the Constitution does not explicitly provide for state sovereign immunity in this context, the Board argues that it is possible to infer such principles from the historical background surrounding the Constitution’s ratification—as the Court has done in sovereign immunity cases post-Hall. Franchise Tax Board further asserts that Hall addressed the wrong question—that is, the question is not whether the Constitution explicitly provides for interstate sovereign immunity, but whether the Constitution changed or eliminated the such immunity as it existed prior to the ratification of the Constitution. Based on the historical record, Franchise Tax Board maintains that the Constitution neither changed nor eliminated the such immunity. First, Franchise Tax Board contends that states enjoyed immunity in each other’s courts before the Framers ratified the Constitution. Indeed, Franchise Tax Board argues that states were treated like foreign sovereigns and thus immune from suit in each other’s courts before the Constitution was ratified, as demonstrated by case law from that time period. Second, Franchise Tax Board asserts that there was consensus at the Constitutional Convention—as evidenced by statements made by central historical figures—that states would retain their sovereign immunity under the Constitution and would remain immune from suit in their sister states’ courts without their consent. While much of the debate centered on whether the states would be able amenable before federal courts, Franchise Tax Board contends that the debate implicitly assumed that federal courts were the only remaining forum that states might be subject to suit in. Third, Franchise Tax Board argues that the history surrounding the Eleventh Amendment supports its assertion that there was a consensus that states enjoyed interstate sovereignty. Indeed, as Franchise Tax Board explains, the Eleventh Amendment was adopted in reaction to the Court’s Chisholm decision, which held that states were amenable before federal courts by other states’ citizens. The Eleventh Amendment therefore proves that there was a common understanding that individuals could not sue states without their consent. Finally, Franchise Tax Board highlights that, since the Constitution was ratified, many states (such as New Hampshire, New York, or North Dakota) recognize the principle that states cannot be sued before another state’s courts.

Hyatt counters that Hall should not be overruled because it is consistent with the Constitution-era understanding that sovereigns could be sued in another sovereign’s court. Since Hall was decided, Hyatt argues that there has been no new historical evidence suggesting that is understanding is incorrect. In fact, according to Hyatt, Hall was grounded in a “careful historical analysis.” Hyatt contends that there is a key difference between a state’s immunity in its own courts and its immunity in another sovereign’s courts. Specifically, Hyatt asserts that sovereign immunity is not supposed to protect a sovereign in another sovereign’s courts—rather, whether a sovereign receives such immunity is in the discretion of the other sovereign. Hyatt posits that the Court established this principle in The Schooner Exchange v. McFaddon—namely, that a sovereign has no obligation to grant immunity to another sovereign in its courts. Additionally, Hyatt contends that Hall is premised on three historic basic principles which still stand. First, Hyatt argues, states were independent sovereigns before the Union was created and they enjoyed immunity as foreign sovereigns in each other’s courts. Second, Hyatt maintains that at that time, sovereigns only enjoyed immunity in a foreign state’s court if that state voluntarily granted such immunity. Third, according to Hyatt, neither the Articles of Confederation nor the Constitution changed the nature of sovereign immunity among the ratifying states. Hyatt further asserts that the Tenth Amendment allows states to act unless the Constitution prevents them from doing so—that is, because the Constitution does not explicitly prohibit states from allowing other states to be sued in their courts, courts can hear such cases. In fact, Hyatt continues, the Court’s post-Hall cases discussed the federal courts’ jurisdiction and the states’ amenability before federal courts. Furthermore, Hyatt argues, the Eleventh Amendment remains silent on the amenability of states before their sister states’ courts, while it expressly limits federal courts’ jurisdictions. Finally, Hyatt notes that nowhere in the text of the Constitution is there a limit on a states’ ability to allow their citizens to bring suit against another state in its courts when wronged by the sister state.


Franchise Tax Board asserts that the principle of stare decisis does not prevent the Court form overruling Hall. . Specifically, Franchise Tax Board maintains that Hall does not align with any of the Court’s subsequent sovereign immunity cases and that other stare decisis factors do not require the Court to uphold Hall. Indeed, Franchise Tax Board argues that Hall contradicts the central principles underlying the Court’s sovereign immunity jurisprudence. Franchise Tax Board further points out several decision predating or postdating Hall to show that Congress and the Supreme Court intended to grant states with immunity from suits in sister states’ courts. Additionally, Franchise Tax Board contends that stare decisis is weakest in cases like this one, where a constitutional rule is at issue, because Congress cannot easily change a constitutional rule. Moreover, Franchise Tax Board asserts that Hall has not created any reliance interests because it involves a constitutional rule rather than a statutory interpretation, and constitutional rules do not directly affect people’s behavior. Finally, Franchise Tax Board maintains that Hall is impracticable and inconsistent with the principles of sovereign immunity. In practice, Franchise Tax Board contends, Hall harms the states’ personal and financial resources by forcing them into defending themselves and being held account in another state’s courts. Thus, Franchise Tax Board argues that stare decisis does not prevent the Court from overruling Hall.

Hyatt counters that the Court should not overrule Hall and that the Court should not have granted certiorari in the first place because the Court already decided the question of overruling Hall. Specifically, Hyatt contends that the Court’s earlier consideration of the issue, in which it was equally divided at 4-4, is a definitive decision for the parties to the case even though the decision is not otherwise binding precedent. Additionally, Hyatt argues that the Court cannot reconsider overruling Hall in this case according to the “law of the case” doctrine. Hyatt asserts that the law of the case doctrine protects parties by ensuring that they can rely on a court’s prior decision of an issue in their case. Here, Hyatt maintains, the Court has already heard arguments on overruling Hall and has refused to do so. Thus, even though that decision was 4-4 and has no precedential value, Hyatt contends that it is still binding on Hyatt and Franchise Tax Board. Additionally, Hyatt posits that he has relied on Hall since the beginning of this twenty-year long litigation and relied on Franchise Tax Board’s decision not to challenge Hall. It would be unjust, Hyatt argues, to have Hyatt bear the costs of a litigation pursued in reliance on the Nevada court’s jurisdiction under Hall because the Court already refused to overrule Hall. Moreover, Hyatt argues that Franchise Tax Board has already waived its right to challenge Hall. Specifically, Hyatt contends that Franchise Tax Board chose to waive its defense of sovereign immunity by not asking the Court to overrule Hall when the Court first heard their dispute. Finally, Hyatt maintains that there is no compelling reason to overrule Hall, which is required given the strong presumption against overruling precedent—that is, Hall functions just as it should by providing citizens a forum to ask for redress when being wronged.



The State of Indiana and 43 other states (“the States”), in support of Franchise Tax Board, argue that Nevada v. Hall’s central holding, allowing states to be sued in the courts of other states, offends the status of states as sovereign entities. The States reason that because the Eleventh Amendment prevents suits against states in federal court against their will, allowing states to be sued in the courts of another state would be an insult to state sovereignty. Therefore, the States posit, Hall cannot have been correctly decided. Further, the States assert that federal courts were specifically designed to provide a neutral forum to hear matters where state courts might have a bias favoring their own citizens over citizens of other states—it makes no sense to not allow such cases to be heard in a neutral federal court but allow them to be heard in a biased state court. Additionally, the States also contend that not overruling Hall allows states to dictate how other states allocate resources in furtherance of their policy goals because lawsuits awarding damages reduce the amount of resources available to allot to those policy goals. The States insist that this puts a strain on the democratic process because the allocation of resources by a state government, in accordance with the will of its citizens, is central to the political process. And by awarding damages against a state-defendant, according to the States another state’s court would force the state-defendant to allocate resources away from a policy goal, contravening the will of the state-defendant’s citizens. Suits regarding a state’s taxing power are uniquely important, the States argue, because the taxing power is central to sovereignty, as evidenced by federal legislation limiting federal courts jurisdiction over state taxing power. The States contend that in giving plaintiffs the opportunity to sue state agencies in the courts of other states, Hall allows plaintiffs to circumvent the administrative procedures for addressing their concerns in the underlying state, and thereby further insulting state sovereignty.

Hyatt counters that while states have an interest in not being sued in the courts of other states, they also have a vested interest in both protecting their own citizens and providing them a forum for suit of other states—especially if no other suitable forum exists. Hyatt maintains that the Supreme Court has repeatedly recognized that states do have a legitimate interest in providing remedies for their citizens who have been wronged and that Hall recognized this state interest in permitting suit against one state in another state’s courts. Further, Hyatt argues that Franchise Tax Board and its amici focus on the insult to a state’s sovereignty in being sued in another state’s courts, but they fail to recognize the insult to a state’s sovereignty in being unable to protect its citizens from intentional torts—including the ones that occurred in this case. Countering the States’ concern that Hall strains the democratic process by allowing states to impact how other states allocate their resources, Hyatt notes the importance of citizens’ ability to protect the interests of those injured within the state by ensuring that there is forum in which to bring suit. Hyatt further argues that suits against a state in another state’s court are remarkably rare and that there has only been a scattering of cases since Hall was decided in 1979. This demonstrates, Hyatt asserts, that Hall is functioning exactly as it should be—allowing the meritorious claims to go forward in situations where a state’s citizens are injured by another state. Lastly, Hyatt points out that states are protected by the earlier decision of the Court in this case reading the Full Faith and Credit Clause to prohibit state courts from holding a foreign state liable beyond the liability the forum state would face in its own court.


The Multistate Tax Commission, National Governors Association, and National Conference of State Legislatures (collectively “the Commission”), in support of Franchise Tax Board, argue that allowing Hall to stand significantly burdens states’ ability to collect taxes. The Commission contends that suing a taxing state in another state’s forum allows for the obstruction of tax collection processes that have been carefully developed by the taxing state, such as seeking protective orders preventing tax information requests by taxing agencies in the defendant state. Further, the Commission asserts that Hall also disrupts the balance struck between cooperation and healthy competition between states, as this balance is particularly delicate with regard to state tax schemes. The Commission also raises the possibility that Hall, if upheld, could lead to taxpayer forum-shopping such that states would compete to offer the best locale to sue another state’s tax collection agency, creating to an overall decline in the ability of states to collect taxes. Lastly, the Commission argues that increased competition between states may damage or destroy efforts to collaborate on simplifying tax rules.

Professors of Federal Jurisdiction (“Professors”), in support of Hyatt, argue that overruling Hall would leave plaintiffs in situations similar to Hyatt without any forum to have their claims heard outside of the state they allege has wronged them. The Professors claim that without Hall, states would be free to abuse the citizens of other states because no neutral legal avenue would be available to these individuals. The only available method for suit, Professors contend, would be for states to sue their sister states on behalf of their citizens, using the Supreme Court’s original jurisdiction. Professors explain that it is doubtful that a state could sue a sister state on behalf of one of its citizens because Supreme Court precedent already establishes that states do not have standing to sue other states unless their own state interests are implicated and cannot litigate personal claims of their citizens. Furthermore, Professors assert that the Supreme Court does not function well as a factfinder, and therefore, the Court prefers not to exercise its original jurisdiction. Ultimately, Professors insist that if individuals are not able to file suit against state agencies in the courts of sister states, they will be left entirely without an alternative forum to seek redress.

Edited by 


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