Franchise Tax Board of California v. Hyatt

PETITIONER: Franchise Tax Board of California
RESPONDENT: Gilbert P. Hyatt
LOCATION: Supreme Court of Nevada

DOCKET NO.: 14-1175
DECIDED BY: Roberts Court (2016- )
LOWER COURT: Supreme Court of Nevada

CITATION: 578 US (2016)
GRANTED: Jun 30, 2015
ARGUED: Dec 07, 2015
DECIDED: Apr 19, 2016

H. Bartow Farr - for the respondent
Paul D. Clement - for the petitioner

Facts of the case

Throughout the 1990s, inventor Gilbert P. Hyatt was involved in litigation with the Franchise Tax Board of California (FTB) based on the FTB’s audits of his 1991 and 1992 tax returns. The FTB claimed that Hyatt had falsified his tax forms by manufacturing a move to Nevada that did not occur until later and therefore failing to file state taxes for time that he was actually living in California. Hyatt protested that the FTB acted in bad faith and eventually sued the FTB in Nevada alleging negligence along with several intentional torts and seeking damages. Before the case went to trial, the FTB argued that it should be immune from the lawsuit based on California law that granted it sovereign immunity. The case eventually went before the U.S. Supreme Court, which held that Nevada courts were not bound to grant the FTB full immunity.

At trial, the jury found in favor of Hyatt and awarded him over $300 million in damages. The parties cross-appealed to the Supreme Court of Nevada, which held that the FTB is not immune from the suit because in Nevada governmental entities are not immune from claims for intentional torts. However, because Nevada law does not allow punitive damages against governmental entities, the punitive damage award in this case should be reversed.



(1) Can Nevada refuse to extend to other states haled into Nevada courts the same immunities Nevada receives in those courts?

(2) Should Nevada v. Hall, a case in which the Supreme Court held that a state could be haled into the court of another state without its consent, be overruled?

Media for Franchise Tax Board of California v. Hyatt

Audio Transcription for Oral Argument - December 07, 2015 in Franchise Tax Board of California v. Hyatt

Audio Transcription for Opinion Announcement - April 19, 2016 in Franchise Tax Board of California v. Hyatt

John G. Roberts, Jr.:

Justice Breyer has the opinion of the Court this morning in case 14-1175, Franchise Tax Board versus Hyatt.

Stephen G. Breyer:

It's a rather complicated, technical case but in the early 1990s, Gilbert Hyatt who is the petitioner here moved from California to Nevada and he says he moved in September 1991.

But the Tax Board, the California Franchise Tax Board says, which is an arm of the State of California, says he did not move until April 1992.

Now the consequence of that difference according to the board is he owed California millions of dollars more in taxes.

Now, this disagreement led to a lawsuit filed in Nevada by Hyatt against California, the Board, and Hyatt claimed the Board or its employees engaged in all kinds of outrageous activities which as the dissent points out included traveling to Nevada where they peered through Hyatt's windows, contacted his estranged family members and shared his personal information not only with newspapers but also with his business contacts and even his place of worship.

Now this tort litigation raised two issues of general importance and that was issues that led to this Court's involvement.

We resolved those issues without condoning the underlying activity of course.

First, can Nevada open the doors of its courthouse to a suit by a private citizen against sovereign state or does that sovereign state enjoys sovereign immunity?

We answered that question sometime ago in an earlier case called Nevada v. Hall, where we said yes a state can open its doors of its courts to a private citizen to sue another state.

It does not that other state necessarily enjoys sovereign immunity in the courts of the first state and that's background.

Now, second the Federal Constitution says that each state has to give full faith and credit to the public acts of other states.

Does that clause mean that Nevada has to apply California law in this lawsuit?

If so, Hyatt is going to lose and that's because California law immunizes the activities of the Franchise Tax Board from this kind of suit.

But again this case was before us once before and we said that the Full Faith and Credit Clause does not require Nevada to follow California law in respect to that immunity.

At least, we said where Nevada's own policy supports a different legal approach it would not make state tax administrators immune and we added where it does not embody a policy of hostility towards the public acts of the sister state.

That's also background.

Now the case is here again and it's here again because in the meantime it went back to Nevada and the court awarded Hyatt damages of nearly $500 million and the Nevada Supreme Court did cut the damages considerably to about a million and it authorized a new trial on the claim of intentional infliction of emotional distress but in the process it noted that Nevada's own law would have permitted an award of no more than $50,000 in similar circumstances against similar Nevada employees, much less than the Nevada Supreme Court approved here against California.

So the stage was set, the case was back and we said we would answer two questions; first, should we overrule Nevada v. Hall, the case in which we said Nevada could open its courts to the suit against California should we overrule it.

Well, if we overruled it that would be the end of this case because Hyatt could not sue in Nevada courts but we are however divided four to four on that question.

So Nevada v. Hall remains good law and Hyatt can proceed with his suit and we have to turn to the second question.

The second question is whether the Full Faith and Credit Clause allows Nevada to apply what is here, a special rule of law that would award damages to Hyatt more than is allowed both under California law, which allows nothing and under ordinary principles of Nevada law which would allow only $50,000.

We hold that the clause does not allow Nevada to award this greater amount of damages.

Nevada has attempted to announce a special and we believe discriminatory legal rule that it would apply only to sister states.

So in our view insofar as that special rule goes beyond Nevada's own normal $50,000 limit on damages, it lacks adequate justification and reflects a policy of hostility to the public acts of another state, here California.

We explain these matters further in our opinion.

The case is remanded. Justice Alito concurs in the judgment.

The Chief Justice has filed a dissenting opinion in which Justice Thomas joins.