Franchise Tax Board of California v. Hyatt

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Franchise Tax Bd. of Cal. v. Hyatt
Seal of the United States Supreme Court
Argued January 9, 2019
Decided May 13, 2019
Full case nameFranchise Tax Board of California, Petitioner v. Gilbert P. Hyatt
Docket no.17-1299
Citations587 U.S. ___ (more)
ArgumentOral argument
DecisionOpinion
Case history
PriorVarious cases, in both federal and state courts, including two prior rulings by the U.S. Supreme Court.[n 1]
Holding
States have sovereign immunity from private suits against them in courts of other states without their consent.
Court membership
Chief Justice
John Roberts
Associate Justices
Clarence Thomas · Ruth Bader Ginsburg
Stephen Breyer · Samuel Alito
Sonia Sotomayor · Elena Kagan
Neil Gorsuch · Brett Kavanaugh
Case opinions
MajorityThomas, joined by Roberts, Alito, Gorsuch, Kavanaugh
DissentBreyer, joined by Ginsburg, Sotomayor, Kagan
Laws applied
U.S. Const. Amend. XI
This case overturned a previous ruling or rulings
Nevada v. Hall (1979)

Franchise Tax Board of California v. Hyatt (short: Franchise Tax Bd. of Cal. v. Hyatt), 587 U.S. ___ (2019), was a United States Supreme Court case that determined that unless they consent, states have sovereign immunity from private suits filed against them in the courts of another state. The 5-4 decision is unusual as it overruled precedent set in a 1979 case, Nevada v. Hall. This was the third time that the litigants had presented their case to the Court, as the Court had already ruled on the issue in 2003 and 2016.

Justice Stephen Breyer, in the dissenting opinion, warned of the willingness of the majority to overrule precedent, saying, "To overrule a sound decision like Hall . . . is to cause the public to become increasingly uncertain about which cases the court will overrule and which cases are here to stay", referencing as an example Planned Parenthood v. Casey, a 1992 case that affirmed the landmark abortion rights case Roe v. Wade. As a result of this ruling, Gilbert Hyatt will not receive $100,000 in damages from California. Although he was originally granted $389 million in damages by a Nevada jury, rulings by the Nevada Supreme Court and the U.S. Supreme Court reduced the amount to $100,000.

The ruling ended a long tax dispute between Hyatt and California, alleged possible tax fraud by Hyatt. Hyatt had been challenging the tax fraud penalties that the California Franchise Tax Board ("FTB") had ordered him to pay since 1993, both in court and through administrative proceedings. Due to this ruling, Hyatt will have to pay for all legal costs he made, without having a judgement against the FTB. On this matter, Justice Clarence Thomas wrote: "The consequences for the inventor are that he’ll suffer the loss of two decades of litigation expenses and a final judgment against the Board for its egregious conduct. … Those case-specific costs are not among the reliance interests that would persuade us to adhere to an incorrect resolution of an important constitutional question".

Background[edit]

First page of Gilbert Hyatt's computer technology patent.

When Gilbert P. Hyatt started earning large sums of money from a computer technology patent,[3] he sold his California house and started renting an apartment in Nevada, a state with no income tax.[4] On both his 1991 and 1992 tax returns, Hyatt claimed Nevada as his primary residence. The California Franchise Tax Board completed an audit in 1993 of Hyatt's tax returns, and determined that Hyatt's primary residence was actually California in 1991 and 1992; the FTB assessed Hyatt $13.3 million in back taxes and fraud penalties.[5]

Hyatt filed a protest but after 11 years of administrative proceedings, it was upheld; an appeal is still pending. Hyatt also sued the FTB in Nevada, alleging that he was harassed by the FTB and became subject to unconstitutional invasions of privacy. California's lawyers argued that in accordance with the Full Faith and Credit Clause, Nevada state courts could not hold California tax collectors liable because California law immunizes tax collectors from liability. The Nevada Supreme Court rejected this argument, citing Nevada v. Hall; the judgement was affirmed by the U.S. Supreme Court in 2003.[1][5][6]

Hyatt was then awarded $389 million in damages by a Nevada jury for fraud, invasion of privacy, intentional infliction of emotional distress, and in punitive damages. The Nevada trial court added more than $104.5 million in costs and prejudgement interest, for a total judgement exceeding $490 million,[5][7][8] which was reduced over the course of several appeals. In 2016, when the case came before the U.S. Supreme Court for a second time, the Court split 4-4 on the question of whether Nevada v. Hall should be overruled, effectively upholding it. The Court did rule, however, that because Nevada law limits the liability of its state agencies to $50,000 per tort, Nevada state courts could not award Hyatt more than that amount per tort, in keeping with the Full Faith and Credit Clause.[2] Consequently, the Nevada Supreme Court deemed a new trial unnecessary, and simply reduced the damages granted to Hyatt to the permitted maximum. Because earlier rulings by the Nevada Supreme Court had limited FTB's liability to fraud and intentional infliction of emotional distress (two torts), the maximum was $100,000.[4][8][9]

Supreme Court[edit]

The Supreme Court justices who decided on the case.

On March 12, 2018, California lawyers filed a petition for a writ of certiorari, presenting the question: "Whether Nevada v. Hall, 440 U.S. 410 (1979), which permits a sovereign State to be hauled into another State's courts without its consent, should be overruled".[8]

The petitioners argued that, because four Justices already voted to overrule Nevada v. Hall in the 2016 Franchise Tax Bd. of Cal. v. Hyatt case (ending in a 4-4 split), the Court should have a new opportunity to review the issue, since it now had the full complement of nine Justices.[8] The Court granted the petition on June 28, 2018. Indiana, together with 44 other states,[n 2] filed an amicus curiae brief in support of the FTB.[10]

In deciding the case in favor of the FTB, the Court overruled the 1979 case Nevada v. Hall,[11] a 40-year-old case where the Court had previously come to the opposite conclusion.[6] The Supreme Court has expressed that stare decisis is "indispensable" to the rule of law,[12] and as such it is seldom overruled.[13]

Majority opinion[edit]

Justice Clarence Thomas wrote the majority opinion, joined by Chief Justice John Roberts, and Justices Samuel Alito, Neil Gorsuch and Brett Kavanaugh. The opinion starts with a discussion on the history of state sovereign immunity. The first point made is that the Constitution's use of the word "State" reflects certain immunities and that the Founding Fathers supported absolute state immunity. Thomas also stated that, after the Supreme Court restricted state sovereignty in its Chisholm v. Georgia ruling, there was backlash causing the Eleventh Amendment to be passed.[n 3] Thomas concluded that it would make "little sense" if sovereign immunity was not extended to state courts,[15][16] and that "Stare decisis does not compel continued adherence to this erroneous precedent".[7] Thomas realized the results this ruling had on Hyatt, saying: "The consequences for the inventor are that he’ll suffer the loss of two decades of litigation expenses and a final judgment against the Board for its egregious conduct. … Those case-specific costs are not among the reliance interests that would persuade us to adhere to an incorrect resolution of an important constitutional question".[17] Some legal experts have criticized the opinion, saying that the foundation of the ruling directly conflicts with the originalist point of view Thomas has expressed throughout the years.[16][18][19]

Dissenting opinion[edit]

Justice Stephen Breyer wrote the dissenting opinion, joined by Justices Ruth Bader Ginsburg, Sonia Sotomayor and Elena Kagan. In the dissenting opinion, Breyer disputed the history of state sovereign immunity presented in the majority opinion. He also addressed the importance of precedent, saying that "To overrule a sound decision like Hall is to encourage litigants to seek to overrule other cases; it is to make it more difficult for lawyers to refrain from challenging settled law; and it is to cause the public to become increasingly uncertain about which cases the court will overrule and which cases are here to stay."[7] In the opinion, Breyer named Planned Parenthood v. Casey, a 1992 case that narrowly affirmed Roe v. Wade,[20] as an example of the importance of upholding precedent, especially under pressure from the Court's present conservative majority.[4][6][16][17][21]

See also[edit]

Notes[edit]

References[edit]

  1. ^ a b Franchise Tax Bd. of Cal. v. Hyatt, 538 U.S. 488 (2003).
  2. ^ a b Franchise Tax Bd. of Cal. v. Hyatt, No. 14-1175, 578 U.S. ___, 136 S. Ct. 1277 (2016).
  3. ^ Ritter, Ken (March 23, 2014). "Inventor battling U.S. over patents from '70s". USA Today. Associated Press. ISSN 0734-7456. OCLC 556952094. Archived from the original on May 17, 2019. Retrieved May 17, 2019.
  4. ^ a b c Savage, David G. (May 13, 2019). "California wins in Supreme Court after 28-year fight with inventor". Los Angeles Times. ISSN 2165-1736. OCLC 3638237. Archived from the original on May 15, 2019. Retrieved May 16, 2019.
  5. ^ a b c Cadei, Emily (May 13, 2019). "California wins last round of $25 million, 26-year tax fight with wealthy inventor". The Sacramento Bee. ISSN 0890-5738. OCLC 37706143. Archived from the original on May 16, 2019. Retrieved May 17, 2019.
  6. ^ a b c Liptak, Adam (May 13, 2019). "Overruling of Precedent Stirs Fear of What's Next". The New York Times (New York ed.) (published May 14, 2019). p. A14. ISSN 0362-4331. OCLC 1645522. Archived from the original on May 14, 2019. Retrieved May 16, 2019.
  7. ^ a b c Weiss, Debra Cassens (May 13, 2019). "SCOTUS overrules precedent in state immunity case; Breyer wonders what cases are next to fall". ABA Journal. American Bar Association. ISSN 0747-0088. OCLC 611160299. Archived from the original on May 22, 2019. Retrieved June 13, 2019.
  8. ^ a b c d Waxman, Seth P. (March 12, 2018), Petition for a writ of certiorari (PDF), archived (PDF) from the original on May 14, 2019, retrieved March 17, 2019  This article incorporates public domain material from this U.S government document.
  9. ^ "Franchise Tax Board of California v. Hyatt | Oyez". Oyez. Archived from the original on May 14, 2019. Retrieved May 15, 2019.
  10. ^ "Franchise Tax Board of California v. Hyatt". SCOTUSblog. OCLC 983462082. Archived from the original on January 14, 2019. Retrieved May 17, 2019.
  11. ^ Nevada v. Hall, 440 U.S. 410 (1979).
  12. ^ Connors, Jordan Wilder (2008). "Treating like Subdecisions Alike: The Scope of Stare Decisis as Applied to Judicial Methodology". Columbia Law Review. 108 (3): 681. ISSN 0010-1958. JSTOR 00101958. LCCN 29-10105. OCLC 01564231 – via JSTOR.
  13. ^ Oyen, Timothy (n.d.). "Stare decisis". Wex Legal Dictionary/Encyclopedia. Legal Information Institute. Retrieved June 21, 2019.
  14. ^ Pirozzolo, Jack W. (1992). "The States Can Wait: The Immediate Appealability of Orders Denying Eleventh Amendment Immunity". The University of Chicago Law Review. 59 (4): 1617. doi:10.2307/1600011. ISSN 0041-9494. JSTOR 00419494. LCCN 36031425. OCLC 02123921 – via JSTOR.
  15. ^ Franchise Tax Bd. of Cal. v. Hyatt, No. 17-1299, 587 U.S. ___ (2019).
  16. ^ a b c Re, Richard M. (May 14, 2019). "Opinion analysis: Hyatt fulfills expectations in a surprising way". SCOTUSblog. OCLC 983462082. Archived from the original on May 17, 2019. Retrieved May 17, 2019.
  17. ^ a b Ebeling, Ashlea (May 13, 2019). "Supreme Court Shows It's Ready To Overrule Precedent, Dissent Sounds Alarm In California V. Hyatt". Forbes. ISSN 0015-6914. OCLC 421861393. Archived from the original on May 14, 2019. Retrieved May 15, 2019.
  18. ^ Marty Lederman [@marty_lederman] (May 13, 2019). "The hue & cry of apostasy from the new originalists/textualists should be coming any moment now . ." (Tweet). Retrieved May 17, 2019 – via Twitter.
  19. ^ Michaelson, Jay (May 14, 2019). "Clarence Thomas Shows How the Supreme Court Would End Roe v. Wade". The Daily Beast. OCLC 907084203. Archived from the original on May 15, 2019. Retrieved May 17, 2019.
  20. ^ Barnes, Robert (May 29, 2019). "The last time the Supreme Court was invited to overturn Roe v. Wade, a surprising majority was unwilling". The Washington Post. ISSN 0190-8286. OCLC 456268252. Retrieved June 13, 2019.
  21. ^ Barnes, Robert (May 13, 2019). "Supreme Court's conservatives overturn precedent as liberals ask 'which cases the court will overrule next'". The Washington Post (published May 14, 2019). p. A2. ISSN 0190-8286. OCLC 2269358. Archived from the original on May 16, 2019. Retrieved May 17, 2019.

Further reading[edit]

External links[edit]