Franchise Tax Board of the State of California v. Hyatt

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.