The U.S. Supreme Court today held, in a five-to-four decision, that the U.S. states retain their sovereign immunity from private suits brought in courts of other states, in a case triggered by torts allegedly committed during a tax audit.
The case is: Franchise Tax Board of California v. Hyatt, No. 17-1299 (S. Ct. May 13, 2019). Read the Supreme Court’s decision [PDF 225 KB]
An individual sued the Franchise Tax Board of California (FTB) in Nevada state court for alleged torts committed during a tax audit. The Nevada Supreme Court rejected the FTB’s argument that the Full Faith and Credit Clause of the U.S. Constitution requires Nevada courts to apply California law and immunize the FTB from liability. The state high court held instead that general principles of comity entitled the FTB only to the same immunity that Nevada law afforded Nevada agencies.
The U.S. Supreme Court affirmed, holding that the Full Faith and Credit Clause did not prohibit Nevada from applying its own immunity law. On remand, the Nevada Supreme Court declined to apply a cap on tort liability applicable to Nevada state agencies. On the second time before the U.S. Supreme Court, it reversed, holding that the Full Faith and Credit Clause required Nevada courts to grant the FTB the same immunity that Nevada agencies enjoy. The Court was equally divided, however, on whether to overrule Nevada v. Hall, 440 U. S. 410, which held that the U.S. Constitution does not bar suits brought by an individual against a state in the courts of another state. On remand, the Nevada Supreme Court instructed the trial court to enter damages in accordance with Nevada’s statutory cap. The FTB sought certiorari a third time, raising only the question whether Nevada v. Hall was to be overruled.
On this, the third time before the U.S. Supreme Court, the Court reversed and remanded, overruling Nevada v. Hall, 440 U. S. 410. Among other factors supporting overruling Hall, the Court explained that although the Constitution assumes that the states retain their sovereign immunity except as otherwise provided, it also fundamentally adjusts the states’ relationship with each other and curtails the states’ ability, as sovereigns, to decline to recognize each other’s immunity in their own courts. Justice Thomas delivered the opinion for the majority.
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