Franchise Tax Bd. of Cal. v. Hyatt, 578 U.S. ___ (2016)

Issues: ,

Opinion (Breyer)


NOTICE:?This opinion is subject to formal revision before publication in the preliminary print of the United States Reports.?Readers are requested to notify the Reporter of Decisions, Supreme Court of the United States, Washington, D.?C. 20543, of any typographical or other formal errors, in order that corrections may be made before the preliminary print goes to press.



No. 14?1175



On writ of certiorari to the Supreme Court of Nevada

[April 19, 2016]

Justice Breyer delivered the opinion of the Court.

In Nevada v. Hall, 440 U.?S. 410 (1979) , this Court held that one State (here, Nevada) can open the doors of its courts to a private citizen?s lawsuit against another State (here, California) without the other State?s consent. In this case, a private citizen, a resident of Nevada, has brought a suit in Nevada?s courts against the Franchise Tax Board of California, an agency of the State of California. The board has asked us to overrule Hall and hold that the Nevada courts lack jurisdiction to hear this lawsuit. The Court is equally divided on this question, and we consequently affirm the Nevada courts? exercise of jurisdiction over California. See, e.g., Exxon Shipping Co. v.Baker, 554 U.?S. 471, 484 (2008) (citing Durant v. Essex Co., 7 Wall. 107, 112 (1869)).

California also asks us to reverse the Nevada court?s decision insofar as it awards the private citizen greater damages than Nevada law would permit a private citizen to obtain in a similar suit against Nevada?s own agencies. We agree that Nevada?s application of its damages law in this case reflects a special, and constitutionally forbidden, ???policy of hostility to the public Acts? of a sister State,? namely, California. U.?S. Const., Art.?IV, ?1 (Full Faith and Credit Clause); Franchise Tax Bd. of Cal. v. Hyatt, 538 U.?S. 488, 499 (2003) (quotingCarroll v. Lanza, 349 U.?S. 408, 413 (1955) ). We set aside the Nevada Supreme Court?s decision accordingly.


Gilbert P. Hyatt, the respondent here, moved from California to Nevada in the early 1990?s. He says that he moved to Nevada in September 1991. California?s Franchise Tax Board, however, after an investigation and tax audit, claimed that Hyatt moved to Nevada later, in April 1992, and that he consequently owed California more than $10 million in taxes, associated penalties, and interest.

Hyatt filed this lawsuit in Nevada state court against California?s Franchise Tax Board, a California state agency. Hyatt sought damages for what he considered the board?s abusive audit and investigation practices, including rifling through his private mail, combing through his garbage, and examining private activities at his place of worship. See App. 213?245, 267?268.

California recognized that, under Hall, the Constitution permits Nevada?s courts to assert jurisdiction over California despite California?s lack of consent. California nonetheless asked the Nevada courts to dismiss the case on other constitutional grounds. California law, it pointed out, provided state agencies with immunity from lawsuits based upon actions taken during the course of collecting taxes. Cal. Govt. Code Ann. ?860.2 (West 1995); see also ?860.2 (West 2012). It argued that the Constitution?s Full Faith and Credit Clause required Nevada to apply California?s sovereign immunity law to Hyatt?s case. Nevada?s Supreme Court, however, rejected California?s claim. It held that Nevada?s courts, as a matter of comity, would immunize California where Nevada law would similarly immunize its own agencies and officials (e.g., for actions taken in the performance of a ?discretionary? function), but they would not immunize California where Nevada law permitted actions against Nevada agencies, say, for acts taken in bad faith or for intentional torts. App. to Pet. for Cert. in Franchise Tax Bd. of Cal. v. Hyatt, O.?T. 2002, No. 42, p. 12. We reviewed that decision, and we affirmed. Franchise Tax Bd.,supra, at 499.

On remand, the case went to trial. A jury found in Hyatt?s favor and awarded him close to $500 million in damages (both compensatory and punitive) and fees (including attorney?s fees). California appealed. It argued that the trial court had not properly followed the Nevada Supreme Court?s earlier decision. California explained that in a similar suit against similar Nevada officials, Nevada statutory law would limit damages to $50,000, and it argued that the Constitution?s Full Faith and Credit Clause required Nevada to limit damages similarly here.

The Nevada Supreme Court accepted the premise that Nevada statutes would impose a $50,000 limit in a similar suit against its own officials. See 130 Nev. ___, ___, 335 P.?3d 125, 145?146 (2014); see also Nev. Rev. Stat. ?41.035(1) (1995). But the court rejected California?s conclusion. Instead, while setting aside much of the damages award, it nonetheless affirmed $1 million of the award (earmarked as compensation for fraud), and it remanded for a retrial on the question of damages for intentional infliction of emotional distress. In doing so, it stated that ?damages awarded on remand .?.?. are not subject to any statutory cap.? 130 Nev., at ___, 335 P.?3d, at 153. The Nevada Supreme Court explained its holding by stating that California?s efforts to control the actions of its own agencies were inadequate as applied to Nevada?s own citizens. Hence, Nevada?s ?policy interest in providing adequate redress to Nevada?s citizens [wa]s paramount to providing [California] a statutory cap on damages under comity.? Id., at ___, 335 P.?3d, at 147.

California petitioned for certiorari. We agreed to decide two questions. First, whether to overrule Hall. And, second, if we did not do so, whether the Constitution permits Nevada to award Hyatt damages against a California state agency that are greater than those that Nevada would award in a similar suit against its own stateagencies.


In light of our 4-to-4 affirmance of Nevada?s exercise of jurisdiction over California?s state agency, we must consider the second question: Whether the Constitution permits Nevada to award damages against California agencies under Nevada law that are greater than it could award against Nevada agencies in similar circumstances. We conclude that it does not. The Nevada Supreme Court has ignored both Nevada?s typical rules of immunity and California?s immunity-related statutes (insofar as California?s statutes would prohibit a monetary recovery that is greater in amount than the maximum recovery that Nevada law would permit in similar circumstances). Instead, it has applied a special rule of law that evinces a ???policy of hostility??? toward California. Franchise Tax Bd., supra, at 499 (quoting Carroll v.Lanza, supra, at 413). Doing so violates the Constitution?s requirement that ?Full Faith and Credit shall be given in each State to the public Acts, Records and judicial Proceedings of every other State.? Art.?IV, ?1.

The Court?s precedents strongly support this conclusion. A statute is a ?public Act? within the meaning of the Full Faith and Credit Clause. See, e.g., Carroll v. Lanza, supra, at 411; see also 28 U.?S.?C. ?1738 (referring to ?[t]he Acts of the legislature? in the full faith and credit context). We have said that the Clause ?does not require a State to substitute for its own statute, applicable to persons and events within it, the statute of another State reflecting a conflicting and opposed policy.? Carroll v. Lanza, 349 U.?S., at 412. But when affirming a State?s decision to decline to apply another State?s statute on this ground, we have consistently emphasized that the State had ?not adopt[ed] any policy of hostility to the public Acts? of that other State. Id., at 413.

In Carroll v. Lanza, the Court considered a negligence action brought by a Missouri worker in Arkansas? courts. We held that the Arkansas courts need not apply a time limitation contained in Missouri?s (but not in Arkansas?) workman?s compensation law. Id., at 413?414. In doing so, we emphasized both that (1) Missouri law (compared with Arkansas law) embodied ?a conflicting and opposed policy,? and (2) Arkansas law did not embody ?any policy of hostility to the public Acts of Missouri.? Id., at 412?413. This second requirement was well established in earlier law. See, e.g., Broderick v. Rosner, 294 U.?S. 629 ?643 (1935) (New Jersey may not enforce a jurisdictional statute that would permit enforcement of certain claims under New Jersey law but ?deny the enforcement? of similar, valid claims under New York law); Hughes v. Fetter, 341 U.?S. 609 ?612 (1951) (invalidating a Wisconsin statute that ?close[d] the doors of its courts? to an Illinois cause of action while permitting adjudication of similar Wisconsin claims).

We followed this same approach when we considered the litigation now before us for the first time. See Franchise Tax Bd., 538 U.?S., at 498?499. Nevada had permitted Hyatt to sue California in Nevada courts. See id., at 497 (citing Hall, 440 U.?S., at 414?421). Nevada?s courts recognized that California?s law of complete immunity would prevent any recovery in this case. The Nevada Supreme Court consequently did not apply California law. It applied Nevada law instead. We upheld that decision as consistent with the Full Faith and Credit Clause. But in doing so, we emphasized both that (1) the Clause does not require one State to apply another State?s law that violates its ?own legitimate public policy,? Franchise Tax Bd., supra, at 497?498 (citing Hall, supra, at 424), and (2) Nevada?s choice of law did not ?exhibi[t] a ?policy of hostility to the public Acts? of a sister State.? Franchise Tax Bd., supra, at 499 (quoting Carroll v. Lanza,supra, at 413). Rather, Nevada had evinced ?a healthy regard for California?s sovereign status,? we said, by ?relying on the contours of Nevada?s own sovereign immunity from suit as a benchmark for its analysis.? Franchise Tax Bd., supra, at 499.

The Nevada decision before us embodies a critical departure from its earlier approach. Nevada has not applied the principles of Nevada law ordinarily applicable to suits against Nevada?s own agencies. Rather, it has applied a special rule of law applicable only in lawsuits against its sister States, such as California. With respect to damages awards greater than $50,000, the ordinary principles of Nevada law do not ?conflic[t]? with California law, for both laws would grant immunity. Carroll v. Lanza, 349 U.?S., at 412. Similarly, in respect to such amounts, the ?polic[ies]? underlying California law and Nevada?s usual approach are not ?opposed?; they are consistent. Id., at 412?413.

But that is not so in respect to Nevada?s special rule. That rule, allowing damages awards greater than $50,000, is not only ?opposed? to California law, ibid.; it is also inconsistent with the general principles of Nevada immunity law, see Franchise Tax Bd., supra, at 499. The Nevada Supreme Court explained its departure from those general principles by describing California?s system of controlling its own agencies as failing to provide ?adequate? recourse to Nevada?s citizens. 130 Nev., at ___, 335 P.?3d, at 147. It expressed concerns about the fact that California?s agencies ???operat[e] outside??? the systems of ???legislative control, administrative oversight, and public accountability??? that Nevada applies to its own agencies. Ibid. (quoting Faulkner v. University of Tenn., 627 So.?2d 362 (Ala. 1992)). Such an explanation, which amounts to little more than a conclusory statement disparaging California?s own legislative, judicial, and administrative controls, cannot justify the application of a special and discriminatory rule. Rather, viewed through a full faith and credit lens, a State that disregards its own ordinary legal principles on this ground is hostile to another State. A constitutional rule that would permit this kind of discriminatory hostility is likely to cause chaotic interference by some States into the internal, legislative affairs of others. Imagine, for example, that many or all States enacted such discriminatory, special laws, and justified them on the sole basis that (in their view) a sister State?s law provided inadequate protection to their citizens. Would each affected sister State have to change its own laws? Entirely? Piece-by-piece, in order to respond to the new special laws enacted by every other State? It is difficult to reconcile such a system of special and discriminatory rules with the Constitution?s vision of 50 individual and equally dignified States. In light of the ?constitutional equality? among the States, Coyle v. Smith, 221 U.?S. 559, 580 (1911) , Nevada has not offered ?sufficient policy considerations? to justify the application of a special rule of Nevada law that discriminates against its sister States, Carroll v. Lanza,supra, at 413. In our view, Nevada?s rule lacks the ?healthy regard for California?s sovereign status? that was the hallmark of its earlier decision, and it reflects a constitutionally impermissible ???policy of hostility to the public Acts? of a sister State.? Franchise Tax Bd., supra, at 499 (quoting Carroll v. Lanza, supra, at 413).

In so holding we need not, and do not, intend to return to a complex ?balancing-of-interests approach to conflicts of law under the Full Faith and Credit Clause.? Franchise Tax Bd., 538 U.?S., at 496. Long ago this Court?s efforts to apply that kind of analysis led to results that seemed to differ depending, for example, upon whether the case involved commercial law, a shareholders? action, insurance claims, or workman?s compensation statutes. See, e.g., Bradford Elec. Light Co. v. Clapper, 286 U.?S. 145 ?159 (1932); Carroll v. Lanza, supra, at 414?420 (Frankfurter, J., dissenting) (listing, and trying to classify, nearly 50 cases). We have since abandoned that approach, and we continue to recognize that a State need not ???substitute the statutes of other states for its own statutes dealing with a subject matter concerning which it is competent to legislate.??? Franchise Tax Bd., supra, at 496 (quoting Pacific Employers Ins. Co. v. Industrial Accident Comm?n, 306 U. S. 493, 501 (1939) ). But here, we can safely conclude that, in devising a special?and hostile?rule for California, Nevada has not ?sensitively applied principles of comity with a healthy regard for California?s sovereign status.? Franchise Tax Bd., supra, at 499; see Thomas v. Washington Gas Light Co., 448 U.?S. 261, 272 (1980) (plurality opinion) (Clause seeks to prevent ?parochial entrenchment on the interests of other States?); Allstate Ins. Co. v. Hague, 449 U.?S. 302 , and n. 10 (1981) (Stevens, J., concurring in judgment) (Clause is properly brought to bear when a State?s choice of law ?threatens the federal interest in national unity by unjustifiably infringing upon the legitimate interests of another State?); cf. Supreme Court of N.?H. v. Piper, 470 U.?S. 274, 288 (1985) (Privileges and Immunities Clause prevents the New Hampshire Supreme Court from promulgating a rule that limits bar admission to state residents, discriminating against out-of-state lawyers); Bendix Autolite Corp. v. Midwesco Enterprises, Inc., 486 U.?S. 888, 894 (1988) (Commerce Clause invalidates a statute of limitations that ?imposes a greater burden on out-of-state companies than it does on [in-state] companies?).

For these reasons, insofar as the Nevada Supreme Court has declined to apply California law in favor of a special rule of Nevada law that is hostile to its sister States, we find its decision unconstitutional. We vacate its judgment and remand the case for further proceedings not inconsistent with this opinion.

It is so ordered.

Justice Alito concurs in the judgment.