Supreme Court building. February 7, 2007. Credit: Diego M. Radzinschi/LEGAL TIMES.
On Jan. 9, 2019, in Franchise Tax Board of California v. Hyatt, the Supreme Court heard oral argument for the third time in a decades-long dispute between the Franchise Tax Board of California (FTB), a California agency charged with assessing personal income taxes, and Gilbert Hyatt. See FTB v. Hyatt, No. 17-1299. At issue was whether the Supreme Court should overturn its 1979 decision in Nevada v. Hall, which held that states are not immune from suit in the courts of sister states. See Nevada v. Hall, 440 U.S. 410 (1979).
Background
In 1992, Hyatt, an inventor who lived in California, filed a California state income tax return indicating that he moved to Nevada on October 1, 1991. Brief for Petitioner at 4, FTB v. Hyatt, No. 17-1299 (U.S. Sept. 11, 2018) (Pet. Br.). Following an audit, the FTB determined that Hyatt remained a California resident until April 1992, and that, as a result, he owed millions of dollars in income taxes, plus penalties and interest. Following an over 20-year administrative appeal of the FTB’s determination, the FTB’s assessment for tax year 1991 was affirmed and Hyatt’s appeal with respect to tax year 1992 was sustained. Id. at 5.
In January 1998, Hyatt commenced a Nevada state court action against the FTB alleging that the FTB engaged in tortious conduct in the course of its audit. Id. at 6. Among other things, Hyatt alleged the FTB freely discussed his personal information with third parties and “peered through his windows and examined his mail and trash.” Brief for Respondent at 2, FTB v. Hyatt, No. 17-1299 (U.S. Nov. 15, 2018) (Res. Br.). Hyatt likely commenced suit in Nevada because California law immunizes California state agencies from suit for actions arising from tax assessments. See Pet. Br. 6-7 (citing Cal. Gov’t Code §860.2).
The FTB moved for summary judgment, arguing that the Full Faith and Credit Clause mandated that Nevada give effect to the FTB’s immunity under California law. The trial court rejected that argument. The Nevada Supreme Court agreed with the trial court, relying on, among other things, the holding in Hall. The FTB then sought Supreme Court review. Id.
In FTB v. Hyatt, 538 U.S. 488 (2003) (Hyatt I), the Supreme Court relied on Hall and affirmed the decision of the Nevada Supreme Court noting: “Petitioner did not ask us to reexamine Hall, and we therefore decline the invitation of petitioner’s amici States to do so.” Hyatt I, 538 U.S. at 497 (internal citation omitted).
Over the next half-decade, the parties engaged in time-consuming and voluminous discovery, including taking 155 depositions and exchanging over 168,000 documents. Following a four-month trial, Hyatt obtained a $492.5 million judgment, including a $250 million punitive damage award. Pet. Br. 8-9. The FTB appealed.
The Nevada Supreme Court affirmed in part and reversed in part. Although it held that the trial court did not err in declining to apply Nevada’s $50,000 statutory damages cap for Nevada state agencies, the Nevada Supreme Court determined that Nevada’s law prohibiting punitive damage awards against state agencies was applicable to the FTB. The court also remanded for a new trial on the amount of emotional distress damages. Id. at 9. For the second time, the FTB sought Supreme Court review, this time asking that Hall be overturned.
In FTB v. Hyatt, 136 S. Ct. 1277 (2016) (Hyatt II), the Supreme Court split 4-4 on whether to overturn Hall. Hyatt II, 136 S. Ct. at 1281. Vacating the ruling below, the Supreme Court held the failure to apply California’s immunity statute or Nevada’s $50,000 statutory cap, in favor of a “special rule of law applicable only in lawsuits against its sister States,” violated the Full Faith and Credit Clause, and remanded the case for further proceedings. Id. at 1281-83.
On remand, the Nevada Supreme Court modified its earlier decision to reflect the Supreme Court’s ruling in Hyatt II. The court also ruled that a new trial on emotional distress damages was no longer necessary because the evidence previously adduced supported a damages award of the $50,000 maximum. Pet. Br. 10. For the third time, the FTB sought Supreme Court review.