Backed by 45 other states, California urged the U.S. Supreme Court to overturn a 40-year-old precedent that allows states to be sued in the courts of other states.
Specifically, the court was asked to scuttle Nevada v. Hall, a 1979 ruling that held a state isn’t immune to lawsuits filed in another state’s courts.
“States all too frequently find themselves the targets of private-plaintiff lawsuits filed in the courts of other States … [which] not only insult the sovereign dignity of defendant States, but also pose the real risk of exposing States to judgments unrestrained by any concern for local fiscal impact.”
The case is the third time at the Supreme Court for inventor Gilbert P. Hyatt, who has been fighting the Franchise Tax Board of California for decades over personal income tax that California claims he owes.
When Hyatt’s tax dispute last came before the Supreme Court in 2016, some observers said the high court appeared ready to resolve the issue, but Justice Antonin Scalia unexpectedly died and the court deadlocked in a 4–4 vote.
In 1992, the technology patent holder filed a California tax return, stating he moved to Nevada in October 1991. The board disputed the state residence change and conducted an intrusive audit that found the Nevada move was a sham. Subsequent audits and millions of dollars in penalties and interest followed. Hyatt challenged the audits within the FTB and those appeals remain pending.
In 2008, a Nevada state jury awarded Hyatt $85 million in damages for emotional distress, $52 million for invasion of privacy, $1 million for fraud, and $250 million in punitive damages. The Nevada Supreme Court affirmed the verdict in part and reversed in part, substantially reducing the damages awarded and determining that the California board was immune from punitive damages.
Nevertheless, California claims it was treated unfairly in the Nevada courts.
Hyatt’s lawyer, Erwin Chemerinsky, excoriated California officials during oral arguments Jan. 9.
“They invaded his property rights. They defamed him. They also revealed private information about him to a large audience,” he said.
Justices Weigh In
Attorney Seth P. Waxman, representing the California tax authority, offered a history lesson.“The participants in the ratification debates disagreed about whether the new constitution would or should subject states to suit in the new courts of the soon-to-be superior sovereign, but they were unanimous in their understanding that states could not be sued in the courts of other states.”
He was challenged by Justice Sonia Sotomayor who said, “It’s nice that they felt that way, but what we know is they didn’t put it in the Constitution.”
Referencing the fact that a large super-majority of the states had signed onto the brief urging reversal, Sotomayor suggested those states were seeking change in the wrong place.
“Why don’t they move to get the Constitution amended if we’re getting it wrong?” she said. “You’re asking us to do their work.”
Justice Brett Kavanaugh added that the Constitution “is a document, in my view, of majestic specificity. It’s got a lot of specific details on very minute things, and this issue, which you say rightly is so important, but then somehow was not mentioned in the text of the Constitution.”
Waxman said that the doctrine of state-sovereign immunity that his client supports “derives from the structure of the original Constitution” and attacked the reasoning underlying Nevada v. Hall. That ruling “represents the only case in state or federal court in the 200 years prior that had ever recognized the ability of one state to compel another state to answer. It cited zero cases.”
Justice Stephen G. Breyer seemed wary of overturning the precedent. “Every time we overrule a case, it’s like a little chink in an armor,” he said, sharing his view that legal uncertainty makes it more difficult for attorneys to offer useful legal advice.
Justice Samuel Alito took the opposite tack, saying the court benefits from keeping an open mind about precedents.
“Do you think that the public would have greater respect for an institution that says, ‘You know, we’re never going to admit we made a mistake; because we said it and we decided it, we’re going to stick to it even if we think it’s wrong,’ or an institution that says, ‘Well, you know, we’re generally going to stick to what we’ve done, but we’re not perfect.’”
Only eight of the court’s nine justices attended the oral arguments. Justice Ruth Bader Ginsburg, 85, is convalescing at home after surgeons excised two cancerous growths from a lung on Dec. 21. It was her third consecutive day of not attending court arguments. Nonetheless, Ginsburg, who has access to the briefs and transcripts of arguments, is expected to take part in the case.
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