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US Supreme Court Considers Scope of States’ Sovereign Immunity

Stephen A. Miller, left, and Chase A. Howard, right, with Cozen O'Connor.

The Supreme Court is considering whether a state can be haled into another state’s courts without its consent. In January, the court heard oral argument in Franchise Tax Board of California v. Hyatt, a case that will resolve whether the Constitution grants each state immunity from suit in foreign states’ courts. Among other things, the case will provide valuable insight into the views of Justices Brett Kavanaugh and Neil Gorsuch on stare decisis and federalism.

In 1993, a tax auditor for the Franchise Tax Board of California (FTB) opened an audit into Gilbert P. Hyatt’s 1991 and 1992 state tax returns. Eventually, FTB determined that Hyatt—a Nevada resident—owed California over $10 million in taxes, interest and penalties.

Hyatt challenged FTB’s findings through administrative and legal proceedings in California. In 1998, Hyatt brought intentional tort and negligence claims against FTB in Nevada state court arising from FTB auditors’ conduct during his state tax audits. FTB argued to the Nevada Supreme Court that it was entitled to sovereign immunity. The Nevada Supreme Court, however, held that FTB was only entitled to partial immunity equal to that which a Nevada government agency would receive. This required dismissal of Hyatt’s negligence claims but not his intentional tort claims.

So began the first of three trips to the Supreme Court for this case. In 2003, the court held that the Constitution does not require Nevada to give full faith and credit to California’s statutes providing FTB with immunity from suit. On remand, a Nevada jury awarded Hyatt over $380 million in damages. FTB appealed through the Nevada courts claiming that California was immune from suit in foreign state courts and that Nevada could not impose damages against foreign state agencies greater than the damages it could award against Nevada state agencies. The Nevada Supreme Court, using comity principles, agreed with FTB as to the damages aspect but did not accept the argument that California, and its agencies, had sovereign immunity in foreign state courts.

In 2016, FTB appealed for a second time to the Supreme Court for a further reduction in damages and also asked the court to overrule the four-decade-old precedent from Nevada v. Hall, which allowed the courts of one state to hale a foreign state into its court without the foreign state’s consent. The court seemed poised to overrule Hall by a 5-4 vote, but the death of Justice Antonin Scalia left the court deadlocked on the issue of state sovereign immunity (and thus, affirmed the Nevada Supreme Court’s holding), but the court did reach a majority decision to reduce damages to only $50,000.

In Hyatt’s third appearance before the Supreme Court, FTB boldly asserted that Hall is an outlier among state sovereign immunity precedent and should be overruled. According to FTB, founding-era cases reinforce the principle that states had immunity in one another’s courts. In the ratification debates, there was disagreement about whether states could be subject to suit in the new federal courts, but they were unanimous that states could not be sued in the courts of other states. Further, FTB contended, while states enjoy sovereign immunity in neutral federal courts under the Eleventh Amendment, it is axiomatic that states should also enjoy sovereign immunity in foreign state courts.

In response, Hyatt argued that the founding-era cases do not establish that states enjoyed sovereign immunity prior to the Constitution’s ratification. Instead, Hyatt contended, state courts used the principles of comity on a case-by-case basis to decide whether to hear claims against foreign states—comity considerations that are still used today. Hyatt also maintained that states have an interest in providing relief to their citizens, and sovereign immunity in state courts would leave those citizens without effective recourse for abusive tactics by foreign states.

At oral argument, Justice Sonia Sotomayor contended that the framers knew very well how to enshrine their views on immunity: “When states disagreed with us in Chisholm Chisholm v. Georgia (1793) about the ability to hale states into federal court, the states amended the Constitution. We got the Eleventh Amendment.” Why then, asked Sotomayor, should the court engraft additional immunities onto the Constitution that the framers did not adopt? FTB’s lawyer responded that, for the 200 years before Hall, the state supreme courts were unanimous in saying they could not exercise judicial power over a foreign state; therefore, according to FTB, the states have always believed they enjoyed sovereign immunity in one another’s courts under the Constitution, and that long-standing practice is implicit evidence of the protections incorporated into the Constitution.

Perhaps just as important as the constitutional issue itself, Hyatt will turn on the justices’ view of stare decisis. FTB argued that Hall was wrong when it was decided in 1979 and remains wrong today. Hyatt responded by reiterating the principles of stare decisis and noting that no new relevant facts or law have developed since the court decided Hall. In fact, Hyatt contended, in the years after Hall, states did not suffer an avalanche of meritless litigation in foreign state courts. Instead, state courts continued to exercise the comity principles they utilized more than 200 years ago, including in this case when Nevada reduced the judgment awarded to Hyatt.

The justices were keenly interested in the stare decisis issue at oral argument. For example, Justice Stephen Breyer noted: “Every time we overrule a case, it’s like a little chink in an armor.” Justice Samuel Alito countered by asking rhetorically if the public would have greater respect for an institution that recognized its mistakes or one that “sticks to it even if we think it’s wrong.” Hyatt’s lawyer responded that the court should only overrule precedent if there is a compelling reason for doing so. In this matter, according to Hyatt, there is no compelling reason for overruling Hall because it was not “egregiously wrong” in 1979 and there is nothing new before the court.

The court will likely issue its decision before July 2019.

Stephen A. Miller practices in the commercial litigation group at Cozen O'Connor's Philadelphia office. Prior to joining Cozen O'Connor, he clerked for Justice Antonin Scalia on the U.S. Supreme Court and served as a federal prosecutor for nine years in the Southern District of New York and the Eastern District of Pennsylvania.

Chase A. Howard also practices in the firm 's commercial litigation group. He received his J.D. from Temple University School of Law and his B.A. from Slippery Rock University.