In Franchise Tax Board of California v. Hyatt (2019), the Supreme Court ruled in a 5-4 decision that a state’s sovereign immunity protects a state from being sued without its consent by a private party in the courts of a different state, thus overruling an earlier precedent in Nevada v. Hall (1979) that limited states’ sovereign immunity.
The Court rejected the Hall decision as misunderstanding the constitutional design and misreading the historical record about state comity to lawsuits against other states. The Court found instead that the structure of the Constitution and historical record of the founding era supports state sovereign immunity from lawsuits.
The case began in the early 1990s when Gilbert Hyatt sold his home in California and rented an apartment in Nevada. He also registered to vote in Nevada and obtained a driver’s license there. When he filed his 1991 and 1992 tax returns, he claimed Nevada as his primary place of residence. Unlike California, Nevada has no state income tax.
The Franchise Tax Board of California (Board), the state agency responsible for assessing personal income tax, suspected that Hyatt’s move was a sham to avoid paying California income taxes. The Board launched an audit to determine whether Hyatt had misrepresented his residency to underpay his taxes. The Board concluded that Hyatt had not moved to Nevada until partway into 1992, and he thus owed more than $10 million in taxes and penalties to California.
In 1998, Hyatt sued California in Nevada state court, claiming that California had committed various torts against him during the course of the audit. Hyatt’s case ultimately went to trial in state court in Nevada, where he won a substantial verdict. That decision was reversed when the Court agreed with the Board’s appeal to overrule Nevada v. Hall (1979).
In dissent, Justice Stephen Breyer objected to the majority opinion on grounds that states typically grant one another immunity from private lawsuits anyway. According to Justice Breyer, “Hall held that the Constitution took the permissive approach, leaving it up to each state to decide whether to grant or deny its sister states sovereign immunity. Today, the majority takes the contrary approach—the absolute approach—and overrules Hall.”