Franchise Tax Bd. of Cal. v. Hyatt, 136 S. Ct. 1277

Background

Gilbert Hyatt, a Nevada resident, sued the California Franchise Tax Board (FTB) in Nevada state court alleging abusive audit tactics and various intentional torts after a dispute over his California residency and tax liability.
California FTB is immune from such suits under California law; Hyatt sought damages including compensatory and punitive awards after a Nevada jury verdict approaching $500 million.
The Nevada Supreme Court previously held Nevada courts could apply Nevada comity and immunity principles rather than California’s immunity; the U.S. Supreme Court affirmed that holding in 2003 (Franchise Tax Bd. v. Hyatt).
On remand, Nevada reduced much of the award but affirmed $1 million and ordered retrial on other damages, stating damages on remand were not subject to Nevada’s $50,000 statutory cap for analogous suits against Nevada agencies.
California argued the Full Faith and Credit Clause required Nevada to limit recovery to the same maximum available against Nevada agencies ($50,000); Nevada defended a special rule allowing greater recovery against sister states as necessary to protect Nevada citizens.
The Supreme Court (4–1 majority opinion, with a 4–justice dissent and one concurrence in judgment) affirmed Nevada’s jurisdiction (4–4 tie on overruling Nevada v. Hall) but held Nevada’s special, higher-damages rule violated the Full Faith and Credit Clause and vacated/remanded the Nevada decision insofar as it applied that discriminatory rule.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether Nevada v. Hall should be overruled (i.e., whether a State can be haled into another State’s courts)	Hyatt: Nevada jurisdiction is permissible under Hall	California: Hall should be overruled to bar suits against a State in sister-state courts	Court split 4–4 on overruling Hall; Nevada jurisdiction affirmed by tie
Whether Nevada must apply California’s sovereign-immunity rule (complete immunity)	Hyatt: Nevada may apply Nevada law and limit immunity only as Nevada would for its own agencies	California: Full Faith and Credit requires applying California’s immunity, barring recovery	Court: A forum may apply its own law unless it displays hostility; here, Nevada cannot apply a special, discriminatory rule granting greater damages
Whether Nevada’s special rule permitting damages above Nevada’s own $50,000 cap was constitutional under Full Faith and Credit	Hyatt: Special rule justified to provide adequate redress to Nevada citizens when sister-state controls are inadequate	California: Special rule is a hostile policy toward California’s public Acts and conflicts with Full Faith and Credit	Held: Nevada’s special, discriminatory damages rule violated the Full Faith and Credit Clause; decision vacated and remanded for proceedings consistent with opinion
Remedy for Full Faith and Credit violation (apply California law or require parity with Nevada law)	Hyatt: If Nevada has policy justification, Nevada law applies; otherwise California law applies	California: Full Faith and Credit requires full application of California immunity where Nevada lacks sufficient justification	Court: Nevada may not invent a hostile, discriminatory rule; forum must avoid policies of hostility—vacatur and remand (court rejects creation of ad hoc hybrid rule favoring sister-state hostility)

Key Cases Cited

Nevada v. Hall, 440 U.S. 410 (1979) (holds a State may be sued in another State’s courts)
Franchise Tax Bd. of Cal. v. Hyatt, 538 U.S. 488 (2003) (prior Supreme Court decision upholding Nevada’s application of its own comity principles)
Carroll v. Lanza, 349 U.S. 408 (1955) (Full Faith and Credit does not compel substitution of forum’s statute for another when forum is not hostile to sister-state acts)
Pacific Employers Ins. Co. v. Industrial Accident Comm’n, 306 U.S. 493 (1939) (forum state need not substitute another state’s statutes for its own on matters within its legislative competence)
Hughes v. Fetter, 341 U.S. 609 (1951) (invalidates forum statute that discriminates against claims under another State’s law)
Coyle v. Smith, 221 U.S. 559 (1911) (constitutional equality among States)
Allstate Ins. Co. v. Hague, 449 U.S. 302 (1981) (Full Faith and Credit and choice-of-law limits where forum law unjustifiably infringes another State’s interests)
Bendix Autolite Corp. v. Midwesco Enterprises, Inc., 486 U.S. 888 (1988) (Commerce Clause invalidates discriminatory state law)
Milwaukee County v. M. E. White Co., 296 U.S. 268 (1935) (purpose of Full Faith and Credit Clause to integrate states into a single nation)