CSG Joins Supreme Court Amicus Brief in Case Involving States Being Sued in Other States

If A state is sued in B state, do the courts of B state have to extend to A state the same immunities that they would apply to B state? And…can state A even be sued in state B?   

While this may sound like a nonsensical hypothetical, these are the issues the Supreme Court has agreed to decide in Franchise Tax Board of California v. Hyatt. The State and Local Legal Center (SLLC) filed an amicus brief arguing that states must extend the same immunities that apply to them to foreign state and local governments sued in their state courts.

In 1993 the Franchise Tax Board (FTB) of California audited Gilbert Hyatt following a newspaper article reporting he made a lot of money patenting a computer chip. Hyatt’s 1991 tax return indicated he lived in California for only nine months and relocated to Nevada. FTB concluded that Hyatt moved to Nevada in 1992 and assessed him $10.5 million in taxes and interest.

Hyatt sued FTB in Nevada alleging invasion of privacy, fraud, and intentional infliction of emotional distress, among other claims. In 2003 in Franchise Tax Board of California v. Hyatt the Supreme Court held that the constitution’s Full Faith and Credit Clause does not require Nevada to offer FTB the full immunity that California law provides.

A Nevada jury ultimately awarded Hyatt nearly $400 million in damages. The Nevada Supreme Court refused to apply Nevada’s statutory cap on damages to Hyatt’s fraud claim. According to the court, Nevada has a policy interest in ensuring adequate redress for Nevada citizens that overrides providing FTB the statutory cap because California operates outside the control of Nevada.  

Hyatt has also asked the Supreme Court to overrule Nevada v. Hall (1979), holding that a state may be sued in another states’ courts without consent. If the Court overrules this case, the question of whether the immunities a state enjoys must be offered to a foreign state or local government will be moot.    

The SLLC amicus brief argues that Nevada purposely treating a California government agency worse than a similarly-situated Nevada government agency offends a core principle of the Constitution: that the states enjoy equal sovereignty. The SLLC brief also argues that the Nevada Supreme Court’s ruling creates a number of practical problems for state and local governments including encouraging plaintiffs to forum shop and exposing state and local governments to unpredictable litigation costs.

The SLLC brief does not take a position on whether Nevada v. Hall should be overruled. Interestingly, at the petition stage, 39 attorneys general signed onto West Virginia’s amicus brief asking the Court to overrule Nevada v. Hall, including Adam Paul Laxalt of Nevada.

Quin Sorenson and Spencer Driscoll, Sidley Austin, Washington D.C. wrote the SLLC amicus brief which was joined by the Council of State Governments, the National Association of Counties, the National League of Cities, the United States Conference of Mayors, the International City/County Management Association, and the International Municipal Lawyers Association