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Argument preview: Immunity, precedent and federalism in Franchise Tax Board of California v. Hyatt

Franchise Tax Board of California v. Hyatt is the federal courts case that keeps on giving. It is a SCOTUS “threepeater,” having now reached the justices on three separate occasions. It raises a rich sovereign immunity issue — namely, whether states should enjoy immunity in one another’s courts. And it also asks the Supreme Court to overrule a precedent, Nevada v. Hall, that at least four justices were recently prepared to throw overboard. Whether new Justices Neil Gorsuch and Brett Kavanaugh follow that path will provide valuable insight into their emerging jurisprudence on federalism and stare decisis.

The case arises from allegations that Gilbert Hyatt evaded California taxes by falsely claiming to have moved to Nevada. After the Franchise Tax Board of California concluded that Hyatt owed millions in unpaid taxes, Hyatt, a citizen of Nevada, sued the board in Nevada court, alleging fraud and other torts. That litigation began in 1998. Eventually, Hyatt won a trial judgment of almost half a billion dollars — though a complex series of appeals, including two trips to the U.S. Supreme Court, have reduced the figure to about $100,000 plus the possibility of costs.

Back in 2016, when the justices last ruled in this case, there were two questions presented. One was whether to overrule Hall, which held that states generally lack sovereign immunity in one another’s courts. The court seemed prepared to overrule Hall by a 5-4 vote, but Justice Antonin Scalia passed away, leaving the court deadlocked on that issue. The remaining eight justices issued a ruling based on the other question presented. That unplanned sequence of events notified Hall’s defenders that they had one last chance to defend the rule against interstate sovereign immunity.

The board offers arguments based on history, intuition and precedent. At the founding, the board argues, states enjoyed immunity in one another’s courts, and the Constitution’s structure reinforced that principle. That result is sensible, the board continues: States already enjoy sovereign immunity in neutral federal courts, and there is all the more reason for a state to have sovereign immunity in the more partial courts of another state. True, Hall’s contrary rule is protected by stare decisis. But Hall predated the Rehnquist Court’s “federalist revolution,” which invigorated state sovereign immunity near the end of the 20th century. Indeed, then-Justice William Rehnquist authored a pointed dissent in Hall. In light of those later decisions, Hall has become a clearly erroneous outlier worthy of being overruled. Forty-four states filed in support of that basic position, with no states filing on Hyatt’s side.

Hyatt’s brief opens by arguing for a dismissal of the case on procedural grounds. In Hyatt’s view, the board has forfeited its sovereign immunity argument, and in any event the Supreme Court’s latest ruling in this case resolved the matter for purposes of these parties. The board disputes these arguments on their own terms and also levels a forfeiture allegation of its own: Hyatt did not mention these procedural points, or any similar problems, when the board sought the court’s review. And if Hyatt has been relying on a forfeiture or the law of the case, why wait to bring those points to the court’s attention?

On the sovereign immunity issue, Hyatt disputes the proper meaning of various founding-era cases: Rather than establishing that states originally had sovereign immunity in one another’s courts, early practice shows that states afforded one another comity on a case-by-case basis. Hyatt also emphasizes that state dignitary interests lie on both sides of this case. Here, Nevada has an interest in affording relief to its citizen, and California’s assertion of sovereign immunity would frustrate that interest. Hyatt next emphasizes how much Nevada has reduced the judgment in this case, based in large part on considerations of interstate comity. That general point also cuts in favor of stare decisis: In the decades since Hall, states have not suffered an epidemic of meritless litigation. Thus, overruling Hall would do little to help state dignity but could unfairly foreclose relief for plaintiffs like Hyatt.

Hyatt’s most interesting argument draws on a bracing friend-of-the-court brief by Professors William Baude and Stephen Sachs. In short, Baude and Sachs contend that the Constitution cabined the federal government’s ability to intrude on the common-law sovereign immunity that prevailed at the founding. The Supreme Court was therefore right to place limits on Congress’ ability to overcome state sovereign immunity through normal Article I legislation. But because the Constitution does not place similar limits on the legislative powers of states, each state is free in its own courts to eliminate other states’ common law immunities. This theory pulls off what might have seemed impossible: It squares Hall with later Rehnquist Court cases that expanded state sovereign immunity.

Baude and Sachs do not stop there. To blunt concerns that Hall could foster abuse, Baude and Sachs argue for greater attention to 19th-century views on when states should recognize one another’s judgments. Under that approach, Hyatt’s judgment against California would likely be unenforceable. But that suggested reform seems improbable, and the professors’ argument invites a counterpoint: if legal changes have made states more vulnerable to enforceable judgments, then perhaps states should now benefit from a stronger form of sovereign immunity. In other words, strengthening state sovereign immunity might desirably compensate states for adverse changes in other areas of law.

Baude and Sachs also contend that the Supreme Court lacks jurisdiction under the plain language of the 11th Amendment, which provides that “[t]he judicial power of the United States shall not be construed to extend to any suit in law or equity, commenced or prosecuted against one of the United States by citizens of another state.” Hyatt’s suit is after all a suit by a citizen of one state against another state. However, that point would arguably be moot if the court overruled Hall and found its jurisdiction barred by state sovereign immunity. In any event, court precedents hold that the amendment does not limit the court’s authority over lawsuits that are either initiated in state court or brought to the justices by a state party — two circumstances present here. Ultimately, Baude and Sachs urge that the court dismiss the case to avoid these issues.

Other scholarly briefs take aim from both the right and the left. On the board’s side, for example, a group of scholars assert that the Constitution established a broad principle of state sovereign immunity simply by referring to “states,” a term historically imbued with a rich meaning. On Hyatt’s side, a different group of professors worry that, in a world without Hall, there would be greater need for the Supreme Court itself to hear interstate disputes arising in its original jurisdiction: If Nevada wants to vindicate its citizen’s rights against California, its best option may be to sue its neighbor state on the citizen’s behalf.

A few thematic questions run through the various arguments.

First, what is the legal source of state sovereign immunity? The board describes a principle emanating from the Constitution’s federal structure, whereas Hyatt asserts an 18th-century common law doctrine that is partially protected but unchanged by the Constitution. While very different, those answers both focus on the nation’s early history. But the court’s case law in this area suggests an answer closer to the present-day: Whatever its origins, state sovereign immunity has become a dynamic doctrine propelled ever further by judicial perceptions of what would make for a sensible as opposed to “anomalous” rule. In this case, the doctrine may take another step toward “the limit of its logic.”

Second, what is the best way of implementing the interests that state sovereign immunity protects, including states’ dignity, treasuries and regulatory power? At times, it seems as though all agree on the need to protect states from abusive litigation in one another’s courts, and the only question is whether to adopt the board’s categorical rule, or a more case-specific standard. That choice implicates Kathleen Sullivan’s famous distinction between the justices of rules and standards. Here, justices pondering the choice between rules and standards might consider how much they can rely on state courts in cases involving state defendants, as well as the Supreme Court’s own willingness to intervene in cases like this one. The justices might also consider whether it is practicable for states to enter compacts or otherwise “bargain around” whatever constitutional rule the court ends up adopting.

Finally, what role should stare decisis play in a case like this? The board may be right that Hall has become a doctrinal outlier and that it has inspired limited reliance, particularly since the court has recently signaled interest in overruling it. In addition, the court has sometimes afforded limited weight to precedents that deny constitutional rights to individuals, and perhaps rulings that deny sovereign immunity to states — essentially, rights for states — could be viewed similarly. But Hyatt plausibly responds that the board’s case for overruling lacks any showing of unworkability or changed circumstances and so largely boils down to the view that Hall was wrong. And although the court’s decision to grant review could signal an appetite to overrule, the justices recently gave a cold reception to a criminal defendant who opposed a precedent that limited his double jeopardy rights.

Though this case is not a blockbuster, Justice Anthony Kennedy’s absence will be felt. Almost 20 years ago, Kennedy authored the court’s controversial opinion in Alden v. Maine, which was at pains to distinguish and preserve Hall on grounds akin to the ones that Hyatt now advances. A few years ago, however, Kennedy was presumably one of the four justices who voted to overrule Hall when this case last reached the court — an apparent product of his influential focus on the “dignity” of states. Now that Kennedy has retired, it will be interesting to see whether his former clerks, Gorsuch and Kavanaugh, approach these issues in a similar spirit.

Recommended Citation: Richard M. Re, Argument preview: Immunity, precedent and federalism in Franchise Tax Board of California v. Hyatt, SCOTUSblog (Jan. 3, 2019, 1:32 PM),