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Franchise Tax Bd. v. Hyatt - 136 S. Ct. 1277 (2016)

Rule:

A statute is a public act within the meaning of the Full Faith and Credit Clause. The Clause does not require a State to substitute for its own statute, applicable to persons and events within it, the statute of another State reflecting a conflicting and opposed policy. But when affirming a State’s decision to decline to apply another State’s statute on this ground, judicial precedent consistently emphasizes that the State had not adopted any policy of hostility to the public acts of that other State. 

Facts:

Respondent Hyatt claims that he moved from California to Nevada in 1991, but petitioner Franchise Tax Board of California, a state agency, claims that he actually moved in 1992 and thus owes California millions in taxes, penalties, and interest. Hyatt filed suit in Nevada state court, which had jurisdiction over California under Nevada v. Hall, 440 U.S. 410, 99 S. Ct. 1182, 59 L. Ed. 2d 416, seeking damages for California's alleged abusive audit and investigation practices. After this United States Supreme Court affirmed the Nevada Supreme Court's ruling that Nevada courts, as a matter of comity, would immunize California to the same extent that Nevada law would immunize its own agencies and officials, see Franchise Tax Bd. of Cal. v. Hyatt, 538 U.S. 488, 499, 123 S. Ct. 1683, 155 L. Ed. 2d 702 (2015), the case went to trial, where Hyatt was awarded almost $500 million in damages and fees. On appeal, California argued that the Constitution's Full Faith and Credit ClauseArt. IV, §1, required Nevada to limit damages to $50,000, the maximum that Nevada law would permit in a similar suit against its own officials.

Issue:

Does the United States Constitution permit Nevada to apply a rule of Nevada law that awards damages against California that are greater than it could award against Nevada in similar circumstances?

Answer:

No.

Conclusion:

The Constitution does not permit Nevada to apply a rule of Nevada law that awards damages against California that are greater than it could award against Nevada in similar circumstances. This conclusion is consistent with the Supreme Court's precedents. A statute is a “public Act” within the meaning of the Full Faith and Credit Clause. While a State is not required “to substitute for its own statute . . . the statute of another State reflecting a conflicting and opposed policy,” . . . a State's decision to decline to apply another State's statute on this ground must not embody a “policy of hostility to the public Acts” of that other State, Carroll v. Lanza, 349 U.S. 408, 412, 413, 75 S. Ct. 804, 99 L. Ed. 1183. Using this approach, the U.S. Supreme Court found no violation of the Full Faith and Credit Clause either in Carroll or in Franchise Tax Bd. of Cal. v. Hyatt (2015), the first time litigation between the two parties was considered. By contrast, the rule of unlimited damages applied in the current case is not only “opposed” to California's law of complete immunity; it is also inconsistent with the general principles of Nevada immunity law, which limit damages awards to $50,000. Nevada explained its departure from those general principles by describing California's own system of controlling its agencies as an inadequate remedy for Nevada's citizens. A State that disregards its own ordinary legal principles on this ground employs a constitutionally impermissible “ 'policy of hostility to the public Acts' of a sister State.” 538 U.S., at 499, 123 S. Ct. 1683, 155 L. Ed. 2d 702. The U.S. Supreme Court concludes that the Nevada Supreme Court's decision lacks the “healthy regard for California's sovereign status” that was the hallmark of its earlier decision. Nevada's hostility toward California is clearly evident in its decision to devise a special, discriminatory damages rule that applies only to a sister State.

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