High Court Nixes Precedent to Back State Sovereignty

WASHINGTON (CN) – Divided 5-4 Monday, the U.S. Supreme Court overturned 40-year-old precedent that allowed states to be sued in the courts of another state.

The case began when the Franchise Tax Board of California began auditing inventor Gilbert Hyatt in the early 1990s, suspecting that Hyatt had moved out of the state later than he claimed in an attempt to skip out on tax payments.

After California hit Hyatt with a $6 million tax bill, Hyatt sued the board in Nevada, ultimately securing a $490 million judgment that said California had violated Hyatt’s privacy by snooping through his trash and sending his Social Security number to people as part of the audit. 

California spent another several years whittling that judgment down, but Nevada’s high court said a Nevada law capping tort liability for its own state agencies at $50,000 did not apply to California.

The U.S. Supreme Court vacated this holding in 2016 and held another hearing this past January on whether California’s sovereignty should have foreclosed Hyatt’s suit against in Nevada from the beginning. 

Justice Clarence Thomas penned Monday’s reversal, which says the 1979 ruling Nevada v. Hall unconstitutionally impacted the sovereign immunity of states. 

“The Founders believed that both ‘common law sovereign immunity’ and ‘law-of-nations sovereign immunity’ prevented states from being amenable to process in any court without their consent,” Thomas wrote. “The common-law rule was that ‘no suit or action can be brought against the king, even in civil matters, because no court can have jurisdiction over him.’” 

Thomas called interstate sovereign immunity “integral to the structure of the Constitution.”

“Like a dispute over borders or water rights, a state’s assertion of compulsory judicial process over another state involves a direct conflict between sovereigns,” he wrote. “The Constitution implicitly strips states of any power they once had to refuse each other sovereign immunity, just as it denies them the power to resolve border disputes by political means.” 

Justices Ruth Bader Ginsburg, Sonia Sotomayor and Elena Kagan joined a dissent meanwhile by Justice Stephen Breyer.

“The court in Hall observed that an express provision of the Constitution undermined the assertion that states were absolutely immune in each other’s courts,” he wrote. “Unlike suits brought against a state in the state’s own courts, Hall noted, a suit against a state in the courts of a different state ‘necessarily implicates the power and authority of’ both states.” 

Breyer also identified what he called an “obvious” problem with the majority saying that the Constitution altered interstate relationships by offering immunity they didn’t possess before unifying.

“No provision of the Constitution gives states absolute immunity in each other’s courts,” he wrote. “The majority does not attempt to situate its newfound constitutional immunity in any provision of the Constitution itself. Instead, the majority maintains that a state’s immunity in other states’ courts is ‘implicit’ in the Constitution.” 

WilmerHale attorney Seth Waxman argued for Franchise Tax Board of California, and Erwin Chemerinsky, a Berkeley School of Law professor, argued for Hyatt. Neither lawyer has returned a request for comment.

Hyatt is still contesting his tax penalty in administrative proceedings.

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