Franchise Tax Bd. of Cal. v. Hyatt

Background

Gilbert Hyatt, a Nevada resident, sued California’s Franchise Tax Board in Nevada state court after a tax audit that led California to claim he owed millions. Hyatt alleged invasive and abusive investigatory tactics and sought large damages. California had claimed he owed over $10 million in taxes and penalties, and Hyatt accused the Board of rifling his mail and examining his place of worship. Nevada courts allowed the suit and a jury initially awarded hundreds of millions, later reduced on appeal.

Reasoning

The Court considered whether Nevada could award damages greater than Nevada law would allow against its own agencies. It found that Nevada’s adoption of a special rule that treated sister States less favorably showed a “policy of hostility” toward California’s laws and therefore violated the Full Faith and Credit Clause. The Court vacated the Nevada Supreme Court’s hostile rule and remanded for proceedings consistent with this opinion. A separate question about overruling Nevada v. Hall was left unresolved because the Court was evenly divided on that point.

Real world impact

States may not apply special, discriminatory rules to impose larger monetary awards on another State’s agencies than they would allow against their own agencies. Lower courts must follow ordinary comity principles and respect other States’ statutory protections where appropriate. The case returns the dispute to Nevada courts for further proceedings consistent with the opinion.

Dissents or concurrances

A dissent argued Nevada had sufficient policy reasons to protect its residents and criticized the majority for creating a hybrid remedy instead of applying either Nevada or California law.