Franchise Tax Board of California v. Hyatt

The Constitution does not permit Nevada to award damages against California agencies under Nevada law that are greater than it could award against Nevada agencies in similar circumstances.

California claimed respondent owed millions in taxes, penalties, and interest. Respondent filed suit in Nevada state court, which claimed jurisdiction over petitioner tax agency under Nevada v. Hall, 440 U. S. 410, seeking damages for petitioner’s alleged abusive audit. The U. S. 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 should immunize its own agencies and officials, see Franchise Tax Bd. of Cal. v. Hyatt, 538 U. S. 488. At trial respondent was awarded almost $500 million in damages. Petitioner argued that Art. IV, §1, Full Faith and Credit Clause, required Nevada to limit damages to $50,000, the maximum that Nevada law would permit in a similar suit against its own officials. The Nevada Supreme Court affirmed $1 million of the award and ordered a retrial on another damages issue, stating that the $50,000 statutory limit would not apply on remand because California’s system of agency control was inadequate to protect Nevada’s citizens. The US Supreme Court vacated and remanded, holding that Nevada’s disregarding of its own normal legal principles employs a constitutionally impermissible “ ‘policy of hostility to the public Acts’ of a sister State” and lacks the “healthy regard for California’s sovereign status” that was the hallmark of its prior holding. The Court found that Nevada’s hostility toward California was evident in its decision to devise a discriminatory damages rule that applied only to a sister State. VACATED and REMANDED.