Supreme Court Shows It’s Ready To Overrule Precedent, Dissent Sounds Alarm In California V. Hyatt

U.S. Supreme Court Associate Justice Clarence Thomas arrives for the ceremonial swearing in of Associate Justice Brett Kavanaugh in the East Room of the White House on October 8, 2018.  (Photo by Chip Somodevilla/Getty Images)

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The decision today in a residency tax audit case, on its third trip to the U.S. Supreme Court, shows how the Court is ready to overturn prior cases. Justice Stephen Breyer put it succinctly in his dissent: “Today’s decision can only cause one to wonder which cases the Court will overrule next.”

In Franchise Tax Board of California v. Hyatt the Court ruled that the Constitution does not permit a state to be sued by a private party without its consent in the courts of a different state, overruling the Court’s 1979 decision to the contrary in Nevada v. Hall.

“This case shows that precedent gets little weight with the conservative justices on the Roberts’ Court; Justice Breyer expresses this well in his dissent,” says Erwin Chermerinsky, dean of University of California, Berkeley, School of Law, who argued the case on behalf of Hyatt in January. After the oral arguments, Chermerinsky wrote that his sense was that the discussion was really about “how the court is going to treat precedent when issues like abortion, affirmative action, and gay and lesbian rights return to the court.” In other words, will Roe v. Wade be next?

The FTB case concerned Gilbert Hyatt, who moved from California to Nevada after earning big royalties on a technology patent. The California Franchise Tax Board pursued him, picking through his trash and contacting more than 100 third parties to try to prove that his move to Nevada was a sham to avoid $10 million-plus in state income taxes. Hyatt’s protest of that tax bill is still pending before the California Office of Tax Appeals.

Separately, Hyatt sued the FTB in Nevada state court for the torts he alleged the agency committed during the audit. California sought to have the case dismissed under its laws granting immunity to state officials. The U.S. Supreme Court in 2003 reviewed the case and allowed Hyatt to continue his lawsuit. That led to the second trip to the U.S. Supreme Court in 2016, leaving intact the idea that state courts can hear lawsuits over the behavior of officials from other states but limiting what a state could award to out-of-staters (Hyatt’s potential reward was limited to $100,000 per Nevada law, Chermerinsky says).

This time the Court’s review was limited to the question of state immunity, namely whether Nevada v. Hall should be overruled. Writing for the majority, Justice Clarence Thomas concluded that Nevada v. Hall should be overturned, calling the states’ sovereign immunity “a historically rooted principle embedded in the text and structure of the Constitution.” That means the FTB is immune from Hyatt’s suit in Nevada’s courts. So this decision overrules the Court’s 2016 decision too, including the $100,000 award to Hyatt. It says that there can be no awards (or lawsuits), Chermerinsky says.

Basically, that’s just too bad for Hyatt: “The consequences for the inventor are that he’ll suffer the loss of two decades of litigation expenses and a final judgment against the Board for its egregious conduct. … Those case-specific costs are not among the reliance interests that would persuade us to adhere to an incorrect resolution of an important constitutional question,” Thomas wrote.

Justice Breyer, with whom Justices Ruth Bader Ginsburg, Sonia Sotomayor and Elena Kagan joined, said there was no good reason to overrule Hall: “[T]he very fact—that Hall is not obviously wrong—shows that today’s majority is obviously wrong to overrule it.” The dissent warned about the potential danger of legal uncertainty going forward: “To overrule a sound decision like Hall is to encourage litigants to seek to overrule other cases; it is to make it more difficult for lawyers to refrain from challenging settled law; and it is to cause the public to become increasingly uncertain about which cases the Court will overrule and which cases are here to stay.”

For more background on Hyatt’s fight, see Supreme Court Says Nevada Court Can Hit California Tax Officials—Within Reason.

For more on how to fight state residency audits, see How To Leave Your Taxes Behind.

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