Franchise Tax Board of California v. Hyatt (“Hyatt II”)

Gilbert Hyatt (plaintiff) had a dispute with the Franchise Tax Board of California (FTB) (defendant), the California state agency that administered income taxes. According to Hyatt, he moved from California to Nevada in September 1991, but after an investigation and tax audit, the FTB believed that he did not move to Nevada until April 1992. Hyatt filed a lawsuit against the FTB in Nevada state court, seeking damages for the FTB’s abusive and invasive audit and investigation practices, such as combing through Hyatt’s garbage and examining his religious activities. In one appeal to the United States Supreme Court, the FTB argued that Nevada should dismiss the case on constitutional, full-faith-and-credit grounds. In California, state agencies were immune from suits like Hyatt’s (a principle known as sovereign immunity). The United States Supreme Court allowed the suit against the FTB to proceed in Nevada state court (Hyatt I). On remand, the jury found in Hyatt’s favor and awarded him close to $500 million in damages. On appeal once again, the Nevada Supreme Court allowed a $1 million damage award to stand, even though damages in a similar suit against a Nevada state agency would be statutorily capped at $50,000. The Nevada Supreme Court expressed its opinion that California was exerting inadequate efforts to control its taxing agency to the detriment of Nevada citizens. The United States Supreme Court granted the FTB’s petition for certiorari.