THE UNITED STATES SUPREME COURT MAKING UNNECESSARY FIXES IN FRANCHISE TAX BOARD OF CALIFORNIA V. HYATT.

• Author: Briese, Samuel

Stare decisis plays a crucial role in our judicial system. In fact, it is a necessity since it is unrealistic to expect each case to be judged without guidance from previous holdings. The doctrine establishes what the law is and provides a framework that judges, lawyers, and the public can rely on to make critical legal choices. In 1979, the United States Supreme Court in Nevada v. Hall decided that states are not required to grant other states immunity in their courts for actions that transpired within their jurisdiction. Forty years later, in Franchise Tax Board of California v. Hyatt, the Court overturned Nevada v. Hall and held that interstate sovereign immunity is implicit within the Constitution. In Franchise Tax Board of California v. Hyatt, the Supreme Court improperly applied stare decisis and should have upheld Nevada v. Hall. The majority's inexact and inaccurate overturning of precedent thwarted the purposes the doctrine is supposed to further and failed to account for the ramifications its decision could possibly have in the future.

1. INTRODUCTION

   "If it ain't broke, don't fix it," is a commonly used expression used to refer to something that is working adequately well, and it is probably best to just leave it alone and not make any changes that could possibly ruin its functionality. (1) This popular expression can be used to describe how the judicial doctrine of stare decisis operates. Stare decisis, the obligation to adhere to past opinions, is "a foundation stone of the rule of law." (2) "[I]t promotes the evenhanded, predictable, and consistent development of legal principles, fosters reliance on judicial decisions, and contributes to the actual and perceived integrity of the judicial process." (3) The doctrine is not an "inexorable command" (4) and allows for changes when the proper circumstances arise. (5) Justice Benjamin Cardozo summarized that, "adherence to precedent should be the rule and not the exception," but explained that "[i]f judges have woefully misinterpreted the mores of their day, or if the mores of their day are no longer those of ours, they ought not to tie, in helpless submission, the hands of their successors." (6)

   Stare decisis still thrives in our legal system today. (7) The federal courts and every state except Louisiana--with its civil law system--use some form of the doctrine. (8) There are many examples where the United States Supreme Court has decided to follow past holdings like in Planned Parenthood of Southeastern Pennsylvania v. Casey, (9) and instances where it has decided to deviate from previous decisions, such as Brown v. Board of Education. (10) In fact, stare decisis is used continuously by the Court because a majority of the cases where the Court grants certiorari "involve nothing more than application of previously decided cases." (11)

   One might wonder how a Supreme Court tax dispute case relates to stare decisis and explains its future importance. (12) Tax cases are not the most likely of cases to garner much attention from the public, but Franchise Tax Board of California v. Hyatt (Hyatt III) (13) stands for so much more than a simple tax dispute. (14) The case demonstrates how the Supreme Court views the important constitutional law concept of stare decisis and hence, the common phrase "if it ain't broke, don't fix it." (15)

   This casenote will show that the majority in Franchise Tax Board of California v. Hyatt did not offer a special justification or strong grounds to depart from Nevada v. Hall, (16) and that its stare decisis analysis clashes with the doctrine's values of predictability and stability. (17) Part II will give an overview of the facts and procedural history of Hyatt III. (18) Part III then will describe the history surrounding sovereign immunity in the United States and the Court's decisions interpreting the Eleventh Amendment. (19) Additionally, Part IV will give an overview of the judicial doctrine of stare decisis and how the Court uses it in settling case decisions. (20) Part V will exhibit that reasonable Justices disagree on the subject of interstate sovereign immunity and that the Court failed to justify overruling Nevada v. Hall. (21)

2. FACTS AND PROCEDURE

   Franchise Tax Board of California v. Hyatt is the result of a long-running dispute between the California Franchise Tax Board ("FTB") and Gilbert P. Hyatt, an inventor. (22) The bases for Hyatt's lawsuit against the FTB were intentional tortious acts perpetrated by the FTB while completing an audit of Hyatt's personal income taxes when he was living in Nevada. (23) Only after over two decades and three trips to the United Supreme Court was the matter settled. (24)

   Prior to Hyatt obtaining a patent for a computer formed on a single integrated circuit chip, he was a long-time resident of California. (25) In 1991, Hyatt sold his house in California and rented an apartment, registered to vote, obtained insurance, opened a bank account, and acquired a driver's license in Nevada. (26) Subsequently, when Hyatt filed his 1991 and 1992 tax returns, he stated he had become a Nevada resident on October 1, 1991. (27) The FTB questioned Hyatt's claim because he earned millions of dollars from royalties on his computer patent shortly after he changed his state of residence and because Nevada does not collect personal income tax. (28) Since the FTB was responsible for assessing his personal income taxes, the agency decided to conduct an audit in 1993. (29)

   During the audit, the FTB and its employees took intrusive steps to invade Hyatt's privacy and violate confidentiality in order to force a tax settlement. (30) Employees at the FTB focused on Hyatt's audit with a preconceived notion that he was hiding something. (31) The lead auditor for the FTB, Sheila Cox, was overheard by other employees discussing Hyatt's case stating that she was going to "get that Jew bastard," believing that large income taxpayers in California were Jewish. (32) This desire to "get" Hyatt was substantiated by the pressure to impose harsh penalties of fraud, which were not usually enforced in these audit situations. (33) Other employees heard Sheila Cox outright share false personal information about Hyatt in order to create a negative image of him. (34) Employees who subsequently disclosed these discussions believed that the FTB and Cox were fixated on the case. (35)

   The FTB invaded Hyatt's privacy in various ways to obtain evidence for their audit. (36) Employees went to Hyatt's Nevada home and looked through his windows, mail, and trash. (37) Interviews were conducted with Hyatt's family members, especially individuals whom he did not have contact with anymore, to gather evidence for the FTB's case. (38) Even when the audit had ended, Cox bragged that she caught Hyatt and then traveled to Nevada to take "trophy-like" pictures of Hyatt's new residence. (39) An employee of the FTB even told one of Hyatt's lawyers that paying the alleged tax liability was the only way to restore his privacy. (40)

   The FTB violated confidentiality with Hyatt's business contacts and partners during the audit. (41) The FTB agreed to keep the information Hyatt provided to them private since inventors like Hyatt valued privacy and security. (42) The agency disregarded this agreement and sent more than one hundred letters and demands for information to other parties, (43) including Hyatt's two places of worship. (44) Hyatt's confidential home address and social security number were even sent to newspapers. (45) Additionally, the FTB made it known to some of Hyatt's business partners that his patents were being investigated. (46) At the conclusion of the audit, the FTB discovered that Hyatt did not move to Nevada until April 1992 and owed California more than $10 million in back taxes, interest, and penalties. (47)

   In 1998, Hyatt filed suit in Nevada state court claiming that the FTB had engaged in negligent and intentional tortious acts, including invasion of privacy, fraud, and intentional infliction of emotional distress. (48) Hyatt sought compensatory and punitive damages alongside a declaratory judgment that he lived in Nevada during the years he stated in his 1992 tax return. (49) In response, the FTB argued that the Full Faith and Credit Clause required Nevada to apply California's statute to the agency's actions, which would grant the FTB full immunity. (50) This argument was unanimously rejected by the Nevada Supreme Court. (51) However, as a matter of comity, the court did grant the FTB the same immunity Nevada agencies were given, resulting in immunity for the negligent torts. (52)

   After an appeal by the FTB, the United State Supreme Court granted certiorari and unanimously affirmed the Nevada Supreme Court's decision. (53) Writing for the majority, Justice Breyer stated that the United States Constitution permits state courts to grant sovereign immunity to other states, but does not force them to. (54) The Court also noted that this case did not involve a situation where a state showed a "policy of hostility to the public Acts' of a sister State," but rather Nevada displayed recognition of California's sovereignty by using comity principles. (55)

   After the case was remanded to resolve evidentiary errors committed by the trial court, discovery and pretrial proceedings percolated in Nevada state court over the course of five years. (56) The parties filed thousands of pages of briefing disputing the scope of discovery, the appropriateness of in camera review, and other issues. (57) A total of 155 depositions were held and the parties exchanged more than 168,000 documents. (58) Only after a four-month jury trial in 2008 did the Nevada trial court announce a verdict exceeding $490 million in compensatory and punitive damages for Hyatt. (59) The jury found that the FTB committed intentional infliction of emotional distress, invasion of privacy, and fraud. (60) The FTB appealed to the Nevada Supreme Court, where the...