Franchise Tax Board v. Hyatt: An Unnecessary Overruling

May 21, 2019

Franchise Tax Board v. Hyatt, 587 U.S. ___ (2019) (Thomas, J.).
Response by Alan B. Morrison
Geo. Wash. L. Rev. On the Docket (Oct. Term 2018)
Slip Opinion | SCOTUSblog

Franchise Tax Board v. Hyatt: An Unnecessary Overruling

In Franchise Tax Board of California v. Hyatt¹, the Court, by a vote of 5–4, overruled its 1979 decision in Nevada v. Hall, 440 U.S. 410, in which the Court upheld a tort judgment rendered by California state courts arising out of an automobile accident in which an employee of the State of Nevada injured a California resident while driving in California. As I argued in an amicus brief in support of neither side that I submitted in Franchise Tax Board², there was no basis to overrule Hall, because that case was both correct and readily distinguishable from this one, and there were other bases for setting aside what the Nevada courts did here.

At the outset, the unusual, if not bizarre nature of the complaint in Franchise Tax Board should have at least raised the question of whether it had anything to do with routine tort cases like Hall. In essence, the State of California claimed that Mr. Hyatt owed it very substantial state income taxes on the ground that he was still a California resident during the periods at issue. The tax issues were being litigated before a California agency, and Mr. Hyatt, who by then was a Nevada resident, alleged that Tax Board employees had engaged in unreasonable (and worse) tactics in the course of trying to establish his tax liability. It was those tactics, almost none of which took place in Nevada, that formed the basis of Hyatt’s suit under Nevada law in Nevada state courts.³

Leaving aside the question of whether Nevada courts had specific jurisdiction over these claims in light of recent Supreme Court decisions,⁴ the Court could (and should) have simply ruled that Hyatt’s case was an effort to have Nevada oversee the manner in which California collected its taxes. As my amicus brief argued, that is a matter for California alone, unless there are allegations of violations of federal law, such as of the due process clause or perhaps the Fourth Amendment. That affront to the dignity of California from this challenge to its tax collection system, which the majority emphasized,⁵ was so different from any alleged affront in Hall that there should have been no need to address Hall at all. And if the majority wished to focus on Hyatt’s case and get rid of it, it could have used the distinction in its recent case involving the TVA,⁶ and found immunity based on California’s governmental activity in conducting its tax audit of Mr. Hyatt, leaving routine tort liability alone.

Most of the commentary about the decision has focused on what the majority’s approach to stare decisis might say about the willingness of the conservative majority to overturn the Court’s abortion precedents. There are, however, a number of real world and immediate impacts that the decision will have which neither the majority or the dissent considered. Suppose the facts in Hall arose tomorrow. The injured party could sue the other driver-employee, who will probably be judgment proof if the injuries are serious. If the car is owned by the driver, he might have some insurance, but not if it is a state-owned vehicle. The State could waive the immunity created by Franchise Tax Board, but that seems unlikely for an individual case although states might agree to waive immunity in limited categories of cases on a reciprocal basis.

One possible option for unilateral action is suggested by the opinion in Franchise Tax Board. In several places the Court limited its immunity holding to situations in which the state has not consented to be sued,⁷ which raises the question of what kind of consent, beyond a formal consent in an individual case, will suffice. In the days before International Shoe Co. v. Washington,⁸ the Court decided a case from the state courts of Massachusetts, with a Pennsylvania citizen as the defendant, that was otherwise factually indistinguishable from Hall.⁹ Under the applicable Massachusetts statute “the operation by a nonresident of a motor vehicle on a public way . . . shall be deemed equivalent to an appointment by such nonresident of the registrar [of motor vehicles] . . . to be his true and lawful attorney . . . [and] shall be a signification of his agreement that any such process against him which is so served shall be of the same legal force and validity as if served on him personally.”¹⁰ The Court recognized that state court process could not constitutionally run beyond its borders and that the mere transaction of business in a state does not imply consent to be sued there.¹¹ It nonetheless ruled that the statute overcame the constitutional objection to state court jurisdiction. The argument, post–Franchise Tax Board, would be, that a similar statute, phrased in terms of consent, could do what the Massachusetts statute did in Hess.¹²

The majority in Franchise Tax Board did not discuss what is needed to satisfy the requirement of consent in this context. To avoid any issue of notice, a state that enacted such a law might be advised to send a copy to the Attorney General of all other states, but that still might not satisfy a court that the consent was meaningful. Arguably the word “consent” might have to appear in the statute, but that seems overly formal and could be readily achieved if necessary. On the other hand, the Court might conclude that states had a higher form of immunity than do individuals and that a state owner of the vehicle would not be “deemed” (in the words of the Massachusetts statute) to have consented to waive its sovereign immunity by driving on the state’s highway and causing an injury to another person.

This is not the place to analyze the law of consent in its various contexts, but two areas come to mind that, if the Court is willing to entertain the notion of advanced consent for suits involving out-of-state motor vehicle accidents, would support the efforts to hold other states accountable for those who operate their vehicles. Individuals who are stopped by the police are regularly asked to “consent” to have their vehicles searched, in situations where most people would not think that they had much of a choice, yet those consents are routinely upheld. Similarly, job applicants are handed employment contracts in which they “consent” to have all of their claims against their employer resolved by binding arbitration. If a person can consent to waive her Fourth Amendment right against having her property searched, or her Seventh Amendment right to trial by jury abrogated, there should be no reason why states cannot consent to have their immunity from tort suits waived by freely choosing to have their drivers operate motor vehicles on the highways of another state.

Contracts is another possible area of law that this decision will impact. States regularly enter into contracts of all kinds, and this decision raises the question of whether they will become enforceable only in the home courts of the contracting state. Perhaps counterparties will include neutral forum selection clauses, but states will now have a basis to resist them because this decision will give them an unfair bargaining advantage. Moreover, if consent statutes do not work for tort cases, will consent statutes or even clauses in contracts solve the problem in the contracting area either?

As for stare decisis, my own view is that different circumstances justify applying the doctrine differently. But everyone should agree that, as in this case, the Court – both majority and dissent – should first ask whether the current case can be meaningfully distinguished from the decision asked to be overruled, in which case the battle over stare decisis can await another day.

Dean Alan B. Morrison is the Lerner Family Associate Dean for Public Interest & Public Service Law, George Washington University Law School where he teaches constitutional law and civil procedure.

1. 1. No. 17-1299 (U.S. May 13, 2019).
   2. Brief Amicus Curiae of Alan B. Morrison & Darien Shanske in Support of Neither Party, Franchise Tax Bd. of Cal. v. Hyatt, No. 17-1299.
   3. For Hyatt’s summary of the relevant facts, see the Addendum to the amicus brief cited in note 2, supra.
   4. See J. McIntyre Ltd. v. Nicastro, 564 U.S. 873 (2011); Walden v. Fiore, 571 U.S. 277 (2014).
   5. Franchise Tax Bd., slip op. at 4, 8, 12–13.
   6. Thacker v. Tennessee Valley Authority, No. 17-1201 (U.S. Apr. 29, 2019).
   7. Franchise Tax Bd., slip op. at 1, 6–7, 10, 12–14.
   8. 326 U.S. 310 (1945).
   9. See Hess v. Pawloski, 274 U.S. 352 (1927).
   10. Id. at 354.
   11. Id. at 355.
   12. The California statute relied on in Hall follows the Massachusetts model by relying on appointment, rather than consent, and it also covers owners as well as operators of motor vehicles. 440 U.S. 410, 412 n.1 (1979).

Recommended Citation
Alan B. Morrison, Response, Franchise Tax Board v. Hyatt: An Unnecessary Overruling, Geo. Wash. L. Rev. On the Docket (May 21, 2019), https://www.gwlr.org/franchise-tax-board/.