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By Nicholas Datlowe
Dec. 7 — The U.S. Supreme Court wrestled with thorny questions of state sovereignty, and what the states actually did when they ratified the U.S. Constitution, during oral argument Dec. 7.
At issue in the case is whether instrumentalities of a nonconsenting state may be haled into the courts of another state and, if they may, to what sovereign immunities they are entitled.
The question turns, in part, on what sovereign powers the states possessed at the founding, and which they gave up to the federal government in the Constitution.
The states entered the union saddled with war debts and wouldn't have given up their sovereign immunity if it meant they “could be haled into court by individual citizens without their consent in order to secure potentially bankrupting judgments,” Paul D. Clement, of Bancroft PLLC, Washington, argued. Clement represented the Franchise Tax Board of California, the state's income tax collection authority.
H. Bartow Farr of Washington, representing Nevada resident Gilbert Hyatt, countered that the Supreme Court recognized in Nevada v. Hall, 440 U.S. 410 (1979), that “after the formation of the union, the states retained a great deal of their essential sovereign attributes, and that it was fundamentally inconsistent with those sovereign attributes for another state to declare itself immune as of right from its jurisdiction.”
Hyatt sued the FTB in Nevada for several state torts, arguing that they had gone “well beyond legitimate bounds in their attempts to extract a tax settlement” relating to income tax allegedly owed on patent licensing fees earned while Hyatt was still a California resident.
A case turning on the contours of state sovereignty as it was understood more than 200 years ago was never going to be easy.
“What decision would the states have made” if faced with this situation? Farr asked. “The answer is we really don't know. They weren't faced with that.”
Justice Elena Kagan called it “a very hard case, straight up.”
But “it's not straight up,” she said, because the FTB is asking that the court overrule Hall. That requires “special justification,” Kagan said.
On the other hand, Justice Anthony M. Kennedy, whom constitutional scholar Stephen I. Vladeck suggested could be the potential deciding vote in the case (84 U.S.L.W. 727, 12/1/15), did not seem to agree with Farr's suggestion that states could negotiate among themselves how they would apply sovereign immunity.
“Do you say we're just going to throw the states back on themselves, all the states negotiate with each other? That's not part of our constitutional tradition at all,” he said.
The current law surrounding state sovereign immunity “create[s] one anomaly after another,” Clement argued.
For example, a citizen of a state can't sue another state in a federal court under the 11th Amendment, nor can he sue that state in its own courts without its consent. But under Hall, he can sue that state “in the least neutral court available,” his home state.
“That doesn't make any sense,” Clement said.
He also noted that one potential solution for a noncitizen harmed by another state would be to sue an officer of that state in an individual capacity. That individual would be able to remove the suit to federal court.
Here, however, the 11th Amendment prevented the removal of the case to federal court.
“My goodness,” he said. “You have now converted the 11th Amendment, clearly designed to enhance the sovereignty of the states, into what Chief Justice [William J.] Rehnquist called in Hall an ‘albatross' around their neck, that they are the one party that is least favored, even compared to an ordinary litigant,” he said.
“That can't be right,” he added.
“What's bothering me is I really don't see how Nevada can say, we're going to give immunity to our own state but we won't accept California's similar immunity,” Justice Stephen G. Breyer said.
Although he called that argument “intuitive,” the legal basis for that intuitive understanding seemed less clear. “That's what's bothering me, and I'd like a theory,” he said.
Clement argued that the full faith and credit clause provided the principle that states had the same protections as citizens were provided by the privileges and immunities clause.
Although the protection wasn't express, he suggested that the states, “because of age-old sovereign immunity principles,” wouldn't have felt the need to protect the sovereign they way they did the citizen.
Farr responded that under the full faith and credit clause, the only constitutional requirement for Nevada to apply its own law of sovereign immunity is that it be “competent to legislate with respect to the torts at issue.”
There was no additional requirement that the forum state show a public policy that would be offended by application of the other state's sovereign immunity law, as Breyer's hypothetical suggested, he said.
Clement also argued that the states entered the union and enacted the 11th Amendment specifically to preserve their sovereign immunity.
In particular, the 11th Amendment was a reaction to the holding of Chisholm v. Georgia, 2 U.S. 419 (1793), that an individual could sue a state in federal court, he said.
But “there's one significant difference there,” Kagan said. “States are on a par with each other. So there's a kind of mutuality. So if one state does something to you that you don't like, you can turn around and do it to them.”
Clement noted that states actually gave up many of those tools—including the power to wage war and impose trade sanctions—when they joined the union.
Kennedy provided a second argument for Clement: “Is there anything in our jurisprudence or our constitutional tradition” that says “states can protect each other by retaliating against each other?”
The framers “weren't trying to adopt a union where there would be signs on state borders that say, if you come in here, you thereby waive any sovereign immunity,” Clement said. “There is no way they would have sacrificed their sovereign immunity, which was the key protection for those war debts not being used against them to bankrupt them.”
Justice Sonia Sotomayor said that this would create a system where no noncitizen of a state could ever sue it for “whatever bad acts they've had.”
Clement responded that the noncitizen could always sue the visiting state in that state's courts, if there was a waiver of sovereign immunity.
Sotomayor also asked why Clement thought the states had given up their right to hale each other into their own courts, since “it's not in the Constitution.”
“I don't think they actually gave anything up,” Clement responded. “That is a right that didn't exist at the founding.”
“And that's what Hall said didn't exist,” Justice Ruth Bader Ginsburg said. Hall decided that “when another state is in the picture, equally sovereign, then both of them are sovereign and neither has to respect the sovereign immunity of the other,” she said.
Clement called this “sovereign immunity as of comity”—meaning that it was immunity other sovereigns should, rather than must, accept—but that “just as with every other sovereign immunity principle” it became obligatory as between the states at the framing of the Constitution.
Farr countered that this position failed to recognize “that there are two sovereign interests at stake here,” and that Nevada's interests in protecting its citizens provided a policy justification.
Justice Antonin Scalia, quoting from Justice Charles Evans Hughes, said that there was “an assumption behind the 11th Amendment that the states cannot be sued without their consent.” Why did this “postulate” apply only in federal courts, not state courts?
“To be blunt about it, there is no such postulate,” Farr responded.
“If sovereign immunity is what the Board says it was or is,” then “the entire international world is operating on an incorrect premise,” Farr said, noting cases where foreign sovereigns are haled into federal courts based on commercial activities for torts without their consent.
“You seem to be arguing that no matter how hostile one state is to another there would be no requirement for equal treatment,” Justice Samuel A. Alito Jr. said. “That argument seems to point to the need to overrule Nevada v. Hall,” he added.
“Equal treatment is not a universal value,” Farr responded, noting that the U.S. is immune from battery and assault suits in its own courts, while foreign sovereigns are not.
“But nobody suggests that that's inappropriate because these are all comity based,” he said.
“Ultimately, sovereigns can serve their own interests if they're willing to accept the possibility that other sovereigns will do that as well.”
This is not the first time Nevada and California have squared off against each other on issues of state sovereignty.
In an earlier iteration of this case, Franchise Tax Bd. of Cal. v. Hyatt, 538 U.S. 488 (2003), the Supreme Court decided that the FTB was not entitled to the same sovereign immunity in Nevada courts as it would be afforded in a California court.
And, Hall itself was a suit between a California resident and Nevada. Ginsburg noted that “there is a certain irony” that in that case California sought—and won—the right to hale Nevada into its courts.
“So is California now saying they were wrong in the argument that they made?” Ginsburg asked.
“I think it is fair to say that there is some buyer's remorse,” Clement said.
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