Individual Income Insights: Law Professors File Amicus Brief in Hyatt Trilogy

The latest development in the epic Franchise Tax Board of California v. Hyatt is that a number of amici curiae have filed briefs with the U.S. Supreme Court. As discussed previously by Bloomberg Tax, the case, which has been ongoing for nearly three decades, asks whether a state can be haled into the court of another state in a lawsuit. The Supreme Court granted certiorari to hear the case on June 28, 2018, and, to date, law professors, the Multistate Tax Commission, 44 states, and former counsel to the Franchise Tax Board in Hyatt I are among those that have chimed in with their two cents on how they think the justices should rule in upcoming Hyatt III.

Eight professors of constitutional law, civil procedure, conflict of laws, and other legal fields filed an amicus brief last week, stating an interest in the “proper development of structural constitutional law, including the doctrine of state sovereign immunity.” The professors offer support for overruling Nevada v. Hall, a longstanding Supreme Court case which allows states to hale non-consenting sister states into their courts. Their argument for overruling Hall comes in two parts: 1) constitutional text, structure, and history support the principle of interstate sovereign immunity; and 2) states cannot abrogate interstate sovereign immunity.

The Constitution’s Text and Structure

The first part of the amicus brief argues that Hall conflicts with constitutional text, structure, and history. The law professors contend that the structure of the Constitution itself gives rise to interstate sovereign immunity. In particular, they note that the Eleventh Amendment would make “little sense” if the founders were to not support interstate sovereign immunity. The Eleventh Amendment says, “[t]he Judicial power of the United States shall not be construed to extend to any suit in law or equity, commenced or prosecuted against one of the United States by Citizens of another State, or by Citizens or Subject of any Foreign State.” While the Eleventh Amendment has a narrow scope, the law professors argue that this is because it was merely to correct or clarify the law following the Supreme Court’s 1792 decision in Chisholm v. Georgia. In that case a South Carolina citizen was allowed to sue the state of Georgia in federal court. The justices ruled in a 4-1 decision that the Constitution abrogated the states’ sovereign immunity and granted federal courts power to hear disputes between citizens and states.

Further, in calling for the overruling of Hall, the law professors argue that, “it would be illogical for immunity principles to protect” states from suit in federal courts and in their own courts but not in sister-state courts, which are “most likely to exhibit hostility toward their interests.” The law professors note that the framers recognized the principle of interstate sovereign immunity and understood that there could not be “unconsented in personam suits against states in the courts of other states.”

Forum States Cannot Abrogate Interstate Sovereign Immunity

In the second part of the brief, the law professors contend that forum states cannot abrogate interstate sovereign immunity. The law professors dispute such an argument made recently by University of Chicago Law School Professor William Baude. Baude argued that while one state may nullify the sovereign immunity of another, a state could decline to appear in another state’s court and then argue that the resulting default judgment is unenforceable. But the professors dispute that 1) the Constitution preserves interstate sovereign immunity and prohibits from abrogating the immunity of sister-states; and 2) that Baude fails to seriously address the argument that Article III’s “provision for state/citizen diversity and the original jurisdiction of the Supreme Court in state-as-party cases meant that any aboriginal power in the state courts to hold each other involuntarily liable to individuals’ suits had been ceded to the federal courts.” Moreover, merely arguing over default judgments is insufficient because sovereign immunity is “‘effectively lost if a case is erroneously permitted to go to trial.’” Sovereign immunity is more than “a mere defense to liability,” rather it is the immunity from lawsuits.

In sum, the law professors interpret that sovereign immunity is a fundamental aspect of sovereignty that states enjoyed even before the ratification of the Constitution. Whether states are indeed inherently more like independent countries rather than counties or districts as the professors proffer, at least there is no real danger of state secession anytime soon. Stay tuned for a look at the Multistate Tax Commission’s amicus brief next as we continue to follow the Hyatt trilogy.

Continue the discussion on Bloomberg Tax’s State Tax Group on LinkedIn: Does the U.S. Constitution provide that state sovereignty includes protection from being sued by private citizens?

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