OCTOBER TERM, 2002
Syllabus
FRANCHISE TAX BOARD OF CALIFORNIA
v. HYATT ETAL.
CERTIORARI TO THE SUPREME COURT OF NEVADA No. 02-42. Argued
February 24, 2003-Decided April 23, 2003
Respondent Hyatt's (hereinafter respondent) "part-year" 1991
California income-tax return represented that he had ceased to be a
California resident and had become a Nevada resident in October
1991, shortly before he received substantial licensing fees.
Petitioner California Franchise Tax Board (CFTB) determined that he
was a California resident until April 1992, and accordingly issued
notices of proposed assessments for 1991 and 1992 and imposed
substantial civil fraud penalties. Respondent filed suit against
CFTB in a Nevada state court, alleging that CFTB had directed
numerous contacts at Nevada and had committed negligence and
intentional torts during the course of its audit of respondent. In
its motion for summary judgment or dismissal, CFTB argued that the
state court lacked subject matter jurisdiction because full faith
and credit and other legal principles required that the court apply
California law immunizing CFTB from suit. Upon denial of that
motion, CFTB petitioned the Nevada Supreme Court for a writ of
mandamus ordering dismissal. The latter court ultimately granted
the petition in part and denied it in part, holding that the lower
court should have declined to exercise its jurisdiction over the
underlying negligence claim under comity principles, but that the
intentional tort claims could proceed to trial. Among other things,
the court noted that Nevada immunizes its state agencies from suits
for discretionary acts but not for intentional torts committed
within the course and scope of employment and held that affording
CFTB statutory immunity with respect to intentional torts would
contravene Nevada's interest in protecting its citizens from
injurious intentional torts and bad faith acts committed by sister
States' government employees.
Held: The Full Faith and Credit Clause, U. S. Const.,
Art. IV, § 1, does not require Nevada to give full faith and credit
to California's statutes providing its tax agency with immunity
from suit. The full faith and credit command "is exacting" with
respect to a final judgment rendered by a court with adjudicatory
authority over the subject matter and persons governed by the
judgment,
Baker v.
General Motors Corp., 522 U. S.
222, 233, but is less demanding with respect to choice of laws. The
Clause does not compel a State to substitute the statutes of other
States for its own statutes dealing with a subject matter
concerning which it
489
is competent to legislate.
E. g., Sun Oil Co. v.
Wortman, 486
U. S. 717, 722. Nevada is undoubtedly competent to legislate
with respect to the subject matter of the alleged intentional torts
here, which, it is claimed, have injured one of its citizens within
its borders. CFTB argues unpersuasively that this Court should
adopt a "new rule" mandating that a state court extend full faith
and credit to a sister State's statutorily recaptured sovereign
immunity from suit when a refusal to do so would interfere with the
State's capacity to fulfill its own sovereign responsibilities. The
Court has, in the past, appraised and balanced state interests when
invoking the Full Faith and Credit Clause to resolve conflicts
between overlapping laws of coordinate States. See,
e. g.,
Bradford Elec. Light Co. v.
Clapper, 286 U. S. 145. However,
this balancing-ofinterests approach quickly proved unsatisfactory
and the Court abandoned it,
Allstate Ins. Co. v.
Hague, 449 U.
S. 302, 308, n. 10, 322, n. 6, 339, n. 6, recognizing, instead,
that it is frequently the case under the Clause that a court can
lawfully apply either the law of one State or the contrary law of
another,
Sun Oil Co. v.
Wortman, supra, at 727. The
Court has already ruled that the Full Faith and Credit Clause does
not require a forum State to apply a sister State's sovereign
immunity statutes where such application would violate the forum
State's own legitimate public policy.
Nevada v.
Hall,
440 U. S. 410,
424. There is no constitutionally significant distinction between
the degree to which the allegedly tortious acts here and in
Hall are related to a core sovereign function. States'
sovereignty interests are not foreign to the full faith and credit
command, but the Court is not presented here with a case in which a
State has exhibited a "policy of hostility to the public Acts" of a
sister State.
Carroll v.
Lanza, 349 U. S. 408,413. The
Nevada Supreme Court sensitively applied comity principles with a
healthy regard for California's sovereign status, relying on the
contours of Nevada's own sovereign immunity from suit as a
benchmark for its analysis. Pp.494-499.
Affirmed.
O'CONNOR, J., delivered the opinion for a unanimous Court.
Felix E. Leatherwood, Deputy Attorney General of
California, argued the cause for petitioner. With him on the briefs
were
Bill Lockyer, Attorney General,
Manuel M.
Medeiros, State Solicitor,
David S.
Chaney,
Senior Assistant Attorney General, and
William Dean Freeman,
Lead Supervising Deputy Attorney General.
490
H. Bartow Farr III argued the cause for respondents.
With him on the brief were
Peter C.
Bernhard and
Donald J. Kula.*
JUSTICE O'CONNOR delivered the opinion of the Court. We granted
certiorari to resolve whether the Nevada Supreme Court's refusal to
extend full faith and credit to California's statute immunizing its
tax collection agency from suit violates Article IV; § 1, of the
Constitution. We conclude it does not, and we therefore affirm the
judgment of the Nevada Supreme Court.
I
Respondent Gilbert P. Hyatt (hereinafter respondent) filed a
"part-year" resident income tax return in California for 1991. App.
to Pet. for Cert. 54. In the return, respondent represented that as
of October 1, 1991, he had ceased to be a California resident and
had become a resident of Nevada. In 1993, petitioner California
Franchise Tax Board (CFTB) commenced an audit to determine whether
respondent had underpaid state income taxes.
Ibid. The audit
focused on
*Eriefs of
amici curiae urging reversal were filed for
the State of Florida et al. by
Richard E. Dornan, Attorney
General of Florida,
Jonathan A. Glogau, Barbara J.
Ritchie, Acting Attorney General of Alaska, and
Thomas R.
Keller, Acting Attorney General of Hawaii, and by the Attorneys
General for their respective jurisdictions as follows:
Ken
Salazar of Colorado,
Richard Blumenthal of Connecticut,
M. Jane Brady of Delaware,
James E. Ryan of Illinois,
Steve Carter of Indiana, G.
Steven Rowe of Maine,
J. Joseph Curran, Jr., of Maryland,
Jennifer M.
Granholm of Michigan,
Mike Moore of Mississippi,
Mike
McGrath of Montana,
Wayne Stenehjem of North Dakota,
Betty D. Montgomery of Ohio,
Anabelle Rodriguez of
Puerto Rico,
Mark L. Shurtleff of Utah,
William H.
Sorrell of Vermont,
Jerry W Kilgore of Virginia, and
Darrell V. McGraw, Jr., of West Virginia; for the Multistate
Tax Commission by
Frank D. Katz; and for the National
Governors Association et al. by
Richard Ruda and
James
Sharon L. Browne filed a brief for the Pacific Legal
Foundation as
amicus curiae urging affirmance.
491
respondent's claim that he had changed residency shortly before
receiving substantial licensing fees for certain patented
inventions related to computer technology.
At the conclusion of its audit, CFTB determined that respondent
was a California resident until April 3, 1992, and accordingly
issued notices of proposed assessments for income taxes for 1991
and 1992 and imposed substantial civil fraud penalties.
Id.,
at 56-57, 58-59. Respondent protested the proposed assessments and
penalties in California through CFTB's administrative process. See
Cal. Rev. & Tax. Code Ann. §§ 19041, 19044-19046 (West
1994).
On January 6, 1998, with the administrative protest ongoing in
California, respondent filed a lawsuit against CFTB in Nevada in
Clark County District Court. Respondent alleges that CFTB directed
"numerous and continuous contacts ... at Nevada" and committed
several torts during the course of the audit, including invasion of
privacy, outrageous conduct, abuse of process, fraud, and negligent
misrepresentation. App. to Pet. for Cert. 51-52, 54. Respondent
seeks punitive and compensatory damages.
Id., at 51-52. He
also sought a declaratory judgment "confirm[ing] [his] status as a
Nevada resident effective as of September 26, 1991,"
id., at
51, but the District Court dismissed the claim for lack of subject
matter jurisdiction on April 16, 1999, App. 93-95.
During the discovery phase of the Nevada lawsuit, CFTB filed a
petition in the Nevada Supreme Court for a writ of mandamus, or in
the alternative, for a writ of prohibition, challenging certain of
the District Court's discovery orders. While that petition was
pending, CFTB filed a motion in the District Court for summary
judgment or, in the alternative, for dismissal for lack of
jurisdiction. CFTB argued that the District Court lacked subject
matter jurisdiction because principles of sovereign immunity, full
faith and credit, choice of law, comity, and administrative
exhaustion all required that the District Court apply California
law, under which:
492
"Neither a public entity nor a public employee is liable for an
injury caused by:
"(a) Instituting any judicial or administrative proceeding or
action for or incidental to the assessment or collection of a tax
[or]
"(b) An act or omission in the interpretation or application of
any law relating to a tax." Cal. Govt. Code Ann. § 860.2 (West
1995).
The District Court denied CFTB's motion for summary judgment or
dismissal, prompting CFTB to file a second petition in the Nevada
Supreme Court. This petition sought a writ of mandamus ordering the
dismissal of the case, or in the alternative, a writ of prohibition
and mandamus limiting the scope of the suit to claims arising out
of conduct that occurred in Nevada.
On June 13, 2001, the Nevada Supreme Court granted CFTB's second
petition, dismissed the first petition as moot, and ordered the
District Court to enter summary judgment in favor of CFTB. App. to
Pet. for Cert. 38-43. On April 4, 2002, however, the court granted
respondent's petition for rehearing, vacated its prior ruling,
granted CFTB's second petition in part, and denied it in part.
Id., at 5-18. The court held that the District Court "should
have declined to exercise its jurisdiction over the underlying
negligence claim under comity principles" but that the intentional
tort claims could proceed to trial.
Id., at 7.
The Nevada Supreme Court noted that both Nevada and California
have generally waived their sovereign immunity from suit in state
court and "have extended the waivers to their state agencies or
public employees except when state statutes expressly provide
immunity."
Id., at 9-10 (citing Nev. Rev. Stat. § 41.031
(1996); Cal. Const., Art. 3, § 5; and Cal. Govt. Code Ann. § 820
(West 1995)). Whereas Nevada has not conferred immunity on its
state agencies for intentional torts committed within the course
and scope of
493
employment, the court acknowledged that "California has
expressly provided [CFTB] with complete immunity." App. to Pet. for
Cert. 10 (citing Cal. Govt. Code Ann. § 860.2 (West 1995) and
Mitchell v.
Franchise Tax Board, 183 Cal. App. 3d
1133, 228 Cal. Rptr. 750 (1986)). To determine which State's law
should apply, the court applied principles of comity.
Though the Nevada Supreme Court recognized the doctrine of
comity as "an accommodation policy, under which the courts of one
state voluntarily give effect to the laws and judicial decisions of
another state out of deference and respect, to promote harmonious
interstate relations," the court also recognized its duty to
determine whether the application of California law "would
contravene Nevada's policies or interests," giving "due regard to
the duties, obligations, rights and convenience of Nevada's
citizens." App. to Pet. for Cert. 11. "An investigation is
generally considered to be a discretionary function," the court
observed, "and Nevada provides its [own] agencies with immunity for
the performance of a discretionary function even if the discretion
is abused."
Id., at 12. "[A]ffording [CFTB] statutory
immunity for negligent acts," the court therefore concluded, "does
not contravene any Nevada interest in this case."
Ibid. The
court accordingly held that "the district court should have
declined to exercise its jurisdiction" over respondent's negligence
claim under principles of comity.
Id., at 7. With respect to
the intentional torts, however, the court held that "affording
[CFTB] statutory immunity ... does contravene Nevada's policies and
interests in this case."
Id., at 12. Because Nevada "does
not allow its agencies to claim immunity for discretionary acts
taken in bad faith, or for intentional torts committed in the
course and scope of employment," the court held that "Nevada's
interest in protecting its citizens from injurious intentional
torts and bad faith acts committed by sister states' government
employees" should be accorded
494
greater weight "than California's policy favoring complete
immunity for its taxation agency."
Id., at 12-13.
We granted certiorari to resolve whether Article IV, § 1, of the
Constitution requires Nevada to give full faith and credit to
California's statute providing its tax agency with immunity from
suit, 537 U. S. 946 (2002), and we now affirm.
II
The Constitution's Full Faith and Credit Clause provides:
"Full Faith and Credit shall be given in each State to the
public Acts, Records, and judicial Proceedings of every other
State. And the Congress may by general Laws prescribe the Manner in
which such Acts, Records and Proceedings shall be proved, and the
Effect thereof." Art. IV, § 1. As we have explained, "[o]ur
precedent differentiates the credit owed to laws (legislative
measures and common law) and to judgments."
Baker v.
General Motors Corp., 522 U. S. 222, 232
(1998). Whereas the full faith and credit command "is exacting"
with respect to "[a] final judgment ... rendered by a court with
adjudicatory authority over the subject matter and persons governed
by the judgment,"
id., at 233, it is less demanding with
respect to choice of laws. We have held that the Full Faith and
Credit Clause does not compel " 'a state to substitute the statutes
of other states for its own statutes dealing with a subject matter
concerning which it is competent to legislate.'"
Sun Oil Co.
v.
Wortman, 486 U. S. 717, 722 (1988) (quoting
Pacific
Employers Ins. Co. v.
Industrial Accident Comm'n,
306 U. S. 493,
501 (1939)).
The State of Nevada is undoubtedly "competent to legislate" with
respect to the subject matter of the alleged intentional torts
here, which, it is claimed, have injured one of its citizens within
its borders. "'[F]or a State's substantive law to be selected in a
constitutionally permissible manner, that State must have a
significant contact or significant aggregation of contacts,
creating state interests, such that choice of its law is neither
arbitrary nor fundamentally un-
495
fair.'"
Phillips Petroleum Co. v.
Shutts, 472 U. S. 797, 818 (1985)
(quoting
Allstate Ins. Co. v.
Hague, 449 U. S. 302, 312313
(1981) (plurality opinion)); see 472 U. S., at 822-823. Such
contacts are manifest in this case: the plaintiff claims to have
suffered injury in Nevada while a resident there; and it is
undisputed that at least some of the conduct alleged to be tortious
occurred in Nevada, Brief for Petitioner 33-34, n. 16. See,
e.
g., Carroll v.
Lanza, 349 U. S. 408, 413 (1955)
("The State where the tort occurs certainly has a concern in the
problems following in the wake of the injury");
Pacific
Employers Ins. Co. v.
Industrial Accident Comm'n, supra,
at 503 ("Few matters could be deemed more appropriately the concern
of the state in which [an] injury occurs or more completely within
its power").
CFTB does not contend otherwise. Instead, CFTB urges this Court
to adopt a "new rule" mandating that a state court extend full
faith and credit to a sister State's statutorily recaptured
sovereign immunity from suit when a refusal to do so would
"interfer[e] with a State's capacity to fulfill its own sovereign
responsibilities." Brief for Petitioner 13 (internal quotation
marks omitted).
We have, in the past, appraised and balanced state interests
when invoking the Full Faith and Credit Clause to resolve conflicts
between overlapping laws of coordinate States. See
Bradford
Elec. Light Co. v.
Clapper, 286 U. S. 145 (1932)
(holding that the Constitution required a federal court sitting in
New Hampshire to apply a Vermont workers' compensation statute in a
tort suit brought by the administrator of a Vermont worker killed
in New Hampshire). This balancing approach quickly proved
unsatisfactory. Compare
Alaska Packers Assn. v.
Industrial Accident Comm'n of Cal., 294 U. S. 532, 550 (1935)
(holding that a forum State, which was the place of hiring but not
of a claimant's domicile, could apply its own law to compensate for
an accident in another State, because "[n]o persuasive reason" was
shown for requiring application of the law of the State where
the
496
accident occurred), with
Pacific Employers Ins. Co. v.
Industrial Accident Comm'n, supra, at 504-505 (holding that
the State where an accident occurred could apply its own workers'
compensation law and need not give full faith and credit to that of
the State of hiring and domicile of the employer and employee). As
Justice Robert H. Jackson, recounting these cases, aptly observed,
"it [is] difficult to point to any field in which the Court has
more completely demonstrated or more candidly confessed the lack of
guiding standards of a legal character than in trying to determine
what choice of law is required by the Constitution." Full Faith and
Credit-The Lawyer's Clause of the Constitution, 45 Colum. L. Rev.
1, 16 (1945).
In light of this experience, we abandoned the
balancingof-interests approach to conflicts of law under the Full
Faith and Credit Clause.
Allstate Ins. Co. v.
Hague,
449 U. S., at 308, n. 10 (plurality opinion);
id., at 322,
n. 6 (STEVENS, J., concurring in judgment);
id., at 339, n.
6 (Powell, J., dissenting). We have recognized, instead, that "it
is frequently the case under the Full Faith and Credit Clause that
a court can lawfully apply either the law of one State or the
contrary law of another."
Sun Oil Co. v.
Wortman,
supra, at 727. We thus have held that a State need not
"substitute the statutes of other states for its own statutes
dealing with a subject matter concerning which it is competent to
legislate."
Pacific Employers Ins. Co. v.
Industrial
Accident Comm'n, supra, at 501; see
Baker v.
General
Motors Corp., supra, at
232; Sun Oil Co. v.
Wortman,
supra, at 722;
Phillips Petroleum Co. v.
Shutts,
supra, at 818-819. Acknowledging this shift, CFTB contends that
this case demonstrates the need for a new rule under the Full Faith
and Credit Clause that will protect "core sovereignty" interests as
expressed in state statutes delineating the contours of the State's
immunity from suit. Brief for Petitioner 13.
We disagree. We have confronted the question whether the Full
Faith and Credit Clause requires a forum State to
497
recognize a sister State's legislatively recaptured immunity
once before. In
Nevada v.
Hall, 440 U. S. 410 (1979), an
employee of the University of Nevada was involved in an automobile
accident with California residents, who filed suit in California
and named Nevada as a defendant. The California courts refused to
apply a Nevada statute that capped damages in tort suits against
the State on the ground that "to surrender jurisdiction or to limit
respondents' recovery to the $25,000 maximum of the Nevada statute
would be obnoxious to its statutorily based policies of
jurisdiction over nonresident motorists and full recovery."
Id., at 424.
We affirmed, holding, first, that the Constitution does not
confer sovereign immunity on States in the courts of sister States.
Id., at 414-421. Petitioner does not ask us to reexamine
that ruling, and we therefore decline the invitation of
petitioner's
amici States, see Brief for State of Florida et
al. as
Amici Curiae 2, to do so. See this Court's Rule
14.1(a);
Mazer v.
Stein, 347 U. S. 201, 206, n. 5
(1954) ("We do not reach for constitutional questions not raised by
the parties").
The question presented here instead implicates
Hall's
second holding: that the Full Faith and Credit Clause did not
require California to apply Nevada's sovereign immunity statutes
where such application would violate California's own legitimate
public policy. 440 U. S., at 424. The Court observed in a
footnote:
"California's exercise of jurisdiction in this case poses no
substantial threat to our constitutional system of cooperative
federalism. Suits involving traffic accidents occurring outside of
Nevada could hardly interfere with Nevada's capacity to fulfill its
own sovereign responsibilities. We have no occasion, in this case,
to consider whether different state policies, either of California
or of Nevada, might require a different analysis or a different
result." Id., at 424, n. 24.
498
CFTB asserts that an analysis of this lawsuit's effects should
lead to a different result: that the Full Faith and Credit Clause
requires Nevada to apply California's immunity statute to avoid
interference with California's "sovereign responsibility" of
enforcing its income tax laws. Brief for Petitioner 13.
Our past experience with appraising and balancing state
interests under the Full Faith and Credit Clause counsels against
adopting CFTB's proposed new rule. Having recognized, in
Hall, that a suit against a State in a sister State's court
"necessarily implicates the power and authority" of both
sovereigns, 440 U. S., at 416, the question of which sovereign
interest should be deemed more weighty is not one that can be
easily answered. Yet petitioner's rule would elevate California's
sovereignty interests above those of Nevada, were we to deem this
lawsuit an interference with California's "core sovereign
responsibilities." We rejected as "unsound in principle and
unworkable in practice" a rule of state immunity from federal
regulation under the Tenth Amendment that turned on whether a
particular state government function was "integral" or
"traditional."
Garcia v.
San Antonio Metropolitan Transit
Authority, 469 U.
S. 528, 546-547 (1985). CFTB has convinced us of neither the
relative soundness nor the relative practicality of adopting a
similar distinction here.
Even were we inclined to embark on a course of balancing States'
competing sovereign interests to resolve conflicts of laws under
the Full Faith and Credit Clause, this case would not present the
occasion to do so. There is no principled distinction between
Nevada's interests in tort claims arising out of its university
employee's automobile accident, at issue in
Hall, and
California's interests in the tort claims here arising out of its
tax collection agency's residency audit. To be sure, the power to
promulgate and enforce income tax laws is an essential attribute of
sovereignty. See
Franchise Tax Bd. of Gal. v.
Postal
Service, 467 U.
S. 512, 523 (1984)
499
(" '[T]axes are the life-blood of government'" (quoting
Bull v.
United States, 295 U. S. 247, 259-260
(1935))). But the university employee's educational mission in
Hall might also be so described. Cf.
Brown v.
Board of Education, 347 U. S. 483, 493 (1954)
("[E]ducation is perhaps the most important function of state and
local governments").
If we were to compare the degree to which the allegedly tortious
acts here and in
Hall are related to a core sovereign
function, we would be left to ponder the relationship between an
automobile accident and educating, on one hand, and the intrusions
alleged here and collecting taxes, on the other. We discern no
constitutionally significant distinction between these
relationships. To the extent CFTB complains of the burdens and
expense of out-of-state litigation, and the diversion of state
resources away from the performance of important state functions,
those burdens do not distinguish this case from any other
out-of-state lawsuit against California or one of its agencies.
States' sovereignty interests are not foreign to the full faith
and credit command. But we are not presented here with a case in
which a State has exhibited a "policy of hostility to the public
Acts" of a sister State.
Carroll v.
Lanza, 349 U. S.,
at 413. The Nevada Supreme Court sensitively applied principles of
comity with a healthy regard for California's sovereign status,
relying on the contours of Nevada's own sovereign immunity from
suit as a benchmark for its analysis. See App. to Pet. for Cert.
10-13.
In short, we heed the lessons learned as a result of
Bradford
Elec. Light Co. v.
Clapper, 286 U. S. 145 (1932), and
its progeny. Without a rudder to steer us, we decline to embark on
the constitutional course of balancing coordinate States' competing
sovereign interests to resolve conflicts of laws under the Full
Faith and Credit Clause.
The judgment of the Nevada Supreme Court is affirmed.
It is so ordered.
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