The U.S. Supreme Court has affirmed Nevada’s exercise of jurisdiction over the California Franchise Tax Board, but limited the damages that could be awarded to the amount which Nevada law would permit in a similar suit against its own agencies.

The case, Franchise Tax Board of California v. Hyatt, has been under litigation for years. In its essence, the case was initially whether Gilbert Hyatt, a tech inventor and entrepreneur, moved from California to Nevada in 1991 or 1992. Hyatt claimed he moved in September 1991, while California claimed he didn’t move until April 1992. At stake was $7.4 million in patent royalties earned during that time. Nevada does not tax personal income.

Hyatt filed suit in Nevada state court seeking damages for California’s alleged abusive audit and investigation practices. A Nevada jury verdict awarded Hyatt almost $500 million in damages and fees.  California appealed, arguing that the Constitution’s Full Faith and Credit Clause required Nevada to limit damages to $50,000, the maximum that Nevada would permit in a similar suit against its own agencies. The Nevada Supreme Court affirmed $1 million of the award and ordered a retrial on another damages issue.

The U.S. Supreme Court was equally divided Tuesday as to whether the case Nevada relied on for jurisdiction over the California Franchise Tax Board should be overruled, and therefore it affirmed the Nevada courts’ exercise of jurisdiction over the California state agency. However, it put a cap on the amount of damages that could be awarded at $50,000.

The second question decided by the court was “whether the constitution permits Nevada to award damages against California agencies under Nevada law that are greater than it could award against Nevada agencies in similar circumstances. We conclude that it does not.”

The court found that Nevada “has applied a special rule of law that evinces a ‘policy of hostility’ toward California. Doing so violates the Constitution’s requirement that ‘Full Faith and Credit shall be given in each State to the public Acts, Records and judicial Proceedings of every other State.’”

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