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FED Resource 2F Federalism & the Supreme Court: Readings Full Faith and Credit: California Franchise Tax Board v. Hyatt Facts of the Case: Gilbert Hyatt filed a part-year resident income-tax return in California for 1991, which represented that he had become a Nevada resident in October 1991, shortly before he received substantial licensing fees. The California Franchise Tax Board (CFTB) determined that Hyatt was a California resident until April 1992 and issued notices of proposed assessments and imposed substantial civil fraud penalties. Hyatt filed suit against CFTB in a Nevada state court, alleging that CFTB had committed negligence and intentional torts during the course of its audit. CFTB argued that the state court lacked subject matter jurisdiction because full faith and credit required that the court apply California law immunizing CFTB from suit. Ultimately, the Nevada Supreme Court allowed the intentional tort claims to proceed to trial. The court 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. Question: Does the Nevada Supreme Court's refusal to extend full faith and credit to California's statute immunizing its tax collection agency from suit violate the Full Faith and Credit Clause of the Constitution? Conclusion: No. In a unanimous opinion delivered by Justice Sandra Day O'Connor, the court held that the Full Faith and Credit Clause does not require Nevada to give full faith and credit to California's statutes providing its tax agency with immunity from suit. Noting that Nevada did not grant immunity to its agencies for intentional torts, the Court reasoned that Nevada's interest in redressing intentional tortious conduct was sufficient to decline to accord full faith and credit to California's immunity of its tax agency to bar intentional tort claims. Accordingly, the Court refused 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 interfere with the State's capacity to fulfill its own sovereign responsibilities. The Oyez Project, California Franchise Tax Board v. Hyatt , 538 U.S. 488 (2003) available at: (http://oyez.org/cases/2000-2009/2002/2002_02_42) (last visited Tuesday, July 7, 2009). FED Resource 2F Commerce Clause: Gibbons v. Ogden Facts of the Case: A New York state law gave two individuals the exclusive right to operate steamboats on waters within state jurisdiction. Laws like this one were duplicated elsewhere which led to friction as some states would require foreign (out-of-state) boats to pay substantial fees for navigation privileges. In this case a steamboat owner who did business between New York and New Jersey challenged the monopoly that New York had granted, which forced him to obtain a special operating permit from the state to navigate on its waters. Question: Did the State of New York exercise authority in a realm reserved exclusively to Congress, namely, the regulation of interstate commerce? Conclusion: The Court found that New York's licensing requirement for out-of-state operators was inconsistent with a congressional act regulating the coasting trade. The New York law was invalid by virtue of the Supremacy Clause. In his opinion, Chief Justice Marshall developed a clear definition of the word commerce, which included navigation on interstate waterways. He also gave meaning to the phrase "among the several states" in the Commerce Clause. Marshall's was one of the earliest and most influential opinions concerning this important clause. He concluded that regulation of navigation by steamboat operators and others for purposes of conducting interstate commerce was a power reserved to and exercised by the Congress. The Oyez Project, Gibbons v. Ogden , 22 U.S. 1 (1824) available at: (http://oyez.org/cases/1792-1850/1824/1824_0) (last visited Tuesday, July 7, 2009). FED Resource 2F 10th Amendment: Missouri v. Jenkins Facts of the Case: In order to combat segregation in public schools in compliance with court directives, the Kansas City, Missouri School District (KCMSD) sought to enhance the quality of schools and to attract more white students from the suburbs. The KCMSD's ability to raise taxes, however, was limited by state law. After determining that the District did not have alternative means of raising revenue for the program, federal district judge Russell G. Clark ordered an increase of local property taxes for the 1991-92 fiscal year. The U.S. Court of Appeals for the Eighth Circuit affirmed the decision, but ruled that the courts should enjoin [forbid] state tax laws that prevented the District from raising the necessary funds and allow the state to set tax rates. Question: Did the court order to increase property taxes violate Article III, the Tenth Amendment, or principles of federal/state comity? Conclusion: The Court held that the District Court "abused its discretion" by imposing a specific tax increase. The Court also held, however, that the modifications of the District Court's order made by the Court of Appeals satisfied "equitable and constitutional principles governing the District Court's power...." The majority found that court orders directing local governments to levy their own taxes were "plainly" judicial acts within the powers of federal courts [emphasis added]. When a constitutional justification existed, courts had the authority to order tax increases despite statutory limitations. The Court reasoned that "[t]o hold otherwise would fail to take account of the obligations of local governments, under the Supremacy Clause, to fulfill the requirements that the Constitution imposes on them [it is within the power of the federal courts to order local governments to levy taxes when doing so allows the local government to fulfill federal requirements]." The Oyez Project, Missouri v. Jenkins , 495 U.S. 33 (1990) available at: (http://oyez.org/cases/1980-1989/1989/1989_88_1150) (last visited Tuesday, July 7, 2009). FED Resource 2F Necessary and Proper Clause: McCulloch v. Maryland Facts of the Case: In 1816, Congress chartered The Second Bank of the United States. In 1818, the state of Maryland passed legislation to impose taxes on the bank. James W. McCulloch, the cashier of the Baltimore branch of the bank, refused to pay the tax. Question: The case presented two questions: Did Congress have the authority to establish the bank? Did the Maryland law unconstitutionally interfere with congressional powers? Conclusion: In a unanimous decision, the Court held that Congress had the power to incorporate the bank and that Maryland could not tax instruments of the national government employed in the execution of constitutional powers. Writing for the Court, Chief Justice Marshall noted that Congress possessed unenumerated powers not explicitly outlined in the Constitution. Marshall also held that while the states retained the power of taxation, "the constitution and the laws made in pursuance thereof are supreme. . .they control the constitution and laws of the respective states, and cannot be controlled by them." The Oyez Project, McCulloch v. Maryland , 17 U.S. 316 (1819) available at: (http://oyez.org/cases/1792-1850/1819/1819_0) (last visited Tuesday, July 7, 2009). FED Resource 2F Supremacy Clause: Pennsylvania v. Nelson Facts of the Case: Nelson, a member of the Communist Party, was convicted of violating the Pennsylvania Sedition Act. This Act was implemented prior to Congress's adoption of the Smith Act of 1940 (amended in 1948) which prohibited the same conduct as Pennsylvania's law. Question: Did the Smith Act supersede enforcement of Pennsylvania's sedition law? Conclusion: Yes. The Court held that Pennsylvania's law was unenforceable and was superseded by the federal act. Chief Justice Warren argued that the scheme of federal regulation of seditious activities was "pervasive" and "left no room for the states to supplement it." Furthermore, the federal act dealt with an issue of primary importance to the national government which made any enforcement of similar state laws potentially harmful to the smooth execution of national statutes. The Oyez Project, Pennsylvania v. Nelson , 350 U.S. 497 (1956) available at: (http://oyez.org/cases/1950-1959/1955/1955_10) (last visited Tuesday, July 7, 2009).
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