Franchise Tax Bd. of State v. Hyatt

• Citation: 401 P.3d 1110
• Decision Date: 14 September 2017
• Docket Number: No. 53264.,53264.
• Parties: FRANCHISE TAX BOARD OF the State of CALIFORNIA, Appellant/Cross–Respondent, v. Gilbert P. HYATT, Respondent/Cross–Appellant.
• Court: Nevada Supreme Court

401 P.3d 1110

FRANCHISE TAX BOARD OF the State of CALIFORNIA, Appellant/Cross–Respondent,

v.Gilbert P. HYATT, Respondent/Cross–Appellant.

No. 53264.

Supreme Court of Nevada.

FILED SEPTEMBER 14, 2017

McDonald Carano Wilson LLP and Pat Lundvall, Debbie Leonard, Rory T. Kay, Carla Higginbotham, and Megan L. Starich, Reno; Lemons, Grundy & Eisenberg and Robert L. Eisenberg, Reno, for Appellant/Cross–Respondent.

Hutchison & Steffen, LLC, and Mark A. Hutchison and Michael K. Wall, Las Vegas; Kaempfer Crowell and Peter C. Bernhard, Las Vegas; Lewis Roca Rothgerber Christie LLP and Daniel F. Polsenberg, Las Vegas; Perkins Coie LLP and Donald J. Kula, Los Angeles, California, for Respondent/Cross–Appellant.

Adam Paul Laxalt, Attorney General, and Lawrence J. VanDyke, Solicitor General, Carson City, for Amicus Curiae State of Nevada.

Dustin McDaniel, Attorney General, Little Rock, Arkansas, for Amicus Curiae State of Arkansas.

John V. Suthers, Attorney General, Denver, Colorado, for Amicus Curiae State of Colorado.

Joseph R. "Beau" Biden III, Attorney General, and Richard S. Gebelein, Chief Deputy Attorney General, Wilmington, Delaware, for Amicus Curiae State of Delaware.

Bill McCollum, Attorney General, Tallahassee, Florida, for Amicus Curiae State of Florida.

Lawrence G. Wasden, Attorney General, Boise, Idaho, for Amicus Curiae State of Idaho.

Shone T. Pierre, Baton Rouge, Louisiana, for Amici Curiae Louisiana Secretary and the Louisiana Department of Revenue.

Janet T. Mills, Attorney General, Augusta, Maine, for Amicus Curiae State of Maine.

Douglas F. Gansler, Attorney General, Baltimore, Maryland, for Amicus Curiae State of Maryland.

Chris Koster, Attorney General, Jefferson City, Missouri, for Amicus Curiae State of Missouri.

Anne Milgram, Attorney General, Trenton, New Jersey, for Amicus Curiae State of New Jersey.

Donnita A. Wald, General Counsel, Bismarck, North Dakota, for Amicus Curiae North Dakota State Tax Commissioner Cory Fong.

Richard Cordray, Attorney General, Columbus, Ohio, for Amicus Curiae State of Ohio.

W.A. Drew Edmondson, Attorney General, Oklahoma City, Oklahoma, for Amicus Curiae State of Oklahoma.

Robert E. Cooper, Jr., Attorney General and Reporter, Nashville, Tennessee, for Amicus Curiae State of Tennessee.

John Swallow, Attorney General, and Clark L. Snelson, Assistant Attorney General, Salt Lake City, Utah, for Amicus Curiae State of Utah.

William H. Sorrell, Attorney General, Montpelier, Vermont, for Amicus Curiae State of Vermont.

William C. Mims, Attorney General, Richmond, Virginia, for Amicus Curiae State of Virginia.

Robert M. McKenna, Attorney General, Olympia, Washington, for Amicus Curiae State of Washington.

Shirley Sicilian, General Counsel, and Bruce J. Fort, Washington, D.C., for Amicus Curiae Multistate Tax Commission.

BEFORE THE COURT EN BANC.

OPINION

By the Court, HARDESTY, J.:

This matter is before us on remand from the United States Supreme Court. We previously issued an opinion in this matter concluding, in part, that appellant Franchise Tax Board of the State of California (FTB) was not entitled to the statutory cap on damages a similarly situated Nevada agency would be entitled to under similar circumstances.

Franchise Tax Bd. of Cal. v. Hyatt (2014 Opinion), 130 Nev. ––––, 335 P.3d 125, 131 (2014), vacated, ––– U.S. ––––, 136 S.Ct. 1277, 194 L.Ed.2d 431 (2016). FTB petitioned the United States Supreme Court for certiorari. Franchise Tax Bd, of Cal. v. Hyatt (Hyatt II) ––– U.S. ––––, 136 S.Ct. 1277, 1280, 194 L.Ed.2d 431 (2016). The Court agreed to decide two questions. Id. The first question was whether to overrule Nevada v. Hall, 440 U.S. 410, 99 S.Ct. 1182, 59 L.Ed.2d 416 (1979), and its holding, "that one State ... can open the doors of its courts to a private citizen's lawsuit against another State ... without the other State's consent." Hyatt II, ––– U.S. ––––, 136 S.Ct. at 1279–80. The Court split 4–4 on the Hall question and thus affirmed our "exercise of jurisdiction over California's state agency." Id. at ––––, 136 S.Ct. at 1281.

The second question was "[w]hether 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." Id. The Court held that it does not and that this court's "special rule of law" that FTB was not entitled to a damages cap that a Nevada agency would be entitled to "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." Id. (internal quotation marks omitted). The Court thus granted FTB's certiorari petition, vacated our decision, and remanded the case back to us for further consideration in light of its decision. Id. at ––––, 136 S.Ct. at 1283. In light of the Court's ruling, we reissue our vacated opinion except as to the damages portions addressed by the Supreme Court and apply the statutory damages caps FTB is entitled to under Hyatt II.

In 1998, inventor Gilbert P. Hyatt sued FTB seeking damages for intentional torts and bad-faith conduct committed by FTB auditors during tax audits of Hyatt's 1991 and 1992 state tax returns. After years of litigation, a jury awarded Hyatt $139 million in damages on his tort claims and $250 million in punitive damages. In this appeal, we must determine, among other issues, whether we should revisit our exception to government immunity for intentional torts and bad-faith conduct as a result of this court's adoption of the federal test for discretionary-function immunity, which shields a government entity or its employees from suit for discretionary acts that involve an element of individual judgment or choice and that are grounded in public policy considerations. We hold that our exception to immunity for intentional torts and bad-faith conduct survives our adoption of the federal discretionary-function immunity test because intentional torts and bad-faith conduct are not based on public policy.

Because FTB cannot invoke discretionary-function immunity to protect itself from Hyatt's intentional tort and bad-faith causes of action, we must determine whether Hyatt's claims for invasion of privacy, breach of confidential relationship, abuse of process, fraud and intentional infliction of emotional distress survive as a matter of law, and if so, whether they are supported by substantial evidence. All of Hyatt's causes of action, except for his fraud and intentional infliction of emotion distress claims, fail as a matter of law, and thus, the judgment in his favor on these claims is reversed.

As to the fraud cause of action, sufficient evidence exists to support the jury's findings that FTB made false representations to Hyatt regarding the audits' processes and that Hyatt relied on those representations to his detriment and damages resulted. In regard to Hyatt's claim for intentional infliction of emotional distress, we conclude that medical records are not mandatory in order to establish a claim for intentional infliction of emotional distress if the acts of the defendant are sufficiently severe. As a result, substantial evidence supports the jury's findings as to liability and an award of damages up to the amount of Nevada's statutory cap.

In connection with these causes of action, and in light of the Supreme Court's opinion in Hyatt II, we must address FTB's entitlement to the statutory cap on the amount of damages that Hyatt may recover from FTB on the fraud and intentional infliction of emotional distress claims under comity. We conclude that, in accordance with Hyatt II, FTB is entitled to the $50,000 statutory cap on damages a similarly situated Nevada agency would be entitled to in similar circumstances. See NRS 41.035(1) (1987).¹ We therefore reverse the $1,085,281.56 of special damages awarded to Hyatt and conclude that FTB is entitled to the $50,000 statutory cap on Hyatt's fraud claim and intentional infliction of emotional distress claim.

We also take this opportunity to address as a matter of first impression whether, based on comity, it is reasonable to provide FTB with the same protection of California law, to the extent that it does not conflict with Nevada law, to grant FTB immunity from punitive damages. Because punitive damages would not be available against a Nevada government entity, we hold, under comity principles, that FTB is immune from punitive damages. Thus, we reverse that portion of the district court's judgment awarding Hyatt punitive damages.

For the reasons discussed below, we affirm in part, reverse in part, and remand this case to the district court with instructions.

FACTS AND PROCEDURAL HISTORY

California proceedings

In 1993, after reading a newspaper article regarding respondent/cross-appellant Hyatt's lucrative computer-chip patent and the large sums of money that Hyatt was making from the patent, a tax auditor for appellant/cross-respondent FTB decided to review Hyatt's 1991 state income tax return. The return revealed that Hyatt did not report, as taxable income, the money that he had earned from the patent's licensing payments and that he had only reported 3.5 percent of his total taxable income for 1991. Hyatt's tax return showed that he had lived in California for nine months in 1991 before relocating to Las Vegas, Nevada, but Hyatt claimed no moving expenses on his 1991 tax return. Based on these discrepancies, FTB opened an audit on Hyatt's 1991 state income tax return.

The 1991 audit began when Hyatt was sent notice that he was being audited. This notification included an information request form that required Hyatt to provide certain information concerning his connections to California and Nevada and the facts surrounding his move to Nevada. A portion of the information request form contained a privacy notice, which stated in relevant part that "The Information Practices Act of 1977 and the federal Privacy Act require the Franchise Tax Board to tell you why we...