FRANCHISE TAX BOARD OF THE STATE OF CALIFORNIA, Appellant/Cross-Respondent,
GILBERT P. HYATT, Respondent/Cross-Appellant.
and cross-appeal from a district court judgment on a jury
verdict in a tort action and from a post-judgment order
awarding costs. Eighth Judicial District Court, Clark County;
Jessie Elizabeth Walsh, Judge.
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,
Hutchison & Steffen, LLC, and Mark A. Hutchison and
Michael K. Wall, Las Vegas; Kaempfer Crowell and Peter C.
Bernhard, Las Vegas; Perkins Coie LLP and Donald J. Kula, Los
Angeles, California, for Respondent/Cross-Appellant.
Paul Laxalt, Attorney General, and Lawrence J. VanDyke,
Solicitor General, Carson City, for Amicus Curiae State of
McDaniel, Attorney General, Little Rock, Arkansas, for Amicus
Curiae State of Arkansas.
V. Suthers, Attorney General, Denver, Colorado, for Amicus
Curiae State of Colorado.
R. "Beau" Biden III, Attorney General, and Richard
S. Gebelein, Chief Deputy Attorney General, Wilmington,
Delaware, for Amicus Curiae State of Delaware.
McCollum, Attorney General, Tallahassee, Florida, for Amicus
Curiae State of Florida.
Lawrence G. Wasden, Attorney General, Boise, Idaho, for
Amicus Curiae State of Idaho.
T. Pierre, Baton Rouge, Louisiana, for Amici Curiae Louisiana
Secretary and the Louisiana Department of Revenue.
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.
Koster, Attorney General, Jefferson City, Missouri, for
Amicus Curiae State of Missouri.
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.
Drew Edmondson, Attorney General, Oklahoma City, Oklahoma,
for Amicus Curiae State of Oklahoma.
E. Cooper, Jr., Attorney General and Reporter, Nashville,
Tennessee, for Amicus Curiae State of Tennessee.
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.
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
THE COURT EN BANC.
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 Cat. v. Hyatt (2014 Opinion),
130 Nev., Adv. Op. 71, 335 P.3d 125, 131 (2014), vacated,
___ U.S. ___, 136 S.Ct. 1277 (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 (2016).
The Court agreed to decide two questions. Id. The
first question was whether to overrule Nevada v.
Hall, 440 U.S. 410 (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.
at ___, 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
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
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
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.
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.
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). 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.
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
reasons discussed below, we affirm in part, reverse in part,
and remand this case to the district court with instructions.
AND PROCEDURAL HISTORY
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.
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 ask you for information. The
Operations and Compliance Divisions ask for tax return
information to carry out the Personal Income Tax Law of the
State of California." Also included with the
notification was a document containing a list of what the
taxpayer could expect from FTB: "Courteous treatment by
FTB employees [, ] Clear and concise requests for information
from the auditor assigned to your case[, ] Confidential
treatment of any personal and financial information that you
provide to us[, ] Completion of the audit within a reasonable
amount of time[.]"
audit involved written communications and interviews. FTB
sent over 100 letters and demands for information to third
parties including banks, utility companies, newspapers (to
learn if Hyatt had subscriptions), medical providers,
Hyatt's attorneys, two Japanese companies that held
licenses to Hyatt's patent (inquiring about payments to
Hyatt), and other individuals and entities that Hyatt had
identified as contacts. Many, but not all, of the letters and
demands for information contained Hyatt's social security
number or home address or both. FTB also requested
information and documents directly from Hyatt. Interviews
were conducted and signed statements were obtained from three
of Hyatt's relatives-his ex-wife, his brother, and his
daughter-all of whom were estranged from Hyatt during the
relevant period in question, except for a short time when
Hyatt and his daughter attempted to reconcile their
relationship. No relatives with whom Hyatt had good
relations, including his son, were ever interviewed even
though Hyatt had identified them as contacts. FTB sent
auditors to Hyatt's neighborhood in California and to
various locations in Las Vegas in search of information.
completion of the 1991 audit, FTB concluded that Hyatt did
not move from California to Las Vegas in September 1991, as
he had stated, but rather, that Hyatt had moved in April
1992. FTB further concluded that Hyatt had staged the earlier
move to Nevada by renting an apartment, obtaining a
driver's license, insurance, bank account, and
registering to vote, all in an effort to avoid state income
tax liability on his patent licensing. FTB further determined
that the sale of Hyatt's California home to his work
assistant was a sham. A detailed explanation of what factors
FTB considered in reaching its conclusions was provided,
which in addition to the above, included comparing contacts
between Nevada and California, banking activity in the two
states, evidence of Hyatt's location in the two states
during the relevant period, and professionals whom he
employed in the two states. Based on these findings, FTB
determined that Hyatt owed the state of California
approximately $1.8 million in additional state income taxes
and that penalties against Hyatt in the amount of $1.4
million were warranted. These amounts, coupled with $1.2
million in interest, resulted in a total assessment of $4.5
1991 audit's finding that Hyatt did not move to Las Vegas
until April 1992 prompted FTB to commence a second audit of
Hyatt's 1992 California state taxes. Because he
maintained that he lived in Nevada that tax year, Hyatt did
not file a California tax return for 1992, and he opposed the
audit. Relying in large part on the 1991 audit's findings
and a single request for information sent to Hyatt regarding
patent-licensing payments received in 1992, FTB found that
Hyatt owed the state of California over $6 million in taxes
and interest for 1992. Moreover, penalties similar to those
imposed by the 1991 audit were later assessed.
formally challenged the audits' conclusions by filing two
protests with FTB that were handled concurrently. Under a
protest, an audit is reviewed by FTB for accuracy, or the
need for any changes, or both. The protests lasted over 11
years and involved 3 different FTB auditors. In the end, the
protests upheld the audits, and Hyatt went on to challenge
them in the California courts.
the protests, Hyatt filed the underlying Nevada lawsuit in
January 1998. His complaint included a claim for declaratory
relief concerning the timing of his move from California to
Nevada and a claim for negligence. The complaint also
identified seven intentional tort causes of action allegedly
committed by FTB during the 1991 and 1992 audits: invasion of
privacy-intrusion upon seclusion, invasion of
privacy-publicity of private facts, invasion of privacy-false
light, intentional infliction of emotional distress, fraud,
breach of confidential relationship, and abuse of process.
Hyatt's lawsuit was grounded on his allegations that FTB
conducted unfair audits that amounted to FTB "seeking to
trump up a tax claim against him or attempt[ing] to extort
him, " that FTB's audits were "goal-oriented,
" that the audits were conducted to improve FTB's
tax assessment numbers, and that the penalties FTB imposed
against Hyatt were intended "to better bargain for and
position the case to settle."
in the litigation, FTB filed a motion for partial summary
judgment challenging the Nevada district court's
jurisdiction over Hyatt's declaratory relief cause of
action. The district court agreed on the basis that the
timing of Hyatt's move from California to Nevada and
whether FTB properly assessed taxes and penalties against
Hyatt should be resolved in the ongoing California
administrative process. Accordingly, the district court
granted FTB partial summary judgment,  As a result of
the district court's ruling, the parties were required to
litigate the action under the restraint that any
determinations as to the audits' accuracy were not part
of Hyatt's tort action and the jury would not make any
findings as to when Hyatt moved to Nevada or whether the
audits' conclusions were correct.
also moved the district court for partial summary judgment to
preclude Hyatt from seeking recovery for alleged economic
damages. As part of its audit investigation, FTB sent letters
to two Japanese companies that had licensing agreements with
Hyatt requesting payment information between Hyatt and the
companies. Included with the letters were copies of the
licensing agreements between Hyatt and the Japanese
companies. Hyatt asserted that those documents were
confidential and that when FTB sent the documents to the
companies, the companies were made aware that Hyatt was under
investigation. Based on this disclosure, Hyatt theorized that
the companies would have then notified the Japanese
government, who would in turn notify other Japanese
businesses that Hyatt was under investigation. Hyatt claimed
that this ultimately ended Hyatt's patent-licensing
business in Japan. Hyatt's evidence in support of these
allegations included the fact that FTB sent the letters, that
the two businesses sent responses, that Hyatt had no
patent-licensing income after this occurred, and expert
testimony that this chain of events would likely have
occurred in the Japanese business culture. FTB argued that
Hyatt's evidence was speculative and insufficient to
adequately support his claim. Hyatt argued that he had
sufficient circumstantial evidence to present the issue to
the jury. The district court granted FTB's motion for
partial summary judgment, concluding that Hyatt had offered
no admissible evidence to support that the theorized chain of
events actually occurred and, as a result, his evidence was
too speculative to overcome the summary judgment motion.
other relevant proceeding that bears discussion in this
appeal concerns two original writ petitions filed by FTB in
this court in 2000. In those petitions, FTB sought immunity
from the entire underlying Nevada lawsuit, arguing that it
was entitled to the complete immunity that it enjoyed under
California law based on either sovereign immunity, the full
faith and credit clause, or comity. This court resolved the
petitions together in an unpublished order in which we
concluded that FTB was not entitled to full immunity under
any of these principles. But we did determine that, under
comity, FTB should be granted partial immunity equal to the
immunity a Nevada government agency would receive. In light
of that ruling, this court held that FTB was immune from
Hyatt's negligence cause of action, but not from his
intentional tort causes of action. The court concluded that
while Nevada provided immunity for discretionary decisions
made by government agencies, such immunity did not apply to
intentional torts or bad-faith conduct because to allow it to
do so would "contravene Nevada's policies and
interests in this case."
court's ruling in the writ petitions was appealed to and
upheld by the United States Supreme Court. Franchise Tax
Bd. of Cal. v. Hyatt, 538 U.S. 488 (2003). In
Hyatt, the Supreme Court focused on the issue of
whether the Full Faith and Credit Clause of the federal
constitution required Nevada to afford FTB the benefit of the
full immunity that California provides FTB. Id., at
494. The Court upheld this court's determination that
Nevada was not required to give FTB full immunity.
Id. at 499. The Court further upheld this
court's conclusion that FTB was entitled to partial
immunity under comity principles, observing that this 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." Id., The Supreme
Court's ruling affirmed this court's limitation of
Hyatt's case against FTB to the intentional tort causes
Hyatt's case went to trial before a jury. The trial
lasted approximately four months. The jury found in favor of
Hyatt on all intentional tort causes of action and returned
special verdicts awarding him damages in the amount of $85
million for emotional distress, $52 million for invasion of
privacy, $1, 085, 281.56 as special damages for fraud, and
$250 million in punitive damages. Following the trial, Hyatt
sought prejudgment interest and moved the district court for
costs. The district court assigned the motion to a special
master who, after 15 months of discovery and further motion
practice, issued a recommendation that Hyatt be awarded
approximately $2.5 million in costs. The district court
adopted the master's recommendation.
appeals from the district court's final judgment and the
post-judgment award of costs. Hyatt cross-appeals,
challenging the district court's partial summary judgment
ruling that he could not seek, as part of his damages at
trial, economic damages for the alleged destruction of his
patent-licensing business in Japan.
begin by addressing FTB's appeal, which raises numerous
issues that it argues entitle it to either judgment as a
matter of law in its favor or remand for a new trial. As a
threshold matter, we address discretionary-function immunity
and whether Hyatt's causes of action against FTB are
barred by this immunity, or whether there is an exception to
the immunity for intentional torts and bad-faith conduct.
Deciding that FTB is not immune from suit, we then consider
FTB's arguments as to each of Hyatt's intentional
tort causes of action. We conclude our consideration of
FTB's appeal by discussing Nevada's statutory caps on
damages and immunity from punitive damages. As for
Hyatt's cross-appeal, we close this opinion by
considering his challenge to the district court's partial
summary judgment in FTB's favor on Hyatt's damages
claim for economic loss.
is not immune from suit under comity because
discretionary-function immunity in Nevada does not protect
Nevada's government or its employees from intentional
torts and bad-faith conduct
most states, Nevada has waived traditional sovereign immunity
from tort liability, with some exceptions. NRS 41.031. The
relevant exception at issue in this appeal is
discretionary-function immunity, which provides that no
action can be brought against the state or its employee
"based upon the exercise or performance or the failure
to exercise or perform a discretionary function or duty on
the part of the State ... or of any . ., employee .,, ,
whether or not the discretion involved is abused, " NRS
41.032(2), By adopting discretionary-function immunity, our
Legislature has placed a limit on its waiver of sovereign
immunity. Discretionary-function immunity is grounded in
separation of powers concerns and is designed to preclude the
judicial branch from "second-guessing, " in a tort
action, legislative and executive branch decisions that are
based on "social, economic, and political policy."
Martinez v. Maruszczak, 123 Nev. 433, 446, 168 P.3d
720, 729 (2007) (internal quotations omitted); see also
Bailey v. United States, 623 F.3d 855, 860 (9th Cir.
2010), FTB initially argues on appeal that immunity protects
it from Hyatt's intentional tort causes of action based
on the application of discretionary-function immunity and
comity as recognized in Nevada, Comity is a legal principle
whereby a forum state may give effect to the laws and
judicial decisions of another state based in part on
deference and respect for the other state, but only so long
as the other state's laws are not contrary to the
policies of the forum state. Mianecki v. Second Judicial
Dist. Court, 99 Nev. 93, 98, 658 P.2d 422, 424-25
(1983); see also Solomon v. Supreme Court of Fla.,
816 A.2d 788, 790 (D.C. 2002); Schoeberlein v. Purdue
Univ., 544 N.E.2d 283, 285 (Ill. 1989); McDonnell v.
Ill. 748 A.2d 1105, 1107 (N.J. 2000); Sam v. Estate
of Sam, 134 P.3d 761, 764-66 (N.M, 2006); Hansen v.
Scott, 687 N.W.2d 247, 250, 250 (N, D. 2004). The
purpose behind comity is to "foster cooperation, promote
harmony, and build good will" between states,
Hansen, 687 N.W.2d at 250 (internal quotations
omitted). But whether to invoke comity is within the forum
state's discretion. Mianecki, 99 Nev. at 98, 658
P.2d at 425. Thus, when a lawsuit is filed against another
state in Nevada, while Nevada is not required to extend
immunity in its courts to the other state, Nevada will
consider extending immunity under comity, so long as doing so
does not violate Nevada's public policies. Id.
at 98, 658 P.2d at 424-25. In California, FTB enjoys full
immunity from tort actions arising in the context of an
audit. Cal. Gov't Code § 860.2 (West 2012). FTB
contends that it should receive the immunity protection
provided by California statutes to the extent that such
immunity does not violate Nevada's public policies under
immunity in Nevada
court's treatment of discretionary-function immunity has
changed over time. In the past, we applied different tests to
determine whether to grant a government entity or its
employee discretionary-function immunity. See, e.g.,
Arnesano v. State ex ret. Dep't of Transp., 113 Nev.
815, 823-24, 942 P.2d 139, 144-45 (1997) (applying
planning-versus-operational test to government action),
abrogated by Martinez, 123 Nev. at 443-44, 168 P.3d
at 726-27; State v. Silva, 86 Nev. 911, 913-14, 478
P.2d 591, 592-93 (1970) (applying
discretionary-versus-ministerial test to government conduct),
abrogated by Martinez, 123 Nev. at 443-44, 168 P.3d
at 726-27. We also recognized an exception to
discretionary-function immunity for intentional torts and
bad-faith conduct. Falline v. GNLV Corp., 107 Nev.
1004, 1009 & n.3, 823 P.2d 888, 892 & n.3 (1991)
(plurality opinion). More recently, we adopted the federal
two-part test for determining the applicability of
discretionary-function immunity. Martinez, 123 Nev.
at 444-47, 168 P.3d at 727-29 (adopting test named after two
United States Supreme Court decisions: Berkovitz v.
United States, 486 U.S. 531 (1988), and United
States v. Gaubert, 499 U.S. 315 (1991)). Under the
Berkovitz-Gaubert two-part test,
discretionary-function immunity will apply if the government
actions at issue "(1) involve an element of individual
judgment or choice and (2) [are] based on considerations of
social, economic, or political policy."
Martinez, 123 Nev. at 446-47, 168 P.3d at 729. When
this court adopted the federal test in Martinez, we
expressly dispensed with the earlier tests used by this court
to determine whether to grant a government entity or its
employee immunity, id. at 444, 168 P.3d at 727, but
we did not address the Falline exception to immunity
for intentional torts or bad-faith misconduct.
earlier writ petitions filed by FTB in this court, we relied
on Falline to determine that FTB was entitled to
immunity from Hyatt's negligence cause of action, but not
the remaining intentional-tort-based causes of action.
Because the law concerning the application of
discretionary-function immunity has changed in Nevada since
FTB's writ petitions were resolved, we revisit the
application of discretionary-function immunity to FTB in the
present case as it relates to Hyatt's intentional tort
causes of action. Hsu v. Cty. of Clark, 123 Nev.
625, 632, 173 P.3d 724, 730 (2007) (stating that "the
doctrine of the law of the case should not apply where, in
the interval between two appeals of a case, there has been a
change in the law by ... a judicial ruling entitled to
deference" (internal quotations omitted)).
contends that when this court adopted the federal test in
Martinez, it impliedly overruled the
Falline exception to discretionary-function immunity
for intentional torts and bad-faith misconduct. Hyatt
maintains that the Martinez case did not alter the
exception created in Falline and that discretionary
immunity does not apply to bad-faith misconduct because an
employee does not have discretion to undertake intentional
torts or act in bad faith.
Falline, 107 Nev. at 1009, 823 P.2d at 891-92, this
court ruled that the discretionary-function immunity under
NRS 41.032(2) did not apply to bad-faith misconduct. The case
involved negligent processing of a worker's compensation
claim, Falline injured his back at work and later required
surgery. Falline, 107 Nev. at 1006, 823 P.2d at 890.
Following the surgery, while rising from a seated position,
Falline experienced severe lower-back pain. Id. at
1006-07, 823 P.2d at 890. Falline's doctor concluded that
Falline's back pain was related to his work injury.
Id. at 1007, 823 P.2d at 890. The self-insured
employer, however, refused to provide worker's
compensation benefits beyond those awarded for the work
injury because it asserted that an intervening injury had
occurred. Id. After exhausting his administrative
remedies, it was determined that Falline was entitled to
worker's compensation benefits for both injuries.
Id. He was nevertheless denied benefits.
Id. Falline brought suit against the employer for
negligence and bad faith in the processing of his
worker's compensation claims. Id. at 1006, 823
P.2d at 889-90, The district court dismissed his causes of
action, and Falline appealed, arguing that dismissal was
appeal, after concluding that a self-insured employer should
be treated the same as the State Industrial Insurance System,
this court concluded that Falline could maintain a lawsuit
against the self-insured employer based on negligent handling
of his claims. Id. at 1007-09, 823 P.2d at 890-92.
In discussing its holding, the court addressed discretionary
immunity and explained that "if failure or refusal to
timely process or pay claims is attributable to bad faith,
immunity does not apply whether an act is discretionary or
not." Id. at 1009, 823 P.2d at 891. The court
reasoned that the insurer did not have discretion to act in
bad faith, and therefore, discretionary-function immunity did
not apply to protect the insurer from suit. Id. at
1009, 823 P.2d at 891-92.
Falline court expressly addressed NRS
41.032(2)'s language that there is immunity "whether
or not the discretion involved is abused."
Falline, 107 Nev. at 1009 n.3, 823 P.2d at 892 n.3.
The court determined that bad faith is different from an
abuse of discretion, in that an abuse of discretion occurs
when a person acts within his or her authority but the action
lacks justification, while bad faith "involves an
implemented attitude that completely transcends the
circumference of authority granted" to the actor.
Id. Thus, the Falline court viewed the
exception to discretionary immunity broadly.
Falline, this court adopted, in Martinez,
the federal test for determining whether
discretionary-function immunity applies, 123 Nev. at 446, 168
P.3d at 729. Under the two-part federal test, the first step
is to determine whether the government conduct involves
judgment or choice. Id. at 446-47, 168 P.3d at 729.
If a statute, regulation, or policy requires the government
employee to follow a specific course of action for which the
employee has no option but to comply with the directive, and
the employee fails to follow this directive, the
discretionary-immunity exception does not apply to the
employee's action because the employee is not acting with
individual judgment or choice. Gaubert, 499 U.S. at
322. On the other hand, if an employee is free to make
discretionary decisions when executing the directives of a
statute, regulation, or policy, the test's second step
requires the court to examine the nature of the actions taken
and whether they are susceptible to policy analysis.
Martinez, 123 Nev. at 445-46, 168 P.3d at 729;
Gaubert, 499 U.S. at 324. "[E]ven assuming the
challenged conduct involves an element of judgment [or
choice], " the second step requires the court to
determine "whether that judgment [or choice] is of the
kind that the discretionary function exception was designed
to shield." Gaubert, 499 U.S. at 322-23. If
"the challenged actions are not the kind of conduct that