To: FRANCHISE TAX BOARD
PROTEST SECTION
MAIL STOP D-12
PO BOX 942867
SACRAMENTO CA 94267-5540

I. One of the fundamentals of American jurisprudence is that of 'due process of law'.
I present United States Supreme Court case law which supports the requirement that a state administrative agency provide due process in its dealings with its Citizens/customers.

1.a. The [Interstate Commerce] Commission is an administrative body and, even where it acts in a quasi judicial capacity, is not limited by the strict rules, as to the admissibility of evidence, which prevail in suits between private parties. Interstate Commerce Commission v. Baird, 194 U. S. 25, 48 L. ed. 860, 24 Sup. Ct. Rep. 563. But the more liberal the practice in admitting testimony, the more imperative the obligation to preserve the essential rules of evidence by which rights are asserted or defended. In such cases the Commissioners cannot act upon their own information, as could jurors in primitive days. All parties must be fully apprised of the evidence submitted or to be considered, and must be given opportunity to cross-examine witnesses, to inspect documents, and to offer evidence in explanation or rebutal. In no other way can a party maintain its rights or make its defense. In no other way can it test the sufficiency of the facts to support the finding; for otherwise, even though it appeared that the order was without evidence, the manifest deficiency could always be explained on the theory that the Commission had before it extraneous, unknown, but presumptively sufficient information to support the finding. United States v. Baltimore & O. S. W. R. Co. 226 U. S. 14, ante, 104, 33 Sup. Ct. Rep. 5.
(information in brackets and emphasis added) Interstate Commerce Commission v. Louisville & N. R. Co. (1913), 227 U.S. 88, 93-94, 57 L.Ed. 431, 434, 33 S.Ct. 185.

1.b. Without warning or even the hint of warning that the case would be considered upon any other basis that the evidence submitted, the [Public Utilities] Commission [changed its decision] upon the strength of information secretly collected and never yet disclosed. The company protested. It asked disclosure of the documents ... and an opportunity to examine them, to analyze them. The response was a curt refusal. Upon the strength of these unknown documents ... the Commission reporting its conclusion, but not the underlying proofs. The putative debtor does not know the proofs today. This is not the fair hearing essential to due process. It is condemnation without trial.
(information in brackets and emphasis added) Ohio Bell Telephone Co. v. Public Utilities Commission (1937), 301 U.S. 292, 300, 81 L.Ed. 1093, 1099, 57 S.Ct. 724.

1.c. The first question goes to the very foundation of the action of administrative agencies entrusted by the Congress with broad control over activities which in their detail can not be dealt with directly by the legislature. The vast expansion of this field of administrative regulation in response to the pressure of social needs is made possible under our system by adherence to the basic principles that the legislature shall appropriately determine the standards of administrative action and that in administrative proceedings of a quasi-judicial character the liberty and property of the citizen shall be protected by the rudimentary requirements of fair play. These demand "a fair and open hearing," -- essential alike to the legal validity of the administrative regulation and to the maintenance of public confidence in the value and soundness of this important governmental process. Such a hearing has been described as an "inexorable safeguard." [citations omitted]
But a "full hearing"--a fair and open hearing--requires more than that. The right to a hearing embraces not only the right to present evidence but also a reasonable opportunity to know the claims of the opposing party and to meet them. The right to submit argument implies that opportunity; otherwise the right may be but a barren one. Those who are brought into contest with the Government in a quasi-judicial proceeding aimed at the control of their activities are entitled to be fairly advised of what the Government proposes and to be heard upon its proposals before it issues its final command....
Congress, in requiring a "full hearing," had regard to judicial standards,--not in any technical sense but with respect to those fundamental requirements of fairness which are of the essence of due process in a proceeding of a judicial nature. ... The requirements of fairness are not exhausted in the taking or consideration of evidence but extend to the concluding parts of the procedure as well as to the beginning and intermediate steps.
The maintenance of proper standards on the part of administrative agencies in the performance of their quasi-judicial functions is of the highest importance and in no way cripples or embarrasses the exercise of their appropriate authority. ... For, as we said at the outset, if these multiplying agencies deemed to be necessary in our complex society are to serve the purposes for which they are created and endowed with vast powers, they must accredit themselves by acting in accordance with the cherished judicial tradition embodying the basic concepts of fair play.
(emphasis added.) Morgan v. United States (1938), 304 U.S. 1, 82 L.Ed. 1129, 1130-1134, 58 S.Ct. 773.

1.d. "The fundamental requisite of due process of law is the opportunity to be heard." Grannis v. Ordean, 234 US 385, 394, 58 L Ed 1363, 1369, 34 S Ct 779 (1914). The hearing must be "at a meaningful time and in a meaningful manner." Armstrong v Manzo, 380 US 545, 552, 14 L Ed 2d 62, 66, 85 S Ct 1187 (1965). ... these principles require ... timely and adequate notice detailing the reasons ... and an effective opportunity to defend by confronting any adverse witnesses and by presenting his own arguments and evidence orally. These rights are important ... where recipients have challenged ... as resting on incorrect or misleading factual premises or on misapplication of rules or policies to the facts of particular cases. ... The opportunity to be heard must be tailored to the capacities and circumstances of those who are to be heard. It is not enough that a [person] may present his position to the decision maker in writing or secondhand through his [representative]....
(information in brackets added.) Goldberg v. Kelly (1970), 397 U.S. 254, 267-269, 25 L.Ed.2d. 287, 299, 90 S.Ct. 1011.

1.e. No man in this country is so high that he is above the law. No officer of the law may set that law at defiance, with impunity. All the officers of the Government, from the highest to the lowest, are creatures of the law and are bound to obey it.
It is the supreme power in our system of government, and every man who, by accepting office, participates in its functions, is only the more strongly bound to submit to that supremacy, and to observe the limitations which it imposes upon the exercise of the authority which it gives. ...
Shall it be said, in the face of all this, and of the acknowledged right of the judiciary to decide in proper cases, statutes which have been passed by both branches of Congress and approved by the President, to be unconstitutional, that the courts cannot give remedy when the citizen has been deprived of his property by force, his estate seized and converted to the use of the Government without any lawful authority, without any process of law and without any compensation, because the President has ordered it and his officers are in possession?
If such be the law of this country, it sanctions a tyrannny which has no existence in the monarchies of Europe, nor in any other government which has a just claim to well regulated liberty and the protection of personal rights.
United States v. Lee (1882), 106 U.S. 196, 27 L.Ed 171, 181, 1 S.Ct. 240.

2.a. In several places within FTB's Collection Practice Manual (internet ed.)(CPM)(attached and incorporated herein as Exhibit 6) appear the notations: "(Proprietary Information Deleted*****...)" (http://www.ftb.ca.gov/manuals/arm/cpm/1030.htm#1030.01 [as of October 16, 2001]); "(Proprietary Information*****)" (http://www.ftb.ca.gov/manuals/arm/cpm/2100.htm [as of October 15, 2001]).

2.b. I wondered how FTB could claim to have deletable proprietary information. So I researched "proprietary":

(1) proprietary ... 1. Of or relating to a proprietor [the licensee's proprietary rights]. 2. Of, relating to, or holding as property [the software designer sought to protect its proprietary data].
(square brackets substituted for angled brackets) Black's Law Dictionary, 7th Ed. (1999), p. 1235.

(2) proprietor, n. An owner, esp. one who runs a business....
Ibid., p. 1236.

(3) proprietary function. ...A municipality's conduct that is performed for the profit or benefit of the municipality, rather than for the benefit of the general public. Generally, a municipality is not immune from tort liability for proprietary acts....
Id, p. 1235.

(1) The distinction between governmental functions and proprietary functions is drawn along the line of conserving the health of the inhabitants of a municipality and the exercise of police control, as distinguishable from functions which have nothing to do with the health or police control that furnish means of obtaining revenue, or are especially such functions as are ordinarily exercised by private persons, wholly distinct from any relation to the health of the inhabitants of a city.
Benton v. City of Santa Monica (1930), 106 Cal.App. 339, 343, 289 P. 203.

(2) It is likewise settled that when a municipality engages in functions that are ordinarily exercised by private persons and which have no relation to the public health or police power, it is engaged in proprietary functions.
"...In another suit between the same parties [Western Saving Fund Soc. v. Philadelphia, 31 Pa. 185], the court (Strong, J.) says: 'Where such a corporation engages in things not public it acts as a private individual;' and that where the grant to such a corporation is to enter upon a business for its private advantage, or emolument (though the public may derive a common benefit therefrom), the corporation must be regarded in this respect as a private company; that 'it stands on the same footing as any individual, or body of persons upon whom a like franchise has been conferred'."
(information in square brackets added) General Petroleum Corp. v. Los Angeles (1937), 22 Cal.App.2d 332, 334-335, 70 P.2d 998.

(3) The power to make local, police, and sanitary regulations may be evidenced by the construction and operation of parks, playgrounds, public utilities, and other facilities in aid of the health and welfare of the community. These facilities may be operated for profit--some in competition with private institutions of the same character. They are then said to be "proprietary."
Beard v. City & County of San Francisco (1947), 79 Cal.App.2d 753, 755, 180 P.2d 744.

945. A public entity may sue and be sued.
GOVERNMENT CODE (http://leginfo.ca.gov/cgi-bin/displaycode?section=gov&group=00001-01000&file=945-949 [as of October 27, 2001]).

811.2. "Public entity" includes the State, the Regents of the University of California, a county, city, district, public authority, public agency, and any other political subdivision or public corporation in the State.
GOVERNMENT CODE (http://leginfo.ca.gov/cgi-bin/displaycode?section=gov&group=00001-01000&file=810-811.9 [as of October 27, 2001]).

15700. There is in the state government, in the Agriculture and Services Agency, a Franchise Tax Board consisting of the State Controller, the Director of Finance and the Chairman of the State Board of Equalization. The Franchise Tax Board is the successor to, and is vested with, all of the duties, powers, purposes, responsibilities, and jurisdiction of the Franchise Tax Commissioner, but the statutes and laws under which that office existed and all laws prescribing the duties, powers, purposes, responsibilities and jurisdiction of that office, together with all lawful rules and regulations established thereunder, are expressly continued in force.
"Franchise Tax Commissioner" when used in any statute, law, rule or regulation now in force, or that may hereafter be enacted or adopted, means the Franchise Tax Board. No action to which the Franchise Tax Commissioner is a party shall abate by reason hereof but shall continue in the name of the Franchise Tax Board, and the Franchise Tax Board shall be substituted for the Franchise Tax Commissioner by the court wherein the action is pending. The substitution shall not in any way affect the rights of the parties to the action.
Notwithstanding any other provision of the law to the contrary, any directive or regulation adopted by the Franchise Tax Board shall take precedence over any directive or regulation adopted by its executive officer.
(emphasis added) GOVERNMENT CODE (http://leginfo.ca.gov/cgi-bin/displaycode?section=gov&group=15001-16000&file=15700-15704 [as of October 27, 2001]).

12800. There are in the state government the following agencies: State and Consumer Services; Business, Transportation and Housing; California Environmental Protection; California Health and Human Services; Resources; Trade and Commerce; and Youth and Adult Correctional.
Whenever the term "Agriculture and Services Agency" appears in any law, it means the "State and Consumer Services Agency," and whenever the term "Secretary of Agriculture and Services Agency" appears in any law, it means the "Secretary of State and Consumer Services Agency...."
GOVERNMENT CODE (http://www.leginfo.ca.gov/cgi-bin/displaycode?section=gov&group=12001-13000&file=12800-12814) [as of November 17, 2001]).

12804. The Agriculture and Services Agency is hereby renamed the State and Consumer Services Agency.
The State and Consumer Services Agency consists of the following:
the Department of General Services; the Department of Consumer Affairs; the Franchise Tax Board; the Public Employees' Retirement System; the State Fire Marshal; the State Teachers' Retirement System; the Department of Fair Employment and Housing; the California Science Center; and the State Building and Standards Commission.
GOVERNMENT CODE (http://leginfo.ca.gov/cgi-bin/displaycode?section=gov&group=12001-13000&file=12800-12814 [as of October 27, 2001]).

ARTICLE 4 LEGISLATIVE
SEC. 9. A statute shall embrace but one subject, which shall be expressed in its title. If a statute embraces a subject not expressed in its title, only the part not expressed is void. A statute may not be amended by reference to its title. A section of a statute may not be amended unless the section is re-enacted as amended.
(emphasis added) CALIFORNIA CONSTITUTION (http://leginfo.ca.gov/.const/.article_4 [as of October 27, 2001])

The names of the Health and Welfare Agency, Youth and Adult Corrections Agency and Resources Agency established by Government Code Section 12800 are changed to Human Relations Agency, Agriculture and Services Agency and Resources Agency. ...
Reorganization Plan No. 1 of 1968 (Stats.1968 [V. 2], Appendix, p. 15.

2.h. The United States Supreme Court has held:

(1) The state does not, by becoming a corporator, identify itself with the corporation. ...
It is, we think, a sound principle, that when a government becomes a partner in any traditional company, it devests itself, so far as concerns the transactions of that company, of its sovereign character, and takes that of a private citizen. Instead of communicating to the company its privileges and its prerogatives, it descends to a level with those with whom it associates itself, and takes the character which belongs to its associates, and to the business which is to be transacted ... The state [ ], by giving to the [ ] the capacity to sue and be sued, voluntarily strips itself of its sovereign character, so far as respects the transactions of the [ ], and waives all the privileges of that character. As a member of a corporation, a government never exercises its sovereignty.
Bank of the United States v. Planters' Bank of Georgia (1824), 22 U.S. (9 Wheat.) 904, 6 L.Ed 244.

(2) But it does not contradict those statements to hold that a corporation is an agency of the Government, for the purposes of the constitutional obligations of Government rather than the "privileges of the government," when the State has specifically created the corporation for the furtherance of governmental objectives, and not merely holds some shares but controls the operation of the corporation through its appointees. ...
We hold that where, as here, the Government creates a corporation by special law, for the furtherance of governmental objectives, and retains for itself permanent authority to appoint a majority of the directors of that corporation, the corporation is part of the Government for the purposes of the First Amendment.
Lebron v. National R. Passenger Corp. (1995), 513 U.S. 374, 130 L.Ed.2d 902, 922-923, 115 S.Ct. 961.

In determining whether an entity is an arm of the state we inquire whether "'the state is the real, substantial party in interest and is entitled to invoke its sovereign immunity from suit even though individual officers [or state entities] are nominal defendants.'" Durning v. Citibank, 950 F.2d 1419, 1423 (9th Cir.1991)(alteration in original)(quoting Ford Motor Co. v. Dep't of Treasury, 323 U.S. 459, 464, 65 S.Ct. 347, 89 L.Ed. 389 (1945). ...
We consider five factors when determining whether a governmental agency is an arm of the state:

[1] whether a money judgment would be satisfied out of state funds, [2] whether the entity performs central government functions, [3] whether the entity may sue or be sued, [4] whether the entity has the power to take property in its own name or only in the name of the state, and [5] the corporate status of the entity.

Durning, 950 F.2d at 1423 (quoting Mitchell v. Los Angeles Cmty Coll. Dist., 861 F.2d 198, 201 (9th Cir.1988)(citations omitted)).
Streit v. County of Los Angeles (9th Cir. 2001), 236 F.3d 552, 566.

III. The procedure used by FTB in the instant case, as represented by the instant DEMAND, REPLY, and NPA taken together, appears to be disallowed and FTB knows that it is disallowed.

3.a. FTB was the losing party to a California court case: Wertin v. Franchise Tax Board and also lost its request for review to the California Supreme Court.

3.b. In Wertin, FTB was explicitly told:

Similarly, under federal tax law, a notice of deficiency may be mailed only after a determination of deficiency has been made. (26 U.S.C. § 6212(a).) In Scar v. C. I. R., supra, 814 F.2d 1363, the Ninth Circuit interpreted this provision to mean where the IRS had not reviewed the taxpayer's return, a "determination" had not been made for purposes of the statute....
Thus, Scar is instructive on the issue of whether the FTB's notice was valid. ...
We agree Scar is intended to require the taxing authority to rely on some concrete data in computing a deficiency,...
The California statutory scheme, like the federal scheme, requires the taxing authority to consult the taxpayer's return prior to issuing a deficiency notice.... The rationale for such a definitional constraint is to provide some grounding for the FTB's calculation of the taxpayer's tax liablilities, and the plain meaning of these statutes is to build the taxpayer's tax return into the definition of deficiency to prevent the kind of haphazard resort to arbitrary outside sources and inaccurate deficiency computations, as in this case and in Scar.
... Scar held the plain language of 26 United States Code section 6212(a) mandated the IRS make a determination of the deficiency before mailing the notice. The Ninth Circuit was concerned the IRS might issue notices of deficiency which constituted no more than arbitrary demands. The result of waiving the clear statutory command would be the burdening of taxpayers with disproving allegations which had no substantial foundation. (Scar v. C. I. R. , supra, 814 F.2d at p. 1369.) Scar's rationale applies equally here. To permit the FTB to do what it did in this case--issue a demand for a deficiency which was based upon nothing which the taxpayers had the resources to verify--would similarly circumvent the California tax scheme.
(emphasis added) Wertin v. Franchise Tax Board (1998), 68 Cal.App.4th 961, 971-975; review and depublication denied, 1999 Cal. LEXIS 2116.

3.d. California courts have defined "dishonesty" thus:

(1) InHogg v. Real Estate Comr., 54 Cal App.2d 712 [129 P.2d 709], the word "dishonesty" was interpreted by the court as used in the Real Estate Act ... The court stated that "dishonesty" includes the element of bad faith and as defined in the dictionaries and judicial decisions means "fraud, deception, betrayal, faithlessness."
Taylor v. Bureau of Private Investigators (1954), 128 Cal.App.2d 219, 228, 275 P.2d 579.

(2) Dishonesty may very well be something less than criminality. In other words, fraud and dishonesty extend beyond acts which would be criminal....
Speaking of the term dishonesty Justice Cardozo said in World Exchange Bank v. Commercial Casualty Ins. Co., 255 N.Y. 1 [173 N.E. 902, 903], "The appeal is to the mores rather than to the statutes. Dishonesty, unlike embezzlement or larcency, is not a term of art. Even so, the measure of its meaning is not a standard of perfection, but an infirmity of purpose so opprobrious or furtive as to be fairly characterized as dishonest in the common speech of men."...
Fraud embraces multifarious means whereby one person gains an advantage over another and means in effect bad faith, dishonesty or overreaching.
Wayne v. Bureau of Private Investigators & Adjusters (1962), 201 Cal.App.2d 427, 436-437, 20 Cal. Rptr. 194.

4. The California Civil Code reads:

2223. One who wrongfully detains a thing is an involuntary trustee thereof, for the benefit of the owner.
West's Ann.Cal.Civ. Code (2001), § 2223.

2224. One who gains a thing by fraud, accident, mistake, undue influence, the violation of a trust, or other wrongful act, is, unless he or she has some other and better right thereto, an involuntary trustee of the thing gained, for the benefit of the person who would otherwise have had it.
West's Ann.Cal.Civ. Code (2001), § 2224.

5. The elected/appointed members of FTB and all persons acting by or through them are presumed to know all the codified Statutes set out below:

1708. Abstinence from injuring others
...Every person is bound, without contract to abstain from injuring the person or property of another, or infringing upon any of his rights.
(emphasis added) West's Ann.Cal.Civ. Code (2001), § 1708

1709. Deceit; damages
...One who willfully deceives another with intent to induce him to alter his position to his injury or risk, is liable for any damage which he thereby suffers.
West's Ann.Cal.Civ. Code (2001), § 1709

1711. Deceit to defraud public or particular class
...One who practices a deceit with intent to defraud the public, or a particular class of persons, is deemed to have intended to defraud every individual in that class, who is actually misled by the deceit.
West's Ann.Cal.Civ. Code (2001), § 1711

518. Definition
Extortion is the obtaining of property from another, with his consent, ... induced by a wrongful use of force or fear, or under color of official right.
(emphasis added) West's Ann.Cal.Pen. Code (2001), § 518.

521. Punishment; commission under color of official right
Punishment of extortion committed under color of official right. Every person who commits any extortion under color of official right, in cases for which a different punishment is not prescribed in the Code, is guilty of a misdemeanor.
(emphasis added) West's Ann.Cal.Pen. Code (2001), § 521.

522. Every person who, by any extortionate means, obtains from another his signature to any paper or instrument, whereby, if such signature were freely given, any property would be transferred, or any debt, demand, charge, or right of action created, is punishable in the same manner as if the actual delivery of such debt, demand, charge, or right of action were obtained.
(emphasis added) CALIFORNIA PENAL CODE (http://leginfo.ca.gov/cgi-bin/displaycode?section=pen&group=00001-01000&file=518-527 [as of November 3, 2001]).

Section 1341: Whoever, having devised ... any scheme or artifice to defraud, or for obtaining money or property by means of false or fraudulent pretenses, representations, or promises, ... for the purpose of executing such scheme or artifice or attempting so to do, places in any post office or authorized depository for mail matter, any matter or thing whatever to be sent or delivered by the Postal Service, ... shall be fined under this title or imprisoned not more than five years, or both.
(in part) 18 U.S.C.A. (2001), § 1341.

Section 1346: For the purposes of this chapter, the term "scheme or artifice to defraud" includes a scheme or artifice to deprive another of the intangible right of honest services.
(in part, emphasis added) 18 U.S.C.A. (2001), § 1346.

Dated: __________________________________

At: _____________________________________

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