source: Caselaw Access Project

author: CALLAHAN, Circuit Judge:

license: Public Domain

text:
    Fredric A. GARDNER; Elizabeth A. Gardner, Petitioners-Appellants, v. COMMISSIONER OF INTERNAL REVENUE, Respondent-Appellee.
    No. 13-72699
    United States Court of Appeals, Ninth Circuit.
    Filed January 12, 2017
    Submitted October 17, 2016 , San Francisco, California

      Fredric A. Gardner and Elizabeth A. Gardner, Dewey, Arizona, pro se Plaintiffs-Appellants,
    Janet A. Bradley and Bridget M. Rowan, Attorneys; Kathryn Keneally, Assistant Attorney General; Tax Division, United States Department of Justice, Washington, D.C.; for Respondent-Appellee.
    Before: MICHAEL DALY HAWKINS, CONSUELO M. CALLAHAN, and ANDREW D. HURWITZ, Circuit Judges.

       The panel unanimously concludes this case is suitable for decision without oral argument. See Fed. R. App. P. 34(a)(2).

   OPINION

CALLAHAN, Circuit Judge:

Elizabeth and Fredric Gardner assert, in a nutshell, that Bethel Aram Ministries (BAM) is a church, that Elizabeth is its corporation sole, and that both Elizabeth and Fredric have taken vows of poverty (with their maintenance provided by BAM). They argue that based on these facts they did not earn taxable income and are exempt from paying taxes.

The Tax Court, however, determined that the payments received by the Gard-ners were not contributions to BAM and that the Gardners had complete control over BAM’s assets. It concluded that because the Gardners “exercised dominion and control over BAM’s accounts, all taxable deposits into those accounts are in-cludable in their gross income.”

We affirm. The Tax Court’s determinations that the payments were quid pro quo payments for services and not contributions, and that the Gardners have unfettered control over BAM, are supported by substantial evidence.

I

Around 1978, the Gardners received degrees in theology from Christ for the Nations Bible College. In 1993, the Gardners formed BAM as “an unincorporated association in Arizona organized to be an ‘ecclesiastical church ministry.’ ” However, they did not file with the IRS a Form 1023, Application for Recognition of Exemption Under Section 501(c)(3). In 1999, the Gard-ners signed vows of poverty declaring their intent to divest themselves from earnings or wages from BAM and stating that BAM would provide for their needs as pastors of the church ministry. They then transferred all of their assets, including title to their home, to BAM. In 2001, Elizabeth filed articles of incorporation with the State of Nevada, naming her as the corporation sole of BAM. Fredric held himself out as an “Elder, Teacher, Certified Estate & Financial Planner of BAM,” and Elizabeth held herself out as a “Prophetess, Teacher, Pastor and Certified Paralegal” of BAM. Together they have unfettered control over BAM’s operations and finances.

From 2002 until August 2004, BAM did not have any congregation. Rather, the Gardners traveled across the country offering their services in setting up corporations sole and limited liability companies (LLCs). Their promotional literature claimed the benefits of a corporation sole included: (1) the government was not able to interfere in any way; (2) all church workers would be classified as ministers of the gospel and not as employees; (3) there were no filing requirements of any kind; and (4) there were no withholding or self-employment taxes or income tax. The Gardners advised that if a corporation sole received an inquiry from the Internal Revenue Service (IRS), it should notify the IRS that it was a corporation sole and provide no other information.

The Gardners had a “donation” sheet setting forth the costs of their services. It instructed customers to “please make separate checks out” according to the following schedule: “(1) for a corporate sole, BAM for $1,200, Carol Spackman for $80, and the State of Nevada for $85; [and] (2) for an LLC, BAM for $700, Ms. Spackman for $80, and the State of Nevada for $235,” The record indicates that the Gardners established over 300 corporations sole and approximately 18 LLCs for others.

The Gardners failed to file tax returns for the years 2002 through 2004, and refused to provide the IRS with BAM’s books and records. The IRS obtained bank records from BAM’s Wells Fargo accounts through a third-party summons and undertook a bank deposit analysis. The IRS “determined that petitioners had gross bank deposits of $101,722, $219,481, and $281,282 and net taxable deposits of $100,070, $217,973 and $285,679 for 2002, 2003, and 2004, respectively.” The IRS issued notices of deficiency and the Gard-ners petitioned the Tax Court for review.

II

The Tax Court noted that generally the Commissioner’s determination of a taxpayer’s liability is presumed correct, and the taxpayer bears the burden of proving that the determination is improper. Gardner v. Comm’r, 105 T.C.M. (CCH) 1433, at *3 (2013) (citing Welch v. Helvering, 290 U.S. Ill, 115, 54 S.Ct. 8, 78 L.Ed. 212 (1933)). The Tax Court recognized that in the Ninth Circuit for the presumption of correctness to attach in a case involving unreported income, the IRS must “first establish an evidentiary foundation linking the taxpayer to the alleged income-producing activity.” Id. (citing Weimerskirch v. Comm’r, 596 F.2d 358, 361-62 (9th Cir. 1979)). The Tax Court reasonably determined that the IRS had linked the Gard-ners to the payments and that therefore the Gardners bore the burden of proving the deficiencies arbitrary or erroneous. The Tax Court also determined that the bank deposit method of reconstructing income was properly used in this instance. Id. at *4; see Clayton v. Comm’r, 102 T.C. 632, 645 (1994) (holding that the “use of the bank deposit method for computing unreported income has long been sanctioned by the courts” (citing DiLeo v. Comm’r, 96 T.C. 858, 867 (1991), aff'd 959 F.2d 16 (2d Cir. 1992))).

The Tax Court determined that the payments the Gardners deposited into BAM’s bank accounts constituted taxable income to the Gardners. Citing Commissioner v. Glenshaw Glass Co., 348 U.S. 426, 431, 75 S.Ct. 473, 99 L.Ed. 483 (1955), the Tax Court noted that the definition of gross income “is construed broadly and extends to all accessions of wealth, clearly realized, over which the taxpayer has complete control.” Gardner, 105 T.C.M. (CCH) 1433 at *5. It further held that when the IRS reconstructs income using the bank deposit method, it may include gross income deposited into all accounts over which the taxpayer has dominion and control, even “where a taxpayer has dominion and control over an account titled in the name of a church or other religious organization.” Id.; see Woods v. Comm’r, 58 T.C.M. (CCH) 673 (1989), aff'd, 929 F.2d 702 (6th Cir. 1991).

Relying on its decision in a strikingly similar case, Gunkle v. Commissioner, 104 T.C.M. (CCH) 527 (2012), aff'd, 753 F.3d 502 (5th Cir. 2014), the Tax Court rejected the Gardners’ arguments that their deposits were gifts or donations to a legitimate church, that they had taken vows of poverty, and that they acted as agents of BAM. The Gunkles, with the Gardners’ assistance, had established their religious organization as a corporation sole. The Gun-Ides then signed vows of poverty stating that then’ church would provide for their support. The Gunkles used funds in the pastoral account to pay living and personal expenses, but did not report deposits into the account as income. The Tax Court rejected the Gunkles’ arguments that the deposits were nontaxable gifts and that their vows of poverty insulated them from taxation on the compensation they received for their services to their church. In rejecting the Gardners’ similar claims, the Tax Court cited its holding in Gunkle that “[pjayments or benefits received in exchange for services rendered by individuals and not on behalf of a separate and distinct principal are taxable to the individuals.” Gardner, 105 T.C.M. (CCH) 1433 at *6.

The Tax Court found that the deposits into BAM’s bank accounts “were compensation to petitioners for the services they performed in setting up corporations sole, LLCs, and trusts,” and “were not gifts or donations [but] represented a quid pro quo exchange; i.e., the payors were receiving petitioners’ services in consideration for their payments.” Id.

The Tax Court next rejected the Gard-ners’ arguments concerning their vows of poverty and that they were acting as agents of BAM. It noted that the Gardners did not have any personal bank accounts, used BAM’s accounts as their own and for their own benefit, deposited the payments they received from setting up corporations sole and LLCs into BAM’s accounts, withdrew funds from BAM’s accounts to pay their personal expenses, and exercised complete dominion and control over BAM’s accounts. The Tax Court noted that there was “no evidence that petitioners were accountable to anyone for the funds in BAM’s accounts.” Id. Accordingly, the Tax Court concluded that the deposits into the BAM accounts were includable in the Gardners’ gross income.

In addition, the Tax Court held that the Gardners’ self-employment income was subject to self-employment tax. It rejected the Gardners’ claim that they were exempt from self-employment tax because they are ordained ministers. Id. at *7-8. The Tax Court determined that the Gardners failed to present “any credible evidence that they had submitted a Form 4361, Application for Exemption From Self-Employment Tax for Use by Ministers, Members of Religious Orders and Christian Science Practitioners, for the years in issue that was approved by the IRS.” Id. at *8. The Tax Court concluded that the Gardners had “failed to prove they were exempt from self-employment tax during the years in issue.” Id.

Ill

We review decisions of the Tax Court on the same basis as decisions in civil bench trials in district court, and accordingly, we review conclusions of law de novo and questions of fact for clear error. Johanson v. Comm’r, 541 F.3d 973, 976 (9th Cir. 2008); Milenbach v. Comm’r, 318 F.3d 924, 930 (9th Cir. 2003).

A. The payments were not contributions.

In Hernandez v. Commissioner, 490 U.S. 680, 109 S.Ct. 2136, 104 L.Ed.2d 766 (1989), the Supreme Court established a quid pro quo test for determining whether a payment was a contribution. Id. at 690-91, 109 S.Ct. 2136 (noting that the sine qua non of a charitable contribution is a transfer of money or property without adequate consideration). The Court held that payments to the Church of Scientology for “auditing” or pastoral counseling were not contributions as “these payments were part of a quintessential quid pro quo exchange: in return for their money, petitioners received an identifiable benefit, namely auditing and training sessions.” Id. at 691, 109 S.Ct. 2136.

Similarly, the Gardners, in exchange for money, provided “identifiable benefits,” — the creation of corporations sole and LLCs. In addition, as in Hernandez, here the Gardners had a schedule of set amounts payable for the benefits they offered. 490 U.S. at 685, 109 S.Ct. 2136. That the payments were referred to as suggested donations is not dispositive; it is the quid pro quo nature of the exchange that controls. Id. at 690-91, 109 S.Ct. 2136.

The Gardners’ First Amendment argument is similarly foreclosed by Hernandez, which rejected the Church of Scientology’s argument that declining to treat the payments as contributions violated the Establishment Clause. Applying the test from Lemon v. Kurtzman, 403 U.S. 602, 91 5.Ct. 2105, 29 L.Ed.2d 745 (1971), the Court found that the statute: (1) made no explicit or deliberate distinction between different religious organizations, but applied to all religious entities; (2) neither advanced nor inhibited religion; and (3) threatened no entanglement between church and state. Hernandez, 490 U.S. at 695-96, 109 S.Ct. 2136. The Court further noted that even if it were necessary “to ascertain what portion of a payment was a purchase and what portion was a contribution,” this would “not ineluctably create entanglement problems.” Id. at 697, 109 S.Ct. 2136. Applying the Lemon test to the Gardners’ case produces the same conclusion. Treating the Gardners’ recompense for setting up corporations sole and LLCs as taxable income does not distinguish between religious organizations, neither advances nor inhibits religion, and threatens no entanglement.

We conclude that the Tax Court properly applied Hernandez in holding that the payments to the Gardners for creating corporations sole and LLCs were not donations to BAM.

B. The Gardners had complete control over the payments to BAM.

The Tax Court’s determination that the Gardners had complete control over the payments to BAM is a factual issue reviewed for clear error. See Nunley v. Comm’r, 758 F.2d 372, 373 (9th Cir. 1985). There is substantial evidence that the Gardners had complete dominion and control over the payments deposited in BAM’s accounts and that they used those funds to cover their personal expenses, including a veterinarian bill. Indeed, the Gardners do not really deny that they exercised complete control over BAM and its accounts.

Rather than directly challenge the Tax Court’s factual findings, the Gardners argue that the IRS and the Tax Court should have respected BAM’s separate identity. This seems a little like arguing that Clark Kent is not Superman. Certainly Superman displays abilities that Clark Kent denies having, but they are one and the same. Similarly, here, there is no practical distinction between the Gardners and BAM.

The Gardners’ assertion that their creation of a religious organization over which they have complete control insulates them from taxes is contrary to longstanding Supreme Court precedent. As early as 1930, the Supreme Court in Corliss v. Bowers, 281 U.S. 376, 378, 50 S.Ct. 336, 74 L.Ed. 916 (1930), held that “taxation is not so much concerned with the refinements of title as it is with actual command over the property taxed — the actual benefit for which the tax is paid.” The Court concluded that “[t]he income that is subject to a man’s unfettered command and that he is free to enjoy at his own opinion may be taxed to him as his income, whether he sees fit to enjoy it or not.” Id. Over forty years later in United States v. Basye, 410 U.S. 441, 449-50, 93 S.Ct. 1080, 35 L.Ed.2d 412 (1973), the Supreme Court reaffirmed that the principle “that he who earns income may not avoid taxation through anticipatory arrangements no matter how clever or subtle, has been repeatedly invoked by this Court and stands today as a cornerstone of our graduated income tax system.”

Here, the Gardners’ vows of poverty attempt to disguise their enjoyment of their personal income. Pursuant to Corliss and Basye, as long as the Gardners have complete control over the funds, it makes no practical difference whether the funds are titled in their names or in BAM’s.

Our approach is in accord with the Fifth Circuit’s opinion in Gunkle, which framed the nub of the controversy as follows:

Income received by the agent of a principal is deemed to be the income of the principal and not the income of the agent. It follows that income received by a member of a religious order as the agent of the order, promptly delivered to the order based on the agent’s vow of poverty, is deemed to be the income of the order and not of the agent. Conversely, however, a member of a religious order who earns or receives income therefrom in his individual capacity cannot avoid taxation on that income merely by taking a vow of poverty and assigning the income to that religious order or institution. The same rule applies to entities organized as corporation soles. [A]n individual has received income when he gains complete dominion and control over money or other property, thereby realizing an economic benefit.

753 F.3d at 507-08 (footnotes omitted). The Fifth Circuit did not expressly address the problem it identified: How does a court determine whether income is received by a member of a religious order as the agent of the order, or whether the member of a religious order earns or receives income therefrom in his individual capacity? However, it determined that the Gunkles had unrestricted dominion and control over their pastoral accounts and that their compensation was taxable. Id. at 508. Thus, the Fifth Circuit implicitly recognized that there was no real distinction between the Gunkles and their wholly-controlled religious entity. Clark Kent is not distinguishable from Superman.

This was also the holding of the Tax Court in Gunkle, which underlies the Tax Court decision in the Gardners’ case, and which we now endorse. In Gunkle, the Tax Court explained that payments in exchange for services “rendered by individuals and not on behalf of a separate and distinct principal are taxable to the individuals.” Gunkle, 104 T.C.M. (CCH) 527 at *3 (emphasis added). Thus, consistent with the Supreme Court’s admonition in Corliss, 281 U.S. at 378, 50 S.Ct. 336, that taxation is concerned with the “actual command over the property taxed,” the Tax Court — having determined that the Gard-ners retained dominion over the funds— properly concluded that they had received the payments in their individual capacities, and not as agents of BAM.

The exercise of complete dominion and control over the funds at issue was also dispositive in Woods v. Commissioner, 58 T.C.M. (CCH) 673 (1980). There, the Tax Court explained that it was “not necessary to disregard the separate existence of the church or to challenge the tax status of the church as an entity in order to sustain respondent’s determinations in this case” because however the petitioners obtained the funds “petitioners exercised complete dominion and control over deposits into the various bank accounts.” Id. In Woods, as with the Gardners and the Gunkles, the taxpayers’ complete control over their “churches” supports the determination that the taxpayers’ receipts constituted taxable income for the taxpayers despite the assignment of those receipts to their churches.

The Gardners attempt to distinguish Gunkle on the ground that the Gunkles deposited Social Security payments and retirement pay, which were not earned as part of their ministry, into their corporation sole’s accounts. In contrast, the Gard-ners suggest that creating corporations sole is consistent with their church’s mission. But the rulings by the Fifth Circuit and the Tax Court, and our holding in this case, focus not on what the taxpayer did to obtain a payment, but on which party exercised dominion and control over the funds. As long as the individual taxpayer (the purported agent) remains, as a practical matter, in complete control over the income after it is transferred to the church (the purported principle) it is income to the individual.

The Tax Court’s ruling that the payments are taxable is affirmed on the grounds that the Gardners, the purported agents of BAM, earned the payments as individuals and retained complete control over the payments even after their transfer to BAM, the purported principal.

IY

Finally, the Gardners argue that they are exempt from paying income taxes pursuant to 26 U.S.C. § 1402. They note that 26 C.F.R. § 1.1402(e)-2A(a)(l) states, in relevant part:

Subject to the limitations set forth in subparagraphs (2) and (3) of this paragraph, any individual who is ... a duly ordained, commissioned, or licensed minister of a church or a member of a religious order (other than a member of a religious order who has taken a vow of poverty as a member of such order) ... may request an exemption from the tax on self-employment income (see section 1401 and § 1.1401-1) with respect to services performed by him in his capacity as a minister or member ... as the case may be.

The Gardners contend that this regulation exempts them — as members of a religious order who have taken vows of poverty — from having to request an exemption from tax on self-employment income by filing a Form 4361, Application for Exemption From Self-Employment Tax for Use by Ministers, Members of Religious Orders and Christian Science Practitioners.

Even assuming, however, that the Gard-ners reasonably determined that they were not required to file a Form 4361, it does not follow that they are exempt from self-employment tax. The exemption from self-employment tax is only applicable to “services performed by [one] in his capacity as a minister or member.” 26 C.F.R. § 1.1402(e)-2A(a)(l); see Wingo v. Comm’r, 89 T.C. 922, 929 (1987). Because the Tax Court reasonably concluded that the Gardners received payment in exchange for their work in setting up corporations sole and LLCs, and not in the exercise of a ministry, this exception does not apply. Accordingly, they have not shown that they qualify for exemption from self-employment tax under 26 U.S.C. § 1402.

V

Elizabeth and Fredric Gardner were free to create BAM, a corporation sole, but this did not exempt their personal income from taxation. The payments they received were quid pro quo payments for their services in setting up corporations sole and LLCs; they were not contributions to BAM. Moreover, the Gardners retained complete dominion and control over BAM and its accounts. Because the payments were made in exchange for the Gardners’ services, and the Gardners retained complete dominion and control over the payments even after they were deposited into BAM’s accounts, the Tax Court properly concluded that the payments received by the Gardners are taxable and that they are subject to self-employment tax. The Tax Court’s decision is AFFIRMED.

      .The IRS’s tax guide for Churches and Religious Organizations notes that "religious organizations may be legally organized in a variety of ways under state law, such as unincorporated associations, non-profit corporations, corporations sole, and charitable trusts.” The IRS has defined a “corporation sole” as "a corporate form authorized under certain state laws to enable bona fide religious leaders to hold property and conduct business for the benefit of the religious entity.' ” Rev. Rui. 2004-27, 2004-1 C.B. 625, 626, 2004 WL 389673, at *1.

      . Ms. Spackman served as the registered agent in Nevada for most of the corporations sole the Gardners established.

      . In March 2008, the U.S. District Court for the District of Arizona enjoined the Gardners from "[o]rganizing, promoting, marketing, or selling corporations sole or any tax shelter, plan or arrangement, that advises, assists, or encourages taxpayers to attempt to violate the internal revenue laws or unlawfully evade the assessment or collection of their federal tax liabilities.” United States v. Gardner, No. CV-05-3073-PCT-EHC, 2008 WL 906696, at *6 (D. Ariz. Mar. 21, 2008). The district court found that the Gardners had participated in an abusive tax shelter program promising unwarranted tax benefits from corporations sole. Id. at *5. The injunction was affirmed on appeal. United States v. Gardner, 457 Fed. Appx. 611, 612 (9th Cir. 2011).

      . On appeal, the Gardners do not challenge the use of the bank deposit method.

      . The remainder of the Tax Court's opinion addresses issues not germane to this appeal.

      . The Gardners’ argument that witnesses testified that they intended the payments to be contributions is not persuasive. Although the witnesses indicated that they referred to the payments as contributions, none denied that the payments were made in return for the Gardners’ assistance in forming corporations sole. In other words, none denied the quid pro quo nature of the transactions.

      . We and our sister circuits have reiterated this position. See George v. Comm’r, 837 F.3d 79, 85 (1st Cir. 2016); C.M. Thibodaux Co., Ltd. v. United States, 915 F.2d 992, 994 (5th Cir. 1990); United States v. Tranakos, 911 F.2d 1422, 1431 (10th Cir. 1990); United States v. Krall, 835 F.2d 711, 714 (8th Cir. 1987); United States v. Russell, 804 F.2d 571, 574 (9th Cir. 1986); Fogarty v. United States, 780 F.2d 1005, 1008 (Fed. Cir. 1986); O’Donnell v. Comm’r, 726 F.2d 679, 681 (11th Cir. 1984); Armantrout v. Comm’r, 570 F.2d 210, 212 (7th Cir. 1978).

      . Of course, certain payments, although income, may not be taxable. For example, if an individual’s compensation for an injury is not considered taxable income, it would not become taxable just because the individual assigned it to his church. Also, if Elizabeth Gardner sells copies of her book at cost, so that there is no net profit, she would have gross income, but this might not be taxable income. On the other hand, any profit from the sale of the books likely would be taxable income regardless of whether the books were purportedly sold by Elizabeth or BAM as long as Elizabeth continued to exercise complete dominion and control over the funds.

      . The Gardners do not actually claim that setting up corporations sole is part of their ministry. Indeed, creating corporations sole does not appear to have any relationship to BAM’s mission. Its mission statement reads:
      The mission of Bethel Aram Ministries an ecclesiastical church is to manifest Yahsh-ua/Jesus’ glory throughout the earth; to do the work of the ministry through religious, charitable, educational and/or humanitarian purposes for the perfecting of the saints; provide scriptural education materials, establish congregations, practice, teach, preach the Good News of Messiah in order to bring people to a personal relationship with Yahshua/Jesus the Messiah to obey the Commandments of the Sovereign Holy Nation of the Most High and the Good News of the Saviour in congregations through affiliated fellowships of Saints of Yahsh-ua/Jesus, the Messiah and King of His Sovereign Kingdom.


author: HURWITZ, Circuit Judge:

text:
    KUM TAT LIMITED, Plaintiff-Appellant, v. LINDEN OX PASTURE, LLC, Defendant-Appellee.
    No. 14-17472
    United States Court of Appeals, Ninth Circuit.
    Argued and Submitted December 15, 2016, San Francisco, California
    Filed January 13, 2017

      Charles Michael Schaible (argued) and ■Patrick P. Gunn, Cooley LLP, San Francisco, California, for Plaintiff-Appellant.
    Jeffrey L. Fillerup (argued), Rincon Law LLP, San Francisco, California, for Defendant-Appellee.
    Before: CARLOS F. LUCERO, SUSAN P. GRABER, and ANDREW D. HURWITZ, Circuit Judges.

       The Honorable Carlos F. Lucero, Circuit Judge, United States Court of Appeals for the Tenth Circuit, sitting by designation.

   OPINION

HURWITZ, Circuit Judge:

Kum Tat Limited (“Kum Tat”) moved to compel arbitration of a claim against Linden Ox Pasture, LLC (“Linden Ox”), in connection with an attempted purchase of a California residence. The arbitration motion relied only on state law, and Kum Tat later emphasized that the motion was not filed pursuant to the Federal Arbitration Act (“FAA”), 9 U.S.C. §§ 1-16. The district court denied the motion, and Kum Tat filed this interlocutory appeal, invoking appellate jurisdiction under the FAA. We dismiss the appeal for lack of jurisdiction.

BACKGROUND

A. Contract negotiations

In May 2014, Kum Tat, a Chinese corporation, offered to buy a residential property from Linden Ox, a Florida limited liability corporation, for $38 million. The offer included all “furniture,” “art work,” and “decorative items,” and required Linden Ox to submit an “[e]xclusion list of any personal items” within five days of acceptance. The offer provided that any disputes “arising out of this Contract” would be arbitrated and that the parties “MAY BE COMPELLED TO ARBITRATE UNDER THE AUTHORITY OF THE CALIFORNIA CODE OF CIVIL PROCEDURE.”

Linden Ox initialed the arbitration clause in the offer, but counter-offered to sell for $43 million. The counter-offer included “furniture” but excluded certain artwork and other items, and it provided that Linden Ox would send “a specific exclusion list” within seven days of acceptance of the counter-offer for Kum Tat to “approve.”

Kum Tat then counter-offered at $41 million; the counter-offer included “furniture” and “decorative items” but excluded certain artwork. The counter-offer stated that Kum Tat had to “review and approve” Linden Ox’s inclusion and exclusion lists in order to “Fully Ratify” the contract:

Seller to provide a specific exclusion and inclusion lists the same day signing Counter Offer No. Two (2) as the Record, and Buyer to review and approve in order to Fully Ratify this Purchase Contract.

Linden Ox signed this counter-offer in the space marked “Acceptance” and sent Kum Tat detailed inclusion and exclusion lists.

Several days later, Kum Tat notified Linden Ox that it “disapproved the exclusion list” and was “requesting a small reduction” in price. That evening, Kum Tat notified Linden Ox that it “accepts” the exclusion list and that the contract would be “fully ratified” upon Linden Ox’s acceptance of a price reduction:

Buyers accepts seller’s exclusion list delivered on 5/30/2014, with a purchase price reduction of $500,000.00 — total purchase price to be $40,500,000.00. Contract to be fully ratified by acceptance of this addendum.

Linden Ox did not accept the addendum. Rather, on the next day, Linden Ox rejected the price reduction and terminated negotiations. It later agreed to sell the property to a third party.

B. Litigation

Kum Tat sued Linden Ox in California state court, claiming breach of contract and recording a lis pendens on the property. Asserting diversity, Linden Ox removed the suit to the Northern District of California and moved to expunge the lis pendens. The district court granted the motion.

Kum Tat then moved “for an order compelling arbitration and staying this action” pursuant to California “Code of Civil Procedure sections 1281.2 and 1281.4.” Kum Tat’s motion did not cite the FAA, instead arguing that “California law governs this motion” and that, “under California law, this dispute must be arbitrated.” The district court denied the motion, finding that the parties had not entered a binding agreement to arbitrate.

Kum Tat filed a notice of appeal and sought a stay pending appeal. Kum Tat’s stay motion, in attempting to distinguish an unfavorable Ninth Circuit case interpreting the FAA, emphasized that Kum Tat’s motion to compel arbitration was made under state law only.

Kum Tat’s opening brief in this court cited 9 U.S.C. § 16(a)(1) as the source of appellate jurisdiction. Although Linden Ox’s answering brief did not contest jurisdiction, we requested supplemental briefing on the applicability of § 16(a)(1), in view of our independent obligation to ensure jurisdiction. See WMX Techs., Inc. v. Miller, 104 F.3d 1133, 1135 (9th Cir. 1997) (en banc) (holding that we must consider our jurisdiction). Kum Tat’s supplemental brief maintains that § 16(a)(1) authorizes this interlocutory appeal and, alternatively, asks us to construe the appeal as a petition for a writ of mandamus.

DISCUSSION

A. 9 U.S.C. § 16(a)(1)

Although our appellate jurisdiction is generally limited to “final decisions” of district courts, 28 U.S.C. § 1291, the FAA authorizes interlocutory appeals from the orders described in 9 U.S.C. § 16(a)(1). See Arthur Andersen LLP v. Carlisle, 556 U.S. 624, 627-28, 129 S.Ct. 1896, 173 L.Ed.2d 832 (2009). FAA appellate jurisdiction extends to orders “refusing a stay of any action under section 3 of this title,” § 16(a)(1)(A), and orders “denying a petition under section 4 of this title to order arbitration to proceed,” § 16(a)(1)(B). We interpret this statute “according to its ordinary meaning” and “do not add to the jurisdictional provisions set forth by Congress.” Van Dusen v. Swift Transp. Co., 830 F.3d 893, 897 (9th Cir. 2016).

Kum Tat’s motion to compel arbitration and stay litigation was neither “under section 3” nor “under section 4” of the FAA. The motion expressly urged application only of California arbitration law and contained no citation to the FAA. Significantly, Kum Tat later emphasized that the motion was not made under the FAA. Thus, we hold that the order denying the motion was not an order from which § 16(a)(1) permits an interlocutory appeal.

Our sister circuits have reached similar conclusions. The Third Circuit has held that § 16(a) does not permit appellate “review of a non-FAA, state-law arbitration claim in an otherwise nonappealable interlocutory order.” Palcko v. Airborne Express, Inc., 372 F.3d 588, 594 (3d Cir. 2004). The Seventh Circuit has held that § 16(a) does not apply “to a motion to stay litigation when state rather than federal law is the source of the obligation to arbitrate.” Sherwood v. Marquette Transp. Co., 587 F.3d 841, 843 (7th Cir. 2009). And the Tenth Circuit has held that § 16(a) is not “an avenue for interlocutory appeal of a motion to confirm brought under one of any fifty state laws.” KCOM, Inc. v. Emp’rs Mut. Cas. Co., 829 F.3d 1192, 1197-98 (10th Cir. 2016).

Kum Tat argues that its state-law motion is appealable under § 16(a)(1) because the “essence” of the motion was a request for arbitration. But the cases cited by Kum Tat are inapposite. In Western Security Bank v. Schneider Ltd. Partnership, the question was whether a stay motion that did “not seek to compel a party to arbitrate” was brought under the FAA. 816 F.3d 587, 588-89 (9th Cir. 2016) (order). We said no and dismissed for lack of jurisdiction. Id. at 590. Similarly, in Conrad v. Phone Directories Co., the question was whether a “generic motion to dismiss under Rule 12” was brought under the FAA. 585 F.3d 1376, 1379-81 (10th Cir. 2009). The Tenth Circuit said no and dismissed for lack of jurisdiction. Id. at 1386. In both cases, the movant did not seek the remedy provided by the FAA: arbitration. This case is different. There is no question that Kum Tat sought arbitration, but it did not invoke — and indeed disclaimed — the FAA as the source of that remedy.

Allowing an appeal from the denial of a state-law arbitration motion might well comport with “the FAA’s policy favoring arbitration agreements.” Green Tree Fin. Corp.-Ala. v. Randolph, 531 U.S. 79, 85-86, 121 S.Ct. 513, 148 L.Ed.2d 373 (2000). But Congress chose to authorize interlocutory review only of denials of arbitration motions brought “under” the FAA, and we cannot “invoke the policy of the FAA to expand the scope of appellate jurisdiction in § 16.” Van Dusen, 830 F.3d at 898. Of course, as “the master of its motion,” a litigant may simply request arbitration under the FAA, rendering appellate jurisdiction over an adverse decision “crystal clear.” KCOM, 829 F.3d at 1196-97.

Kum Tat also argues that, though it chose to seek arbitration under state law, it would have been entitled to arbitration under the FAA had it so claimed. But our jurisdietion turns on whether Kum Tat “invoked” the FAA, see Arthur Andersen, 556 U.S. at 629, 129 S.Ct. 1896, not whether it theoretically could have. Kum Tat “cannot now morph a motion brought under [state law] into one brought under the FAA” KCOM, 829 F.3d at 1197.

B. Mandamus

Kum Tat alternatively requests that we construe its appeal as a petition for a writ of mandamus. Our discretionary decision to do so “depends on whether mandamus is itself justified.” Stanley v. Chappell, 764 F.3d 990, 996 (9th Cir. 2014) (quoting Hernandez v. Tanninen, 604 F.3d 1095, 1099 (9th Cir. 2010)). And, mandamus is warranted only if, among other requirements, a district court order is clearly erroneous. Id.

The district court did not clearly err in reserving for itself the question whether the parties agreed to arbitrate. Athough challenges to the validity of a contract with an arbitration clause are to be decided by the arbitrator, see Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 444-46 & n.l, 126 S.Ct. 1204, 163 L.Ed.2d 1038 (2006), challenges to the very existence of the contract are, in general, properly directed to the court, see Sanford v. MemberWorks, Inc., 483 F.3d 956, 962 (9th Cir. 2007); Three Valleys Mun. Water Dist. v. E.F. Hutton & Co., 925 F.2d 1136, 1140-41 (9th Cir. 1991). Linden Ox’s argument that there was “no contract” was a challenge to the existence of a contract.

Nor did the district court clearly err in concluding the parties did not form a contract. “Contract formation requires mutual consent, which cannot exist unless the parties ‘agree upon the same thing in the same sense.’ ” Bustamante v. Intuit, Inc., 141 Cal.App.4th 199, 45 Cal.Rptr.3d 692, 698 (2006) (quoting Cal. Civ. Code § 1580). The district court did not clearly err in interpreting Kum Tat’s “review and approve” clause in its counter-offer and its subsequent request for a $500,000 price reduction as showing an absence of mutual consent, rather than as an application of an inspection contingency clause in Kum Tat’s initial offer. We therefore decline to treat its appeal as a petition for a writ of mandamus. Stanley, 764 F.3d at 996.

APPEAL DISMISSED.

      . The case in question was Britton v. Co-op Banking Group, 916 F.2d 1405 (9th Cir. 1990), Kum Tat stated:

        Britton was decided pursuant to §§ 15(a)(1)(A) and (B) of the Federal Arbitration Act, and concerned a motion to compel arbitration made pursuant to § 4 of the Federal Arbitration Act. In contrast, Kum Tat’s motion to compel arbitration was made pursuant to section 1281.2 of the [California] Code of Civil Procedure....
      The district court denied a stay pending appeal, but this court granted a stay.

      . We therefore need not decide today whether a more ambiguous arbitration motion — for example, one that cites neither state nor federal arbitration law — is "under” the FAA.

      . The parties dispute whether the FAA could govern any motion to compel because the arbitration clause at issue cites California law. The parties also dispute whether the underlying transaction involves interstate commerce for FAA purposes. See Saneii v. Robards, 289 F.Supp.2d 855, 860 (W.D. Ky.2003) (concluding that “a residential real estate sales contract does not evidence or involve interstate commerce”). Had Kum Tat moved for arbitration under the FAA, the district court could have addressed these issues. We decline to adopt a rule that would allow a party to avoid a decision on such issues in the district court by moving for arbitration solely under state law, yet require us to confront them in the first instance on appeal.

      . Kum Tat also appealed the district court's order expunging the lis pendens and asks us either to exercise pendent appellate jurisdiction or to treat that appeal as a petition for mandamus. We cannot exercise pendent jurisdiction in the absence of other appellate jurisdiction, and mandamus is not justified for the lis pendens order in the absence of clear error in the district court’s finding that no contract was formed.


author: PAEZ, Circuit Judge:

text:
    Zakia MASHIRI, Plaintiff-Appellant, v. EPSTEN GRINNELL & HOWELL; Debora M. Zumwalt; Does 1-25, Defendants-Appellees.
    No. 14-56927
    United States Court of Appeals, Ninth Circuit.
    Argued and Submitted October 4, 2016, Pasadena, California
    Filed January 13, 2017

      Asil Marhiri (argued), Mashiri Law Firm, San Diego, California, for Plaintiff-Appellant.
    Anne Lorentzen Rauch (argued), Mandy D. Hexom, and Rian W. Jones, Epsten Grinnell & Howell APC, San Diego, California, for Defendants-Appellees.
    Before: DOROTHY W. NELSON and RICHARD A. PAEZ, Circuit Judges, and ELAINE E. BUCKLO, District Judge.

       The Honorable Elaine E. Bucklo, United States District Judge for the Northern District of Illinois, sitting by designation.

   OPINION

PAEZ, Circuit Judge:

Zakia Mashiri (“Mashiri”) appeals the dismissal of her complaint alleging that the law firm of Epsten Grinnell & Howell and attorney Debora M. Zumwalt (collectively, “Epsten”) committed unlawful debt collection practices in violation of the Fair Debt Collection Practices Act (“FDCPA”), 15 U.S.C. §§ 1692 et seq., the Rosenthal Fair Debt Collection Practices Act (“Rosenthal Act”), Cal. Civ. Code §§ 1788 et seq., and the California Unfair Competition Law, Cal. Bus. & Prof. Code §§ 17200, et seq. Mashiri alleges that Epsten sent her a debt collection letter in May 2013 demanding payment of an assessment fee from her homeowners’ association. She alleges that the letter contained language that overshadowed and conflicted with her FDCPA right to thirty days in which to dispute the debt. On a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6), the district court dismissed Mashiri’s FDCPA claims, concluding that the collection letter satisfactorily explained her right to dispute the debt and therefore did not improperly threaten to record a lien. Because Mashi-ri’s state law claims were dependant on her FDCPA claims, the court also dismissed Mashiri’s Rosenthal Act and Unfair Competition Law claims.

We hold that the district court erred. Mashiri has alleged a plausible claim for relief because the collection letter contains language that overshadows and conflicts with her FDCPA debt validation rights when reviewed under the “least sophisticated debtor” standard. We also reject Ep-sten’s argument, raised for the first time on appeal, that in sending the collection letter, it merely sought to perfect a security interest and is therefore subject only to the limitations in § 1692f(6). We hold that Epsten is subject to the full scope of the FDCPA. We reverse and remand for further proceedings consistent with this Opinion.

I.

Mashiri alleges that she owns a home in San Diego, California and is a member of the Westwood Club homeowners’ association (“HOA”). As a member, Mashiri incurs annual assessment fees. Mashiri failed to pay in a timely manner the $385 fee assessed in July 2012.

In a collection letter dated May 1, 2013 (the “May Notice”), Epsten, on behalf of the HOA, sought to collect Mashiri’s overdue assessment fee, as well as corresponding late, administrative, and legal fees. The May Notice also included a warning that failure to pay the assessment fee would result in the HOA recording a lien against Mashiri’s property. This notice is required by section 5660 of the Davis-Stirling Common Interest Development Act, Cal. Civ. Code §§ 4000 et seq., which governs the collection of overdue homeowners’ association assessments. The May Notice stated, in pertinent part:

This letter is to advise you that $598.00 is currently owing on your Association assessment account. Failure to pay your assessment account in full within thirty-five (35) days from the date of this letter will result in a lien being recorded against your property upon authorization of the Board of Directors. All collection costs incurred will be charged to your account.
Unless you notify this office within 30 days of receiving this notice that you dispute the validity of the debt or any portion thereof, this office will assume this debt is valid. If you notify this office in writing within thirty (30) days of receiving this notice that the debt, or any portion thereof, is disputed, we will obtain verification of the debt or a copy of the judgment against you (if applicable) and a copy of [ ] such verification or judgment will be mailed to you.
You have the right to inspect the association records pursuant to Corporations Code Section 8333. You may submit a written request to meet with the Board to discuss a payment plan for this debt. You shall not be liable to pay the charges, interest and costs of collection if it is determined the assessment was paid on time to the Association. You have the right to dispute the assessment debt by submitting a written request for dispute resolution to the association pursuant to the association’s “meet and confer” program required in Civil Code Section [5900] et seq., and the Board offers to participate in dispute resolution. You have the right to request alternative dispute resolution with a neutral third party pursuant to Civil Code Section [5925] et seq. before the association may initiate foreclosure against your separate interest, except that binding arbitration shall not be available if the association intends to initiate a judicial foreclosure.
IMPORTANT NOTICE: IF YOUR SEPARATE INTEREST IS PLACED IN FORECLOSURE BECAUSE YOU ARE BEHIND IN YOUR ASSESSMENTS, IT MAY BE SOLD WITHOUT COURT ACTION.
This is a communication from a debt collector attempting to collect a debt and any information obtained will be used for that purpose.

Accompanying the May Notice, Epsten included copies of Mashiri’s account statement and the HOA’s assessment collection policy.

On or about May 20, 2013, in a letter to Epsten, Mashiri disputed the debt and requested that Epsten validate it. Mashiri also stated that she never received a bill for the July 2012 assessment fee. Approximately two weeks later, on June 5, Epsten responded with another copy of Mashiri’s account statement.

On June 18, 2013, Epsten, on behalf of the HOA, recorded a lien on Mashiri’s property in the amount of $928, reflecting the $598 she previously owed and $330 in additional legal fees. Three days later, on June 21, Mashiri sent the HOA a check for $385. In a letter accompanying the check, Mashiri disputed the balance of the debt. As required by the Davis-Stirling Act, on June 24, Epsten notified Mashiri of the lien. Cal. Civ. Code § 5675(e).

Mashiri ultimately filed her complaint alleging violations of the FDCPA, the Ro-senthal Act, and the Unfair Competition Law based on the contents of the May Notice. Epsten subsequently moved to dismiss the complaint pursuant to Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim. The district court granted Epsten’s motion to dismiss, concluding, inter alia, that the May Notice “complied with the clarity and accuracy requirements” of the FDCPA and therefore “did not threaten to take action that could not legally be taken” as prohibited by the FDCPA. The district court dismissed Mashiri’s state law claims as dependant on her FDCPA claims. Mashiri timely appealed.

II.

We review de novo a dismissal under Rule 12(b)(6). Ariz. Students’ Ass’n v. Ariz. Bd. of Regents, 824 F.3d 858, 864 (9th Cir. 2016). For purposes of our review, we accept the complaint’s well-pleaded factual allegations as true and construe all inferences in favor of Mashiri. Id. The “complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face.” Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937,173 L.Ed.2d 868 (2009) (internal quotation marks omitted). “The plausibility standard is not akin to a ‘probability requirement,’ but it asks for more than a sheer possibility that a defendant has acted unlawfully.” Id. (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 556, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)).

III.

Congress enacted the FDCPA “to eliminate abusive debt collection practices by debt collectors, to insure that those debt collectors who refrain from using abusive debt collection practices are not competitively disadvantaged, and to promote consistent State action to protect consumers against debt collection abuses.” 15 U.S.C. § 1692(e). In furtherance of these stated goals, “[t]he FDCPA subjects ‘debt collectors’ to civil damages for engaging in certain abusive practices while attempting to collect debts.” Ho v. ReconTrust Co., NA, 840 F.3d 618, 620 (9th Cir. 2016).

Mashiri challenges the district court’s ruling that she did not allege a plausible violation of § 1692g of the FDCPA, and its corresponding dismissal of the § 1692e(5) and state law claims that depended on her § 1692g claim. See 15 U.S.C. § 1692g. She argues that the May Notice violated § 1692g for two reasons. First, she contends that the May Notice demanded payment sooner than the expiration of the debtor’s thirty-day dispute period. Second, she claims that by threatening to record a lien within thirty-five days, irrespective of whether she disputed the debt, Epsten failed to explain effectively a debtor’s right to dispute the debt. Epsten counters that it was not attempting to collect a debt and therefore the May Notice needed to comply only with the obligations in § 1692f(6) of the FDCPA relating to enforcement of security interests. Epsten further argues that even if it is subject to § 1692g, it complied with the statutory requirements. We turn first to whether Epsten is subject solely to § 1692f(6), and then discuss whether Mashiri has sufficiently alleged a violation of § 1692g and related claims.

A.

For the first time in its answering brief, Epsten argues that it is subject only to § 1692f(6) because it sent the May Notice to perfect the HOA’s right to record an assessment lien against Mashiri’s property under California Civil Code section 5660. “Ordinarily, we decline to consider arguments raised for the first time on appeal.” Dream Palace v. Cty. of Maricopa, 384 F.3d 990, 1005 (9th Cir. 2003). We have, however, recognized an exception where “the issue presented is purely one of law and either does not depend on the factual record developed below, or the pertinent record has been fully developed.” Cold Mountain v. Garber, 375 F.3d 884, 891 (9th Cir. 2004) (quoting Bolker v. Comm’r, 760 F.2d 1039, 1042 (9th Cir. 1985)). Here, Epsten presents a legal issue concerning the applicability of FDCPA provisions when a debt collector seeks, in part, to perfect a security interest and preserve the creditor’s right to record a lien. The pertinent facts, including the communications between Epsten and Mashiri, are not disputed. In addition, Mashiri responded to Epsten’s argument in her reply brief and therefore suffers no prejudice if we consider the argument. See Dream Palace, 384 F.3d at 1005. Accordingly, we address the issue.

The FDCPA defines “debt” as “any obligation or alleged obligation of a consumer to pay money arising out of a transaction in which the money, property, insurance, or services which are the subject of the transaction are primarily for personal, family, or household purposes, whether or not such obligation has been reduced to judgment.” 15 U.S.C. § 1692a(5) (emphasis supplied); see also Ho, 840 F.3d at 621 (“For the purposes of the FDCPA, the word ‘debt’ is synonymous with ‘money.’ ”). “The FDCPA imposes liability only when an entity is attempting to collect debt.” Ho, 840 F.3d at 621.

The contents of the May Notice plainly belie Epsten’s contention that it did not attempt to collect a debt. The May Notice requested payment of Mashiri’s homeowner’s assessment fee, stating: “This letter is to advise you that $598.00 is currently owing on your Association assessment account. Failure to pay your assessment account in full within thirty-five (35) days from the date of this letter will result in a lien being recorded against your property.” See supra at 986 (emphasis added). Mashiri’s obligation to pay the assessment fee relates to her household and arises from her membership in the HOA. The overdue assessment fee is a debt under § 1692a(5).

Epsten nonetheless argues that, based on the definition of a “debt collector” under § 1692a(6), entities engaged in the enforcement of security interests are subject only to § 1692f(6). There was, however, no existing security interest for Ep-sten to enforce at the time it sent the May Notice because a lien had yet to be recorded against Mashiri’s property. Rather than seeking to enforce an existing security interest or lien, the May Notice sought to collect Mashiri’s overdue assessment fee and to make necessary disclosures that would perfect the HOA’s security interest and permit it to record a lien at a later date. See Cal. Civ. Code § 5660 (providing that “[a]t least 30 days prior to recording a lien upon the separate interest of the owner of record to collect a debt that is past due under Section 5650, the association shall notify the owner of record in writing by certified mail” of specified information).

In addition, Epsten’s interpretation of § 1692a(6) is incorrect. As we recently observed in Ho, “[i]f entities that enforce security interests engage in activities that constitute debt collection, they are debt collectors.” 840 F.3d at 622. Ho addressed whether a trustee’s communications — limited solely to pursuing non-judicial foreclosure — were debt collection activities for purposes of the FDCPA. Id. at 619-20, 623. In contrast to this case, the trustee sought to enforce a secured loan and sent a notice of default that did not request payment but instead “merely informed Ho that the foreclosure process had begun, explained the foreclosure timeline, apprised her of her rights and stated that she could contact [the lender] (not [the trustee]) if she wished to make a payment.” Id. at 623. We held that where an entity is engaged solely in the enforcement of a security interest and not in debt collection, like the trustee and unlike Epsten, it is subject only to § 1692f(6) rather than the full scope of the FDCPA. See id. at 622 (“We do not hold that the FDCPA intended to exclude all entities whose principal purpose is to enforce security interests .... We hold only that the enforcement of security interests is not always debt collection.”).

Because Epsten sent the May Notice as a debt collector attempting to collect payment of a debt — irrespective of whether it also sought to perfect the HOA’s security interest and preserve its right to record a lien in the future — it is subject to the full scope of the FDCPA, including § 1692g and § 1692e. See id. Epsten’s attempt to escape liability under § 1692g and § 1692e therefore fails.

B.

As noted above, Mashiri argues that she alleged a violation of § 1692g on two grounds. First, she argues that the May Notice requested payment by a date that was inconsistent with a debtor’s right to dispute the debt within thirty days from receipt of the notice. Second, she argues that Epsten’s threat to record a lien within thirty-five days of the date of the letter overshadowed her right to dispute the debt. We address each of these arguments below, and hold that Mashiri has alleged a plausible § 1692g violation on both grounds.

The FDCPA requires a debt collector to send the debtor a written notice that informs the debtor of the amount of the debt, to whom the debt is owed, her right to dispute the debt within thirty days of receipt of the letter, and her right to obtain verification of the debt. Because the notice must inform the debtor of her right to obtain verification of the debt, the notice is commonly referred to as a “validation” notice. However, “[t]he statute is not satisfied merely by inclusion of the required debt validation notice; the notice Congress required must be conveyed effectively to the debtor.” Swanson v. S. Or. Credit Serv., Inc., 869 F.2d 1222, 1225 (9th Cir. 1988).

Importantly, notice of the debtor’s right to dispute the debt and to request the name of the original creditor must not be overshadowed or inconsistent with other messages appearing in the communication. 15 U.S.C. § 1692g(b). Overshadowing or inconsistency may exist where language in the notice would “confuse a least sophisticated debtor” as to her validation rights. Terran v. Kaplan, 109 F.3d 1428,1432 (9th Cir. 1997). In other words, “[u]nder the law of this circuit, whether the initial communication violates the FDCPA depends on whether it is likely to deceive or mislead a hypothetical ‘least sophisticated debtor.’” Id. at 1431 (internal quotation marks omitted).

1.

Turning to Mashirfs first basis for a § 1692g violation, Mashiri claims that the May Notice did not provide a debtor thirty days in which to dispute the debt. We have previously observed that a § 1692g violation would result if a debt collector demanded payment prior to the expiration of the thirty-day dispute period to which debtors are entitled. As we explained in Terran:

A demand for payment within less than the thirty-day timeframe necessarily requires the debtor to [forgo] the statutory right to challenge the debt in writing within thirty days, or suffer the consequences. For this reason, requiring a payment that would eliminate the debt before the debtor can challenge the validity of that debt directly conflicts with the protections for debtors set forth in section 1692g.

Id. at 1434.

In this case, the May Notice demanded payment within thirty-five days of the date of the letter, which is inconsistent with a debtor’s right to dispute a debt within thirty days of receipt of the letter. By the time a debtor receives such a letter, there may be fewer than thirty days before payment is due. Moreover, even if the debtor received the letter promptly, in order for the payment to be received within thirty-five days of the date of the letter, the debtor would likely need to mail the payment prior to the thirtieth day of the dispute period. See Chauncey v. JDR Recovery Corp., 118 F.3d 516, 519 (7th Cir. 1997). The least sophisticated debtor, when confronted with such a notice, would reasonably forgo her right to thirty days in which to dispute the debt and seek verification. The infringement of the debtor’s right to thirty days in which to dispute the debt plausibly violates § 1692g. See Terran, 109 F.3d at 1434.

2.

Mashiri alleged a plausible § 1692g violation for the additional reason that the least sophisticated debtor may not understand, on the basis of the May Notice, that upon notifying Epsten of a dispute, debt collection activities would “cease ... until the debt collector obtains verification of the debt ... and a copy of such verification ... is mailed to the consumer by the debt collector.” 15 U.S.C. § 1692g(b). Rather, the May Notice stated that a lien “will” be recorded if Mashiri “fail[ed] to pay.” The least sophisticated debtor would likely (and incorrectly) believe that even if she disputed the debt and Epsten had not yet mailed verification of the debt to her, Epsten would record a lien on the thirty-fifth day after the date of the letter. “In this manner, the letter effectively overshadows the disclosed right to dispute by conveying an inaccurate message that exercise of the right does not have an effect that the statute itself says it has.” Pollard v. Law Office of Mandy L. Spaulding, 766 F.3d 98,105 (1st Cir. 2014).

Epsten relies on Shimek v. Weissman, Nowack, Curry & Wilco, P.C., 374 F.3d 1011 (11th Cir. 2004) (per curiam) for the proposition that, upon receipt of a request for debt verification, the FDCPA does not require a debt collector to take affirmative action to stop the recording of a lien that had already been filed. That case, however, correctly recognizes that “sending a lien to the clerk of the court [for filing] after a verification of the debt was requested is clearly contrary to § 1692g(b)’s requirement that a debt collector shall ‘cease collection of the debt’ once the verification is requested.” Id. at 1014. In addition, Shi-mek is factually inapposite because “[u]n-der Georgia law, the filing of a lien by a creditor is a necessary step for securing payment of a debt,” and the Eleventh Circuit “assum[ed] the propriety of filing the lien with the Court Clerk contemporaneously with the demand letter.” Id. at 1013-14. In California, pursuant to the Davis-Stirling Act, a homeowners’ association may not record a lien with a county recorder’s office contemporaneously with mailing the demand letter, but instead must provide notice of the debt at least thirty days prior to recording a lien, during which time a debtor-homeowner may dispute the debt. Cal. Civ. Code § 5660.

The obligations imposed on the HOA pursuant to the FDCPA, including the provision requiring suspension of debt collection activities pending debt verification, are thus consistent with the requirements the HOA must satisfy pursuant to the Davis-Stirling Act. The HOA’s right to record a lien thirty days after providing notice under section 5660 is not absolute, but instead is dependent on whether the homeowner disputes the debt. Indeed, pursuant to the Davis-Stirling Act, if the homeowner disputes the debt and requests an informal dispute resolution proceeding, the HOA must participate in dispute resolution “pri- or to recording a lien.” Cal. Civ. Code § 5670.

In this context, the threat of recording of a lien is a debt collection activity, which under the FDCPA must cease if the debt- or-homeowner disputes the debt and the debt collector has not yet mailed verification of the debt to the debtor-homeowner. The Davis-Stirling Act does not mandate otherwise. Epsten was obligated to explain such debt validation rights in an effective manner. See Swanson, 869 F.2d at 1225. In failing to do so, the threat of filing a lien overshadowed Mashiri’s right to dispute the debt, in violation of § 1692g. Because Mashiri has plausibly alleged a violation of § 1692g on the basis of inconsistency and overshadowing, we reverse the district court’s dismissal of that claim.

IV. Conclusion

We hold that Mashiri has plausibly alleged a claim under § 1692g, and we reverse the district court’s dismissal of that claim. Because we reverse the district court’s dismissal of Mashiri’s § 1692g claim, we reverse the district court’s dismissal of Mashiri’s claims that depended on § 1692g and arose under § 1692e(5), the Rosenthal Act, and the Unfair Competition Law.

REVERSED and REMANDED.

      . The facts are derived from the complaint and its accompanying exhibits, as well as documents that the district court judicially noticed.

      . The Davis-Stirling Act "consolidated the statutory law governing condominiums and other common interest developments." Berryman v. Merit Prop. Mgmt., Inc., 152 Cal.App.4th 1544, 62 Cal.Rptr.3d 177, 183 (2007) (internal quotation marks omitted). In enacting the Davis-Stirling Act, the California legislature “intended to protect homeowners from being foreclosed upon for small sums of delinquent assessments.” Huntington Cont’l Town House Ass’n v. Miner, 222 Cal.App.4th Supp. 13, 167 Cal.Rptr.3d 609, 612 (2014).

      . Section 1692f(6) prohibits:
      Taking or threatening to take any nonjudicial action to effect dispossession or disablement of property if—
      (A)there is no present right to possession of the property claimed as collateral through an enforceable security interest;
      (B) there is no present intention to take possession of the property; or
      (C) the property is exempt by law from such dispossession or disablement.

      . Section 1692a(6) provides, in pertinent part: The term “debt collector” means any person who uses any instrumentality of interstate commerce or the mails in any business the principal purpose of which is the collection of any debts, or who regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another_ For the purpose of section 1692f(6) of this title, such term also includes any person who uses any instrumentality of interstate commerce or the mails in any business the principal purpose of which is the enforcement of security interests.

      . We also note that the Rosenthal Act, which functions as "the state analogue of the FDCPA,” does not exempt homeowners’ associations attempting to collect overdue assessment fees pursuant to California Civil Code § 5660. See Ho v. ReconTrust Co., NA, 840 F.3d 618, 623 n.8 (9th Cir. 2016).

      . Section 1692g(a) provides that the debt collector must notify the debtor of the following:
      (1) the amount of the debt;
      (2) the name of the creditor to whom the debt is owed;
      (3) a statement that unless the consumer, within thirty days after receipt of the notice, disputes the validity of the debt, or any portion thereof, the debt will be assumed to be valid by the debt collector;
      (4) a statement that if the consumer notifies the debt collector in writing within the thirty-day period that the debt, or any portion thereof, is disputed, the debt collector will obtain verification of the debt or a copy of a judgment against the consumer and a copy of such verification or judgment will be mailed to the consumer by the debt collector; and
      (5) a statement that, upon the consumer’s written request within the thirty-day period, the debt collector will provide the consumer with the name and address of the original creditor, if different from the current creditor.

      . The terms "overshadowing” and "inconsistent” are often used interchangeably. See, e.g., Pollard v. Law Office of Mandy L. Spaulding, 766 F.3d 98, 104 (1st Cir. 2014) ("We note at the outset that, in the section 1692g milieu, courts do not always distinguish between violations based on the overshadowing of a validation notice and violations based on inconsistencies.”).

      . Although Epsten asks us to take judicial notice of a certified mail receipt showing that Mashiri received the May Notice on May 2, 2013, the district court did not consider the certified mail receipt, and we decline to do so as well. The date on which Mashiri received the May Notice is irrelevant because we undertake an “objective analysis that takes into account whether the least sophisticated debt- or would likely be misled by a communication.” Evon v. Law Offices of Sidney Mickell, 688 F.3d 1015, 1017 (9th Cir. 2012) (emphasis added and internal quotation marks omitted).

      , To the extent Mashiri asserted claims under § 1692e, the Rosenthal Act, or the Unfair Competition Law on grounds unrelated to her § 1692g claim, Mashiri does not challenge the district court’s dismissal of those claims.


text:
    PITZER COLLEGE, Plaintiff-Appellant, v. INDIAN HARBOR INSURANCE COMPANY, Defendant-Appellee.
    No. 14-56017
    United States Court of Appeals, Ninth Circuit.
    Filed January 13, 2017
    Michael J. Murtaugh, Lawrence J. Di-Pinto, and Thomas N. Fay, Murtaugh Meyer Nelson & Treglia LLP, Irvine, California, for Plaintiff-Appellant. .
    Max H. Stern and Jessica E. La Londe, Duane Morris LLP, San Francisco, California; Katherine Nichols, Duane Morris LLP, Los Angeles, California; for Defendant-Appellee.
    Before: HARRY PREGERSON, RICHARD A. PAEZ, and ANDREW D. HURWITZ, Circuit Judges.
   ORDER

We certify the questions set forth in Part II of this order to the California Supreme Court. The answers to these questions are dispositive of the case, without clear California precedent, and important to protections for California insureds. See Cal. R. Ct. 8.548. We therefore respectfully request that the California Supreme Court exercise its discretion to decide the certified questions presented below. Absent certification, we will “predict as best we can what the California Supreme Court would do in these circumstances.” Pacheco v. United States, 220 F.3d 1126, 1131 (9th Cir. 2000).

I. Administrative Information

We provide the following information in accordance with California Rule of Court 8.548(b)(1).

The caption of this case is:

No. 14-56017

PITZER COLLEGE, Plaintiff and Appellant, v. INDIAN HARBOR INSURANCE COMPANY, Defendant and Appellee.

The names and addresses of counsel are:

For Plaintiff-Apellant Pitzer College: Michael J. Murtaugh, Lawrence J. DiPinto, Thomas N. Fay, Murtaugh Meyer Nelson & Treglia LLP, 2603 Main Street, 9th Floor, Irvine, California, 92614.

For Defendant-Appellee Indian Harbor Insurance Company: Max H. Stern, Duane Morris LLP, One Market Plaza, Suite 2200, San Francisco, California, 94105; Katherine Nichols, Duane Morris LLP, 865 South Figueroa Street, Suite 3100, Los Angeles, California, 90017.

If the request for certification is granted, Plaintiff-Appellant Pitzer College should be deemed the petitioner in the California Supreme Court.

II. Certified Questions

Pursuant to California Rule of Court 8.548(b)(2), we certify the following questions of state law before us:

1. Is California’s common law notice-prejudice rule a fundamental public policy for the purpose of choice-of-law analysis? May common law rules other than uncon-scionability not enshrined in statute, regulation, or the constitution, be fundamental public policies for the purpose of choice-of-law analysis?

2. If the notice-prejudice rule is a fundamental public policy for the purpose of choice-of-law analysis, can a consent provision in a first-party claim insurance policy be interpreted as a notice provision such that the notice-prejudice rule applies?

Our phrasing of the questions should not restrict the California Supreme Court’s consideration of the issues involved. Cal. R. Ct. 8.548(f)(5). We agree to accept and follow the decision of the California Supreme Court. Cal. R. Ct. 8.548(b)(2); see Klein v. United States, 537 F.3d 1027, 1029 (9th Cir. 2008) (holding that “the Ninth Circuit is bound by the California Supreme Court’s interpretation of California law” with respect to a certified question).

III. Statement of Facts

Pitzer College (“Pitzer”) is one of the Claremont Colleges in Southern California. The Claremont University Consortium (“CUC”) is an umbrella entity that enters into insurance contracts on behalf of the Claremont Colleges. CUC purchased an insurance policy (the “Policy”) from Indian Harbor Insurance Company (“Indian Harbor”) to cover Pitzer for remediation expenses caused by pollution-related damage. New York law governs any issues arising under the Policy.

On January 10, 2011, Pitzer became aware of darkened soils at the construction site for a new dormitory. By January 21, 2011, Pitzer determined that remediation would be required. After assessing its options, Pitzer secured one of two Transportable Treatment Units (“TTU”) located in Southern California to remediate the soils. The remediation treatment was successful, and Pitzer completed the dormitory a few days before the students’ move-in date.

In its section describing coverage for remediation expenses (Section I.B.), the Policy contained a notice provision requiring Pitzer to provide Indian Harbor with notice of any condition requiring remediation. In its section describing reporting (Section VII.B.), the Policy contained a consent provision stating that Indian Harbor would not cover any expenses Pitzer incurred for remediation without first obtaining Indian Harbor’s consent. The consent provision included an exception for emergencies, but required Pitzer to notify Indian Harbor “immediately thereafter” it incurred any emergency expenses.

Pitzer did not inform Indian Harbor of the remediation until July 11, 2011, approximately three months after it completed remediation and six months after it discovered the darkened soils. Nor did Pit-zer obtain Indian Harbor’s consent before commencing remediation or paying remediation costs. On August 10, 2011, Indian Harbor acknowledged receipt of Pitzer’s notice of remediation. On March 16; 2012, Indian Harbor denied coverage on the basis of Pitzer’s late notice and its failure to obtain Indian Harbor’s consent.

Pitzer sued Indian Harbor in Los Ange-les County Superior Court, alleging that the insurer breached the Policy by failing to indemnify Pitzer for the remediation costs. Indian Harbor removed the case to federal court on the basis of diversity jurisdiction and moved for summary judgment.

The district court granted Indian Harbor summary judgment. The district court applied New York law, finding that Pitzer failed to establish that the California notice-prejudice rule was a fundamental public policy that overrode the Policy’s choice of law provision. The district court determined that summary judgment was warranted because Pitzer failed to notify Indian Harbor. The district court also concluded that summary judgment was separately warranted because Pitzer failed to comply with the Policy’s consent provision. The district court further concluded that Pitzer’s remediation work did not fall within the emergency exception, but that, even if it did, Pitzer was not entitled to rely on the exception because it failed to “immediately thereafter” notify Indian Harbor of the emergency.

Pitzer timely appealed.

IV. Explanation of Certification

Resolution of this appeal turns on whether California’s notice-prejudice rule is a fundamental public policy for the purpose of choice-of-law analysis. If the California Supreme Court determines that the notice-prejudice rule is fundamental, the appeal then turns on whether, in a first-party policy like Pitzer’s, a consent provision operates as a notice requirement subject to the notice-prejudice rule. No controlling California precedent answers either question. See Cal. R. Ct. 8.548(a). Because the district court determined that “[i]f prejudice is required, [Indian Harbor] would not be able to prevail at summary judgment,” these questions are dispositive. Cal. R. Ct. 8.548(a).

These questions involve issues of significant importance to the state. Kremen v. Cohen, 325 F.3d 1035, 1037 (9th Cir. 2003). In an amicus brief to the United States Supreme Court, the Council of State Governments emphasized the “integral” policy behind California’s notice-prejudice rule. Br. for Council of State Governments, et al. as Amici Curiae Supporting Respondents, UNUM Life Ins. Co. of Am. v. Ward, 526 U.S. 358, 119 S.Ct. 1380, 1383, 143 L.Ed.2d 462 (1999). Moreover, numerous California insurance contracts contain choice-of-law decisions and the resolution of these questions will apply to insureds throughout the state.

The following is a summary of the relevant case law and the parties’ arguments with respect to these questions.

Under California common law, the notice-prejudice rule provides that an insurer must show that it was prejudiced by late notice in order for a notice clause in the policy to bar coverage. Clemmer v. Hartford Ins. Co., 22 Cal.3d 865, 151 Cal.Rptr. 285, 587 P.2d 1098, 1106 (1978). Under California choice-of-law analysis, the parties’ contractual choice of law governs unless it conflicts with a fundamental public policy of California, and California has a greater interest than the chosen state in the determination of the particular issue. Nedlloyd Lines B.V. v. Super. Ct., 3 Cal.4th 459, 11 Cal.Rptr.2d 330, 834 P.2d 1148, 1151, 1155 (1992) (citing Restatement (Second) of Conflict of Laws § 187 (Am. Law Inst. 1971)). The California Supreme Court has not yet stated whether the notice-prejudice rule is a fundamental public policy.

Pitzer argues that the notice-prejudice rule is a fundamental public policy. California and federal courts have generally recognized the importance of the notice-prejudice rule. See, e.g., Ward, 526 U.S. at 372, 119 S.Ct. 1380; Campbell v. Allstate Ins. Co., 60 Cal.2d 303, 32 Cal.Rptr, 827, 384 P.2d 155, 157 (1963). But none have done so in the choice of law context.

Indian Harbor argues that the notice-prejudice rule is not a fundamental public policy of California. First, citing Nedlloyd, Indian Harbor argues that a rule cannot be fundamental public policy unless established by the constitution, a statute, or it is related to a “principle of contractual un-conscionability,” 11 Cal.Rptr.2d 330, 834 P.2d at 1153, 1155. It is unclear whether California law requires that a rule be statutory, constitutional, or related to uncon-scionability in order to constitute a fundamental public policy. See, e.g, Clemmer, 151 Cal.Rptr. 285, 587 P.2d at 1106; Restatement (Second) of Conflicts of Law § 187 cmt. g.

Indian Harbor also argues that the notice-prejudice rule cannot be fundamental because California law recognizes exceptions for claims-made policies, time-limited reporting policies, policies with statutes of limitations, and policies with consent provisions. See Burns v. Int’l Ins. Co., 929 F.2d 1422, 1425 (9th Cir. 1991) (explaining that California’s notice-prejudice rule does not apply to claims-made policies which “reduce[ ] the potential exposure of the insurer and [are] therefore less expensive to the insured”); Venoco, Inc. v. Gulf Underwriters Ins. Co., 175 Cal.App.4th 750, 96 Cal. Rptr.3d 409, 417 (2009) (explaining that the notice-prejudice rule does not apply to time-limited reporting requirements because the rule “would expose [the insurer] to a risk broader than the risk expressly insured against in the policy” (emphasis omitted)); State Farm Fire & Cas. Co. v. Super. Ct., 210 Cal.App.3d 604, 258 Cal.Rptr. 413, 418 (1989) (explaining the purposes behind statutes of limitations); Insua v. Scottsdale Ins. Co., 104 Cal.App.4th 737, 129 Cal.Rptr.2d 138,141 (2002) (explaining that the notice-prejudice rule does not apply to consent provisions as their purpose is to provide the insurer the opportunity to control expenses).

With respect to the consent provision, Pitzer argues that its remediation fell under the emergency exception because it operated on a tight schedule and had a time-limited opportunity to utilize the only available TTU machine. Pitzer also argues that the consent provision should be interpreted as a notice provision because the Policy covers first-party claims. See Howard v. Am. Nat’l Fire Ins. Co., 187 Cal.App.4th 498, 115 Cal.Rptr.3d 42, 70 (2010) (explaining that first-party policies “obligate the insurer to pay damages claimed by the insured itself,” while third-party policies “obligate the insurer to defend, settle, and pay damages claimed by a third party against the insured”).

According to Indian Harbor, Pitzer’s actions did not fall under the emergency exception to the consent provision, and even if they did, Pitzer failed to “immediately” notify the insurer of any emergency. In Jamestown Builders, Inc. v. General Star Indemnity Co., the California Court of Appeal held that the notice-prejudice rule does not apply to consent provisions. 77 Cal.App.4th 341, 91 Cal.Rptr.2d 514, 519 (1999). The Jamestown court, however, did not consider whether a consent provision in a first-party policy is analogous to a notice provision in a third-party policy, and therefore subject to the notice-prejudice rule.

Finally, Indian Harbor argues that the consent provision should not be interpreted as a notice provision because such an interpretation would render the provision redundant in violation of contract interpretation principles.

V. Accompanying Materials

The clerk of this court is hereby directed to file in the California Supreme Court, under official seal of the United States Court of Appeals for the Ninth Circuit, copies of all relevant briefs and excerpts of record, and an original and ten copies of this order and request for certification, along with a certification of service on the parties, pursuant to California Rule of Court 8.548(c) and (d).

This case is withdrawn from submission. Further proceedings before us are stayed pending final action by the California Supreme Court. The panel will resume control and jurisdiction of this case upon receiving a decision from the California Supreme Court or upon that court’s decision to decline to answer the certified question.

IT IS SO ORDERED.

      . The Policy provides that: "All matters arising hereunder including questions related to the validity^] interpretation, performance and enforcement of this Policy shall be determined in accordance with the law and practice of the State of New York (notwithstanding New York's conflicts of law rules).”

      . The provision states that Indian Harbor would cover Pitzer’s remediation expenses “provided that the INSURED reports such CLAIM ... to the company, in writing, during the POLICY PERIOD.”

      . The provision states: "No costs, charges or expenses shall be incurred, nor payments made, obligations assumed or remediation commenced without the Company's written consent which shall not be unreasonably withheld. This provision does not apply to costs incurred by the INSURED on an emergency basis, where any delay on the part of the INSURED would cause injury to persons or damage to property, or increase significantly the cost of responding to any POLLUTION CONDITION. If such emergency occurs, the INSURED shall notify the Company immediately thereafter.”

      . The parties agree that California has a materially greater interest in the determination of this issue,

      . Pitzer emphasized that applying New York Law would be particularly unfair because under New York law, the notice-prejudice rule applies to policies "issued or delivered” inside of the state, but not those "issued or delivered” outside of the state, such as the Policy at issue in this case. See N.Y. Ins. Law § 3420(a)(5). There is no dispute that under New York law the notice-prejudice rule would not apply to the Policy.