Filed 7/1/19

                           CERTIFIED FOR PUBLICATION

               COURT OF APPEAL, FOURTH APPELLATE DISTRICT

                                    DIVISION ONE

                               STATE OF CALIFORNIA



CAVALRY SPV I, LLC,                              D072299

      Plaintiff, Cross-defendant, and
Appellant,                                       (Super. Ct. No. 37-2014-00016933-
                                                 CU-BC-CTL)
        v.

SUE WATKINS,

      Defendant, Cross-complainant, and
Appellant;

CAVALRY PORTFOLIO SERVICES, LLC,

        Cross-defendant and Appellant.


        APPEAL from a judgment of the Superior Court of San Diego County, Kevin A.

Enright, Judge. Affirmed in part, reversed in part, and remanded for further proceedings.



        Gersten Law Group, Ehud Gersten and David A. Stevens for Defendant, Cross-

complainant, and Appellant Sue Watkins.

        Simmonds & Narita, Tomio B. Narita and Jeffrey A. Topor for Plaintiff, Cross-

defendants, and Appellants Cavalry SPV I, LLC and Cavalry Portfolio Services, LLC.
       Sue Watkins defaulted on a credit card she opened through Citibank. As is

common practice in the industry, Citibank charged off the debt, 1 stopped accruing

interest or sending monthly statements, and eventually sold the account to a third party

debt collection agency, Cavalry SPV I, LLC (Cavalry). Cavalry then added prejudgment

interest from the date of charge-off and attempted to collect the debt through an

associated entity, Cavalry Portfolio Services, LLC (CPS). As part of its collection

efforts, CPS reported the debt with the additional interest included to several credit

reporting agencies.

       Watkins disputed the debt and did not pay it, Cavalry sued to collect, and Watkins

filed a cross-complaint alleging violations of the Rosenthal Fair Debt Collection Practices

Act (the Rosenthal Act; Civ. Code, § 1788 et seq.) 2 and other associated statutes

governing debt collection practices. The superior court conducted a bench trial, rejected

the claims in Watkins's cross-complaint, and entered a judgment in favor of Cavalry in

the amount of the original debt, plus attorney fees. After the parties submitted additional

briefing regarding the fees, the court awarded approximately one-half of the amount

Cavalry requested.



1      When a creditor charges off a debt, the creditor declares the debt is unlikely to be
collected and takes a tax deduction on the debt. (Frost v. Resurgent Capital Servs., L.P.
(N.D.Cal., June 27, 2016, No. 5:15-cv-03987-EJD) 2016 U.S.Dist. Lexis 83317 at p. *1
(Frost); see 35A Am. Jur. 2d Fed. Taxation, par. 17126.) This typically occurs after six
months of nonpayment by the debtor. (Frost, at p. *1, fn. 1.) Although it has been
deemed uncollectible by the original creditor, the debt remains legally valid after a
charge-off. (Ibid.)

2      All further statutory references are to the Civil Code unless otherwise stated.
                                             2
       On appeal, Watkins asserts the superior court erred by finding her liable for the

original debt, denying the claims in her cross-complaint, and awarding Cavalry attorney

fees. In their cross-appeal, Cavalry and CPS contend the superior court erred by reducing

the attorney fees award. We conclude the superior court correctly determined that

Watkins was liable for the original debt. With respect to the cross-complaint, we

determine that Cavalry and the court relied on an inaccurate interpretation of section

3289, subdivision (b) to support the accrual of statutory prejudgment interest, but the

superior court's denial of the counterclaims was nevertheless proper as Cavalry could

have accrued such interest pursuant to section 3289, subdivision (a). Finally, we decide

the superior court erred by awarding Cavalry and CPS attorney fees related to the defense

of counterclaims. We therefore reverse the judgment as to the fees and remand the case

to the superior court for further proceedings consistent with this opinion.

                      FACTUAL AND PROCEDURAL HISTORY

       In 2002, Citibank sent Watkins a promotional offer for a Citgo gas station credit

card. After Watkins filled out the application and returned it, Citibank sent her a credit

card, along with written terms and conditions governing use of the card. Watkins used

the credit card regularly and made monthly payments on the account for several years.

       In 2004, Watkins paid off the entire balance on the account. But she continued to

use the card, accruing additional balances and, in August 2007, she took out a cash

advance of $1,400. She made a payment of $150 the month after the advance and then

stopped using the card, but continued to make smaller payments, slowly reducing the

balance.

                                             3
       Between 2008 and 2009, while Watkins was still making regular payments on the

account, Citibank sent Watkins three separate "Notice of Change in Terms and Right to

Opt Out" documents. Citibank informed her of one such notice in her January 2009

statement by including a statement in bold print and capital letters that read, "PLEASE

SEE THE ENCLOSED NOTICE OF CHANGE IN TERMS FOR IMPORTANT

INFORMATION."

       In 2010, Watkins stopped making payments on the account despite an outstanding

balance of approximately $1,200. Citibank continued to accrue finance charges and

interest over the next six months, sending Watkins regular statements during that time

showing the additional fees and interest.

       On March 6, 2011, having received no further payments, Citibank charged off the

account. It sent Watkins a final statement in March 2011. There were no further

monthly statements and Citibank stopped accruing interest. The account balance at the

time of charge-off was $1,603.22. Although it was no longer sending statements to her,

Citibank did send Watkins an additional amended card agreement in 2011, after the

account was charged off.

       In August 2012, Citibank sold Watkins's account to Cavalry, a major buyer of bad

debt, along with numerous other delinquent accounts. At the time of sale, Citibank listed

the balance on the account as $1,603.22, the same amount as when Citibank originally

charged off the account in March 2011. After purchasing the debt, Cavalry added

prejudgment interest from the date of the charge-off at a rate of 7 percent. Cavalry



                                            4
believed at the time that adding interest at this rate was permissible under California law

because the 7 percent rate was below the state statutory rate of 10 percent.

Collection Efforts

       Following its purchase of Watkins's account, Cavalry attempted to collect the debt

through CPS, an associated entity. On September 7, 2012, CPS sent Watkins a letter

informing her that Cavalry had purchased the account and referred it to CPS for

servicing. The letter stated that the account balance was $1,772.32, and that it was

continuing to accrue interest, but did not provide any details as to the interest rate or

amount of interest already accrued. The letter added that "[u]nless you notify Cavalry

within thirty days after receiving this letter that you dispute the validity of this debt or

any portion thereof, Cavalry will assume this debt is valid."

       That same month, CPS began reporting the debt to the various credit reporting

agencies, including the prejudgment interest it had added to the account balance. In

November, CPS sent Watkins another letter listing the account balance as $1,794.15 and

offering up to a 20 percent discount if she paid the debt within 30 days. Again, the letter

did not provide any details regarding the interest rate, and did not break down the

outstanding balance or otherwise indicate the amount of interest already accrued.

       In February 2013, Cavalry conducted a risk assessment with their in-house and

external counsel and, as a result, changed its policy to freeze the accrual of interest on

accounts (like Watkins's) that had been placed with CPS for collection. Accordingly,

Watkins's account balance was frozen at $1,809.22. CPS sent Watkins two more letters,

in June and August 2013; each listed the account balance as $1,809.22, and each offered

                                               5
a 40 percent "INSTANT DISCOUNT." The letters also informed Watkins that CPS had

told a credit bureau about a late payment, missed payment, or other default on the

account, and that such information might be reflected on her credit report. Additional

letters in October and December 2013 continued to list the balance at $1,809.22, but

offered only 30 percent and 20 percent "INSTANT DISCOUNT[S]," respectively.

None of the letters provided any information about the interest rate or amount of interest

accrued and Watkins did not respond to any of these letters.

       In 2013, Cavalry conducted another risk assessment, again with internal and

external counsel, and as a result changed its policy to collect only the original charge-off

balance on accounts that had been placed with a collection attorney. However, Cavalry

continued reporting the balance as $1,809 to the credit agencies through the end of

November 2014. Thereafter, CPS reported a balance of $1,603 on Watkins's account.

       Around the same time, Cavalry referred Watkins's account to the law firm of

Lang, Richert & Patch (Lang). On March 14, 2014, Lang sent Watkins a letter informing

her that they had been retained by Cavalry to collect the outstanding account balance of

$1,603.22. The letter did not explain why the balance had been reduced, but did inform

Watkins that: (1) she had 30 days to dispute the validity of the debt; (2) Lang would

provide verification of the debt if requested within the 30-day period; and (3) thereafter,

Lang would be entitled to file a lawsuit against her for the collection of the debt, along

with associated attorney fees and costs.

       On March 18, 2014, Watkins responded via letter formally disputing the debt and

requesting notice of "the date that this alleged debt was purchased by Cavalry" and "the

                                              6
date this alleged debt became a charged-off account by Citibank." She also sent a second

letter on April 1, 2014, stating, "I dispute this alleged Citgo debt." Lang responded via

letter on April 23, 2014, and provided a copy of the charge-off statement from Citibank

and certain documents related to the sale and assignment of certain accounts from

Citibank to Calgary. In addition, as of April 14, 2014, CPS reported to the credit

agencies that the debt was disputed.

       On May 5, 2014, Watkins wrote separately to Citibank and requested information

regarding the sale and assignment of her account, including "a true and correct copy of

the Bill of Sale and Assignment from Citgo and, a copy of the final Citgo statement for

this account." Citibank did not respond to this letter.

Complaint and Cross-complaint

       On May 27, 2014, Lang filed a complaint against Watkins on behalf of Cavalry.

The complaint alleged breach of contract and common counts and sought damages in the

amount of $1,603.22, plus attorney fees according to proof. It did not seek interest on the

alleged damages. In response, Watkins filed a cross-complaint, and later a first amended

cross-complaint, alleging that Cavalry and CPS violated the Rosenthal Act, the Consumer

Credit Reporting Act (CCRA; § 1785.25, subd. (a)), and the Fair Debt Buying Practices

Act (FDBPA; § 1788.50 et seq.) 3 by, among other things, "falsely representing the

character, amount, or legal status of the alleged debt," "failing to verify that the amount



3     The FDBPA claims were later dismissed on summary adjudication because the
FDBPA only applies to consumer debts sold on or after January 1, 2014. Cavalry
purchased Watkins's account in August 2012, rendering the FDBPA inapplicable.
                                              7
demanded was accurate," and "failing to provide an accurate accounting of the alleged

debt."

         In September 2015, while the litigation was pending, Watkins sent a letter to CPS

disputing the accuracy of the information CPS was reporting to the credit bureaus and

stating, "I believe that this account does not belong to me." The letter demanded

substantiating documentation proving Watkins owned the alleged account and reported

debt. When CPS did not respond, Watkins sent a second notice on November 11, 2015,

making essentially the same complaints and demands.

         In April 2016, CPS sent Watkins's attorney a letter including verification of the

debt. However, due to an accounting error, the letter stated the principal due was only

$687.73. 4

         Through discovery, Watkins learned that CPS had reported the alleged debt to the

credit agencies through April 2016, and had included post charge-off interest in the

reported account balances prior to the various policy changes. As Watkins now believed

there were as many as 408 reporting violations—and because she was potentially entitled

to statutory damages of up to $5,000 for each violation—she moved to reclassify the case

as unlimited. The court granted the motion in October 2016.




4     At trial, a Cavalry employee explained that when Cavalry agreed to pay the travel
expenses of a witness from Citibank related to a deposition in the case, the payment was
misapplied as a payment to Watkins's account, thereby resulting in the artificially reduced
account balance.
                                               8
Statement of Decision

       Following a bench trial, the superior court issued a written statement of decision

(SOD). It concluded that Watkins entered into a contract with Citibank when she filled

out the credit card application, received the card along with written terms, and then used

the card. Watkins raised a statute of limitations defense, but the court concluded that a

four-year statute of limitations applied since the claims were based on a writing, and

Cavalry's lawsuit was filed within the four-year period. Accordingly, the court awarded

Cavalry $1,603.22, plus attorney fees and costs on the contract claim.

       Regarding the cross-complaint, the superior court determined that the debt was a

consumer debt, CPS was a debt collector within the meaning of the Rosenthal Act, and

Cavalry was vicariously liable for the actions of CPS. The court concluded, however,

that Watkins failed to meet her burden to prove Cavalry or CPS violated the Rosenthal

Act or the CCRA. Specifically, it found that the terms and conditions of the contract and

section 3287, subdivision (a) allowed interest to accrue on the past due amount and,

Cavalry, "as owner of the debt, could therefore choose to charge interest from the charge-

off date as it did." The court went on to explain that "[b]y choice, interest accrued at 7%,

below the allowable 10%, and thereafter ceased accruing." It added that "Citibank's

decision not to seek interest on the charge-off balance did not act as a waiver" of

Cavalry's ability to do so. Similarly, regarding the CCRA, the court concluded that

Watkins failed to prove CPS knew or should have known that it provided inaccurate

information to the credit reporting agencies.



                                                9
       In posttrial proceedings, Cavalry sought attorney fees. The superior court found

the fees provision in the updated terms governing Watkins's use of the credit card—

which stated in part, "[t]o the extent permitted by law, you are liable to us for our legal

costs if we refer collection of your account to [a] lawyer who is not our salaried

employee"—was broad enough to permit fees related to both Cavalry's complaint and

Watkins's cross-complaint. However, the court also determined that the matter was over

litigated and therefore reduced the fees Cavalry requested by 50 percent, ultimately

awarding $134,604.86.

                                       DISCUSSION

I. Watkins Is Liable for the Debt

       Watkins asserts the superior court erred by finding her liable for the $1,603.22 due

on the account under either a breach of contract or open book account theory. We

disagree.

       A. Breach of Contract

       Turning first to the breach of contract claim, Watkins contends Cavalry failed to

prove the existence of a written contract and, therefore, the statute of limitations had

expired when Cavalry filed its complaint. In California, the statute of limitations is four

years for a breach of contract claim based on a written contract, but only two years for a

breach of contract claim based on an oral agreement. (Code Civ. Proc., §§ 337, 339.)

Watkins made her last payment in July 2010, and Cavalry filed its complaint in May

2014, so the complaint was within the statute of limitations only if the four-year period

applied.

                                             10
       Assuming without deciding that California law applies, 5 a party may accept a

contract by conduct, as well as by words, and parties to a written contract may modify the

contract through an additional writing. (§ 1698; Russell v. Union Oil Co. (1970)

7 Cal.App.3d 110, 114 (Russell).) Accordingly, a credit card company may modify the

terms of a written contract by sending new or additional terms to the cardholder and

stating that the cardholder's continued use of the card constitutes acceptance of those

terms. (See Szetela v. Discover Bank (2002) 97 Cal.App.4th 1094 [concluding an

amended cardholder agreement in the form of a "bill stuffer" accepted by the cardholder's

continued use of the credit card is a generally enforceable adhesion contract]; Meyers v.

Guarantee Sav. & Loan Assn. (1978) 79 Cal.App.3d 307, 312 [adhesion contracts

generally enforceable absent other factors].)

       Here, Citibank enclosed a written agreement when it first sent Watkins the credit

card and then modified the applicable terms in writing several times thereafter. Watkins

testified at trial that she filled out, signed, and mailed in a Citibank credit card application

and that she received a Citgo gas station credit card issued by Citibank in return.

Although Citibank was unable to produce the original written agreement it sent to

Watkins, a Citibank representative testified that Citibank's regular practice was to provide

a copy of the terms and conditions governing the use of the card along with the card, and

that the agreement would have stated that use of the card constituted acceptance of those


5      Watkins relies solely on California law in her briefing. Cavalry alleges the
contract contained a choice of law provision that requires application of South Dakota
law, but also asserts the outcome would be the same regardless of which law is applied.
(See 1983 S.D. Codified Laws, § 54-11-9.)
                                              11
terms. Watkins used the Citgo credit card numerous times over the next several years,

thereby accepting the written terms that accompanied the original credit card. (Russell,

supra, 7 Cal.App.3d at p. 114.)

       Watkins contends Citibank could not rely on the original written agreement given

its inability to produce a copy at trial, but even if that were the case, Citibank also sent

Watkins several written "Notice of Change in Terms and Right to Opt Out" documents

over the years, as well as a written amended card agreement in 2011. (Boldface omitted.)

Each of the 2008 and 2009 notices stated that Watkins "must call or write" by a certain

date to opt out of the new terms, but Watkins never contacted Citibank to do so. Instead,

she continued to make payments to her account. Through her conduct, Watkins accepted

the updated terms, creating an enforceable written agreement in each context. (§ 1698;

Russell, supra, 7 Cal.App.3d at p. 114.)

       Moreover, Citibank also sent Watkins an amended card agreement in 2011 that

stated, "[t]his Card Agreement is your contract with us," "[i]t governs the use of your

card and account," "[y]ou agree to use your account in accordance with this Agreement,"

and "[t]his Agreement is binding on you unless you close your account within 30 days

after receiving the card and you have not used or authorized use of the card." Again,

Watkins took no action in response. Watkins argues her account was already closed

when she received the amended agreement in 2011 and, therefore, the new agreement

was not binding on her. Again, even if we accept this argument, the earlier change-in-

terms documents sent in 2008 and 2009, establish the existence of a written agreement.



                                              12
       Thus, while there may be some dispute regarding exactly which terms governed,

the evidence does establish the existence of a written agreement between the parties.

Accordingly, Cavalry timely filed its complaint in accordance with the four-year statute

of limitations. (Code Civ. Proc., § 337.)

       B. Common Count

       Watkins also asserts that Citibank did not meet its burden to prove liability under

the common count. Technically, we need not address this argument given our conclusion

that the superior court correctly concluded that the four-year statute of limitations applied

to the breach of contract claim. Regardless, we also find no error in the superior court's

conclusions regarding the common count.

       Under common law in California, a creditor may establish that a debtor owes it

money on an "open book account" by providing evidence of a " ' "detailed statement, kept

in a book, in the nature of debit and credit, arising out of contract or some fiduciary

relation." ' " (Interstate Group Administrators, Inc. v. Cravens, Dargan & Co. (1985)

174 Cal.App.3d 700, 708 (Interstate).) Where such a record exists, the court can

determine the amount owed by computing all credits and debits entered in the book

account. (Ibid.)

       Watkins asserts that the court could not make such a calculation because certain

statements issued prior to February 2004 were missing. However, the statement from

February 2004 is in evidence and shows a previous balance of zero, such that the

statements thereafter offered a full accounting of the balance from that point forward,

including the ending balance. Watkins claims there could have been a credit prior to the

                                             13
zero balance in February 2004 that was not carried forward, and which would have

affected the later balance. But she offered no evidence of any such credit, the December

2003 statement showed a balance of over $200, and she never disputed the balance on

any of the monthly statements she subsequently received between 2004 and 2010.

Accordingly, we agree that Citibank presented sufficient evidence to support the amount

due under a common " 'open book account' " theory as well. (See Interstate, supra, 174

Cal.App.3d at p. 708.)

II. Watkins's Counter-claims Under the Rosenthal Act and the CCRA

       Turning to the claims in the cross-complaint, Watkins contends the superior court

erred in failing to find that Cavalry violated the Rosenthal Act and the CCRA by

improperly reporting and attempting to collect the debt, primarily because Cavalry

accrued post charge-off interest that Citibank had previously waived. In response,

Cavalry argues the claims must fail because Watkins did not timely and sufficiently plead

her waiver theory. 6 Regarding the substantive merit of Watkins's claims, Cavalry

initially complains that the debt is not a "consumer debt" and Cavalry is not a "debt

collector" as defined by the Rosenthal Act. It further asserts it was entitled to collect the

debt as reported because Citibank did not waive its right to collect post charge-off

interest, and even if it could not accrue post charge-off interest under the contract, it had a




6       Cavalry also argues that Watkins's various claims are barred by the applicable
statute of limitations. In light of our other conclusions and because the trial court did not
find it necessary to address the limitations issue, we assume without deciding that
Watkins's claims were timely.
                                              14
right to accrue statutory prejudgment interest at a rate of up to 10 percent pursuant to

sections 3287 and 3289.

       A. Watkins's Claims Were Timely and Sufficiently Pled

       At the outset, Cavalry contends we should not consider Watkins's interest waiver

theory because it was not timely and sufficiently pled. It concedes, however, that

Watkins did argue this theory in opposition to Cavalry's motion for summary judgment.

A new factual issue may be presented in conjunction with motions for summary

judgment so long as the theory is encompassed by the controlling pleading, construed

broadly. (Laabs v. City of Victorville (2008) 163 Cal.App.4th 1242, 1257-1258.) If the

new issue is not encompassed in the original pleading, the trial court should readily allow

amendments to the original pleadings. (Ibid.)

       Here, the first amended cross-complaint alleged that Watkins "did not believe that

she owed Cavalry the amount it claimed," and that Cavalry violated the Rosenthal Act

and the CCRA by "falsely representing the character, amount, or legal status of the

alleged debt." Watkins may not have had a full understanding of why the amount that

CPS reported continued to fluctuate when she filed the first amended cross-complaint—at

least in part because Cavalry did not provide any information regarding the accrual of

interest on her account—but her allegation that she did not owe Cavalry the amount it

claimed was sufficient to encompass the theory that Cavalry improperly accrued and

reported post charge-off interest that Citibank had waived, particularly given the broad

construction afforded to pleadings.



                                             15
       In any event, Cavalry is not prejudiced by Watkins's raising this theory on appeal

given that Watkins raised it squarely in the superior court long before trial. As we later

discuss, however, we agree that Watkins did not sufficiently prove waiver at trial.

       B. The Rosenthal Act

       Having concluded that Watkins's claims were timely and sufficiently pled, we now

turn our attention to the substance of the claims, beginning with the alleged violations of

the Rosenthal Act. The Rosenthal Act "prohibit[s] debt collectors from engaging in

unfair or deceptive acts or practices in the collection of consumer debts" and requires all

debt collectors to comply with sections 1692b to 1692j of title 15 of the United States

Code, commonly referred to as the Fair Debt Collection Practices Act (FDCPA). 7

(§§ 1788.1, 1788.17.)

              1. The Rosenthal Act Applies

       As an initial matter, Cavalry asserts the Rosenthal Act is not applicable because

the debt was not a "consumer debt" and Cavalry was not a "debt collector." We are not

persuaded by either argument.

                     a. The debt is a "consumer debt"

       The Rosenthal Act defines " 'consumer debt' " as "money, property or their

equivalent, due or owing or alleged to be due or owing from a natural person by reason of

a consumer credit transaction." (§ 1788.2, subd. (f).) It further defines the phrase


7     Both the Rosenthal Act and the FDCPA govern fair debt collection practices. The
FDCPA is the federal statute and the Rosenthal Act, which bears a similar name and
incorporates portions of the federal FDCPA, is the California State counterpart. (See
Davidson v. Seterus, Inc. (2018) 21 Cal.App.5th 283, 295.)
                                             16
" 'consumer credit transaction' " as "a transaction between a natural person and another

person in which property, services or money is acquired on credit by that natural person

from such other person primarily for personal, family, or household purposes." (Id.,

subd. (e).) The debt at issue here was based on a personal Citgo gasoline credit card and

the terms explicitly required that the card be used for consumer purposes only—defined

as "personal, family, or household purposes." This fits precisely within the definitions of

consumer debt and consumer credit transactions set forth in the Rosenthal Act, and there

is no suggestion in the record that Watkins used the card for anything else. Cavalry

argues that Watkins failed to prove she did not use the card for nonconsumer purposes

but there was no reason to believe that she did so, particularly since the terms expressly

prohibited nonconsumer uses. Thus, we agree with the superior court that the debt was a

"consumer debt" as defined by the Act.

                     b. Cavalry is a "debt collector"

       Cavalry next contends it is not a debt collector because it has no employees and

takes no action to collect on debts, and that Watkins failed to name CPS—the entity that

did act—in her Rosenthal Act cause of action. The superior court, however, concluded

that Cavalry was vicariously responsible for any improper acts undertaken by CPS with

respect to the collection of Watkins's debt. We agree.

       The Rosenthal Act defines " 'debt collector' " broadly to include "any person who,

in the ordinary course of business, regularly, on behalf of himself or herself or others,

engages in debt collection." (§ 1788.2, subd. (c).) Further, a creditor can be held

vicariously liable for the actions of an agent collecting a debt on its behalf under the

                                             17
Rosenthal Act. (Huy Thanh Vo v. Nelson & Kennard (E.D.Cal. 2013) 931 F.Supp.2d

1080, 1089-1090; Fox v. Citicorp Credit Servs. (9th Cir. 1994) 15 F.3d 1507, 1516.)

Cavalry's main business is the purchasing and collection of "bad debt." Here, it

purchased Watkins's debt with the intent of collecting the balance due. It then used its

affiliate, CPS, to do so.

       Cavalry relies on Gold v. Midland Credit Mgmt. (N.D.Cal. 2015) 82 F.Supp.3d

1064 to argue that a mere debt buyer who retains another company to collect debts does

not meet the definition of a "debt collector" under the FDCPA or the Rosenthal Act.

Midland, however, actually supports the superior court's conclusion in this case. (Id. at

pp. 1072-1073.) Midland was decided in the context of a motion for summary judgment

based on the court's conclusion that the debtor (Gold) had not offered any evidence

tending to show that the debt buyer (Midland) was involved, directly or indirectly, in debt

collection beyond Midland's acknowledgement that it was in the business of purchasing

defaulted consumer accounts. (Id. at p. 1071.) While this fact alone was not sufficient to

establish that Midland was a " 'debt collector' " under the Act, the court acknowledged

that a debt holding entity may be a " 'debt collector' " if it indirectly collects debts

through a separate entity where the two entities together form an interdependent "single

economic enterprise." (Id. at p. 1072, citing Jenkins v. Union Corp. (N.D.Ill. 1998) 999

F.Supp. 1120, 1143.)

       Here, there was ample evidence to suggest that Cavalry and CPS formed the type

of " 'single economic enterprise' " discussed in Midland. (See Midland, supra, 82

F.Supp.3d at p. 1072.) Cavalry and CPS operated under common ownership and

                                               18
pursuant to a servicing and managing agreement under which debts purchased by Cavalry

were routinely placed with CPS for collection immediately upon purchase. Anne

Thomas, the designated witness for Cavalry, acted as chief compliance officer for both

Cavalry and CPS, and testified at trial that it was Cavalry's policy to accrue post charge-

off interest at the state rate and to report that interest to the credit reporting agencies.

Thus, the evidence demonstrates that Cavalry and CPS were closely related, CPS was

acting under the direction of Cavalry, and Cavalry itself set the allegedly improper policy

and practice of accruing and reporting post charge-off interest at the statutory rate, which

forms the basis of Watkins's claim under the Rosenthal Act.

       Moreover, the Lang firm also sent letters on behalf of Cavalry attempting to

collect the debt and threatening to take legal action if Watkins did not pay. It then filed

the lawsuit against Watkins from which this appeal arises on behalf of Cavalry. Thus,

Cavalry was involved in debt collection efforts, is itself a debt collector, and cannot

escape liability under the Rosenthal Act simply because it used a legally separate but

closely associated entity to contact debtors on its behalf.

               2. Cavalry Did Not Violate the Rosenthal Act by Accruing or Reporting
                  Statutory Prejudgment Interest on the Debt

       Section 1692f(1) of title 15 of the United States Code, FDCPA precludes the

collection of any amount, including interest, that is not expressly authorized by the

agreement creating the debt or otherwise permitted by law. Watkins asserts that Cavalry

violated this section of the FDCPA, and thus the Rosenthal Act, by accruing, reporting,

and attempting to collect post charge-off prejudgment interest. She argues that post


                                               19
charge-off interest was uncollectible because Citibank had waived its right—and thus

Cavalry's right—to that interest by failing to accrue it during the post charge-off period. 8

Cavalry responds that Citibank did not waive its right to interest and that it had an

independent right to accrue statutory prejudgment interest at a rate of up to 10 percent

pursuant to sections 3287 and 3289.

                      a. Watkins did not prove waiver

       When a bank assigns a debt to a debt collector, the debt collector "undisputedly

step[s] into the shoes of their respective assignors . . . taking that debt subject to any

existing waivers or defenses." (Terech v. First Resolution Mgmt. Corp. (N.D.Ill. 2012)

854 F.Supp.2d 537, 541 (Terech).) Accordingly, any action of Citibank constituting a

waiver of the right to accrue interest applied equally to Cavalry once it purchased

Watkins's account.

       Pursuant to California law, 9 " ' "[w]aiver is the intentional relinquishment of a

known right after knowledge of the facts." ' " (Waller v. Truck Ins. Exchange, Inc. (1995)

11 Cal.4th 1, 31.) A waiver can be expressly stated or implied by conduct, but the party

8      Watkins also alleges Cavalry and CPS violated the CCRA for the same reason,
among others, and we address those claims in the following section. However, in the
CCRA section of her opening brief, Watkins also asserts Cavalry violated title 15 United
States Code section 1692(e) of the FDCPA, which precludes a debt collector from using
any false, deceptive or misleading representation in the collection of a debt. If anything,
this would be a violation of the Rosenthal Act and not the CCRA, but, for the same
reasons we discuss with respect to title 15 United States Code section 1692(f), Cavalry's
inclusion of prejudgment interest in the account balance was not misleading in the
context of title 15 United States Code section 1692(e).
9      We again assume without deciding that California law applies, because Watkins
argues her position only under California law and Cavalry asserts the outcome would be
the same under either California or South Dakota law.
                                              20
alleging a waiver has the burden of proving it by clear and convincing evidence. (Ibid.)

Whether a party waived a right is a question of fact and, accordingly, we will not reverse

the superior court's finding so long as it is supported by sufficient evidence. (St. Agnes

Medical Center v. PacifiCare of California (2003) 31 Cal.4th 1187, 1196.)

       Watkins contends Citibank waived its right to interest by failing to send her

monthly statements and by failing to accrue interest between the time it charged off the

account and the time it sold the account to Cavalry. In deciding a motion to dismiss for

failure to state a claim (Fed. Rules Civ. Proc., rule 12(b)(6)), the court in Terech, supra,

854 F.Supp.2d 537 considered whether two similar allegations were sufficient to support

the plaintiff's claim that the creditor in that case, U.S. Bank, had waived its right to

collect interest on the account at issue there. Accordingly, Terech's discussion of the

relevant legal principles is instructive here. (Terech, at p. 541.)

       First, regarding the failure to send statements, the Truth in Lending Act, states that

"[a] periodic statement need not be sent for an account if the creditor deems it

uncollectible, if delinquency collection proceedings have been instituted, if the creditor

has charged off the account in accordance with loan-loss provisions and will not charge

any additional fees or interest on the account, or if furnishing the statement would violate

federal law." (12 C.F.R., § 226.5(b)(2)(i) (Jan. 10, 2018), italics and boldface added.)

Although a previous version of the statute had been in place during the relevant

underlying events in Terech, the court analyzed the statute, including the recent

amendment, and concluded a creditor's failure to send statements was not evidence of

waiver because once the bank deemed the account uncollectible, it no longer had an

                                              21
obligation to send regular statements, even if it had not waived the right to accrue

interest. (Terech, supra, 854 F.Supp.2d at pp. 542-543.)

       The same is true under the current statute applicable here—the "or" indicates that

Citibank's decision to treat the account as uncollectible provided an independent basis to

stop sending statements even if Citibank had not waived its right to accrue interest. (See

12 C.F.R., § 226.5(b)(2)(i) (Jan. 10, 2018).) Moreover, Citibank expressly informed

Watkins in each set of terms that it could continue to add interest to the account even if it

stopped sending statements after deeming the account uncollectible. Thus, the fact that

Citibank stopped sending regular monthly statements after it deemed the account

uncollectible and charged it off does not, itself, establish that Citibank waived its right to

post charge-off interest.

       Terech went on to conclude that the complaint was sufficient to support a claim of

waiver based on the allegation that the face value of the debt remained the same on the

date of sale as on the date of charge-off. (Terech, supra, 854 F.Supp.2d at p. 542; see

also Simkus v. Cavalry Portfolio Servs., LLC (N.D.Ill. 2014) 12 F.Supp.3d 1103, 1107-

1110 [concluding allegation that credit card company did not charge interest for period

between charge-off and sale of debt was sufficient to raise factual issue regarding waiver

of interest].) In reaching that conclusion, the court noted that the important question was

not simply whether the balance reported by U.S. Bank remained the same, but how the

bank actually handled the account. In particular, it was specifically alleged that U.S.

Bank had a policy or practice of waiving interest, which the plaintiff claimed banks

frequently did for the purpose of minimizing the "bad debt" on their books. (Terech,

                                              22
supra, 854 F.Supp.2d at p. 542; accord McDonald v. Asset Acceptance LLC (E.D.Mich.

2013) 296 F.R.D. 513, 525, subsequently vacated by McDonald v. Asset Acceptance,

LLC (E.D.Mich. 2016) 2016 U.S. Dist. Lexis 102181 (McDonald) [finding waiver where

bank representative testified bank's policy was to stop adding interest to charged off

accounts to preclude incurring additional associated costs].)

       As in Terech, Citibank reported the balance on Watkins's account as the same on

the charge-off statement as it did on the date of sale to Cavalry. But the different

procedural posture of Terech is significant. Because it was addressing a motion to

dismiss, the district court's decision was based on the allegations of the complaint. Here,

in contrast, we must evaluate the evidence actually presented at trial in light of Watkins's

burden to prove waiver. Although a representative from Citibank testified at trial,

Watkins presented essentially no evidence regarding any decision by Citibank regarding

the handling of her account after charge-off or of a policy or practice at Citibank to

routinely waive interest on post charge-off debts. 10 (Cf. Terech, supra, 854 F.Supp.2d at

p. 542.) Thus, although the records indicate Citibank did not accrue interest on Watkins's

account after charge-off, we agree with Cavalry that the superior court could properly




10     The Citibank witness testified that the bank "sometimes" charged interest on
charged-off accounts and that the balance was the same on Watkins's account when sold
as it was at charge-off, but that he did not know why the bank had not added interest to
Watkins's account after it was charged-off.

                                             23
find Watkins did not prove Citibank knowingly or intentionally waived its right to post

charge-off interest. 11

                      b. Section 3289, subdivision (a) did not provide Cavalry with an
                         independent basis to accrue statutory prejudgment interest on
                         the account

       The waiver analysis does not end our inquiry because Cavalry expressly asserts

that it did not seek interest pursuant to the contract. Instead, it claims to have accrued

statutory prejudgment interest in reliance on sections 3287 and 3289, subdivision (b).

Watkins responds that Cavalry was not entitled to statutory prejudgment interest because

Cavalry's damages were not certain or capable of being made certain at the time Cavalry

accrued and reported the interest as required by section 3287. In our view, both parties

misinterpret the relevant statutes.

       Section 3287 provides that a "person who is entitled to recover damages certain, or

capable of being made certain by calculation, and the right to recover which is vested in

the person upon a particular day, is entitled also to recover interest thereon from that

day." A creditor is entitled to assess prejudgment interest pursuant to section 3287 (and §



11     Watkins contends that McDonald, in which the court did find waiver, is instructive
here because the terms of the purchase and sale agreement (PSA) between Citibank and
Calgary contained terms similar to those in McDonald. As noted, however, the decision
in McDonald was subsequently vacated and thus is not a persuasive authority. (See
McDonald, supra, 296 F.R.D. 513.) In any event, the court in McDonald did not rely on
the terms of the PSA alone to find waiver, but instead referred as well to the undisputed
testimony of company representatives confirming that the original creditors "took
decisive and unequivocal acts to forgo the imposition of interest for strategic business
reasons." (See id. at p. 525.) Watkins presented no similar evidence in this case; neither
does she identify any term in the PSA between Citibank and Cavalry expressly stating or
otherwise independently establishing a waiver of post charge-off interest.
                                             24
3289, subd. (b)) when it sends a collection letter, so long as the debt in question is certain

or capable of being made certain, and even if the creditor has not yet obtained a

judgment. (Diaz v. Kubler Corp. (9th Cir. 2015) 785 F.3d 1326, 1329 (Diaz).) Damages

are certain or capable of being made certain when " 'there is essentially no dispute

between the parties concerning the basis of computation of damages if any are

recoverable . . . .' " (Ibid., italics added.) A creditor need not definitely establish liability

to pay the damages, so long as the amount at issue can be calculated based on

uncontested evidence. (Ibid.)

       Section 3289 sets forth the chargeable rates of interest following a breach of

contract. Subdivision (a) states that "[a]ny legal rate of interest stipulated by a contract

remains chargeable after a breach thereof, as before, until the contract is superseded by a

verdict or other new obligation." Subdivision (b) further provides that "[i]f a contract

entered into after January 1, 1986, does not stipulate a legal rate of interest, the obligation

shall bear interest at a rate of 10 percent per annum after a breach." (§ 3289.) In Diaz,

the court found the 10 percent rate set forth in section 3289, subdivision (b) was

applicable "given the absence of any provision in the contract stipulating to a particular

rate of interest." (Diaz, supra, 785 F.3d at p. 1330, italics added.)

       As an initial matter, we disagree with Watkins regarding the certainty of the debt.

Cavalry presented monthly statements sufficient to establish the account balance and

Watkins concedes she made several payments after receiving those statements. Thus,

while there may have been some dispute as to her liability for the debt, the amount at



                                               25
issue could be calculated based on uncontested evidence and was sufficiently certain in

the context of section 3287.

       Regardless, unlike the contract at issue in Diaz, the contract here did set forth a

contractual rate of interest. Thus, the real question we must address is, if the contract sets

forth a legal rate of interest, can the creditor ignore the contract interest provision and

instead choose to collect prejudgment interest at the statutory rate set forth in section

3289, subdivision (b)? 12

       Although this appears to be a question of first impression in California, several

other courts have addressed similar questions based on similar statutes in other states. In

Stratton v. Portfolio Recovery Assocs., LLC (6th Cir. 2014) 770 F.3d 443, the court

examined a Kentucky statute that set a legal rate of interest at 8 percent but also stated

that parties who have entered into a contract that specifies a rate of interest " 'shall be

bound for such rate of interest as is expressed in any such contract . . . and no law of this

state prescribing or limiting interest rates shall apply to any such agreement or to any

charges which pertain thereto or in connection therewith. . . .' " (Id. at p. 447 [analyzing a

previous version of Ky. Rev. Stat. § 360.010(1)].) The Stratton court concluded that the

Kentucky statute precluded any recovery of statutory interest where the contract specified

a legal rate of interest because, pursuant to the statute, a party that agreed to a contractual

rate of interest gave up its right to collect interest under any other provision of the law.


12     Because Cavalry's briefs relied on section 3289, subdivision (b) as an independent
basis for accruing interest at a rate of up to 10 percent, we asked the parties for
supplemental briefing addressing whether a creditor can independently rely on the
statutory interest rate when the contract between the parties specifies a rate of interest.
                                              26
(Id. at p. 448; but see Stratton v. Portfolio Recovery Assocs., LLC (6th Cir. 2017) 706

Fed.Appx. 840, 846 [later concluding Utah choice-of-law provision in the credit card

agreement applied to debtor's FDCPA claim under Kentucky law].)

       Two years later, the court in Haney v. Portfolio Recovery Assocs., L.L.C. (8th Cir.

2016) 895 F.3d 974 (Haney) distinguished Stratton and concluded that the language of a

Missouri statute was not as limiting as the language in the Kentucky statute. (Id. at

p. 984.) The relevant Missouri statute provided that " 'Creditors shall be allowed to

receive interest at a rate of 9 percent per annum, when no other rate is agreed upon, for

all moneys after they become due and payable, on written contracts, and on accounts after

they become due and payment is made.' " (Mo. Rev. Stat., § 408.020, italics added;

Haney, at p. 984.) Haney observed that the Missouri statute "states the statutory rate of 9

percent is available 'when no other rate is agreed upon[]' " but "does not state the 9

percent rate otherwise becomes unavailable if a party contracts for a higher rate but

subsequently waives that higher rate." (Haney, at p. 984, citation omitted.) The court

then opined, "[a]lthough it may be reasonable to conclude such interest falls away and

becomes unavailable if parties contract for a higher rate, such a reading is by no means

compelled," and ultimately concluded the creditor did not violate the FDCPA by accruing

prejudgment interest at the statutory rate. (Id. at pp. 984, 985.)

       Finally, in Unifund CCR Partners v. Harrell (Ky. 2017) 509 S.W.3d 25, the

Supreme Court of Kentucky followed the reasoning in Stratton and found that a creditor

gave up its right to collect interest under Kentucky Revised Statutes, section 360.010(1),

when it contracted at a different rate such that a purchaser of the debt could not later

                                             27
charge statutory interest. (Unifund, at pp. 28-30.) The court in Unifund also

distinguished decisions from Kansas, Missouri, and Washington that reached the opposite

conclusion by pointing out that the relevant statutes in those states did not contain the

same " 'shall be bound' " language as the Kentucky statute. (Id. at p. 30.)

         With these authorities in mind, we turn to the construction of section 3289. In

accordance with the principles of statutory construction under California law, we first

examine "the statute's words, giving them their ordinary and usual meaning and viewing

them in their statutory context, because the statutory language is usually the most reliable

indicator of legislative intent." 13 (Gattuso v. Harte-Hanks Shoppers, Inc. (2007) 42

Cal.4th 554, 567 (Gattuso).) Moreover, to the extent a statute is ambiguous, we may

consider extrinsic evidence, such as the legislative history, and "the consequences of each

possible construction and . . . reasonably infer that the enacting legislative body intended

an interpretation producing practical and workable results rather than one producing

mischief or absurdity." (Ibid.; Fluor Corp. v. Superior Court (2015) 61 Cal.4th 1175,

1198.)

         Section 3289 does not contain the same limiting language—"shall be bound" or

"no law of this state prescribing or limiting interest rates shall apply"—found in the

Kentucky statute. However, in contrast to the Missouri statute at issue in Haney, section

3289 more clearly differentiates between the interest rate available when the underlying


13     In its supplemental brief, Cavalry continues to assert that South Dakota law
applies under the contract. However, as Cavalry relies on a California statute, we
interpret that statute pursuant to the customary rules of interpretation under California
law.
                                              28
contract specifies a legal rate of interest, and when it does not. The plain language of

section 3289 indicates that subdivision (a) applies when a contract contains a legal rate of

interest, and the contractual rate agreed upon by the parties in the contract governs

following a breach in such cases. In contrast, section 3289, subdivision (b) applies,

permitting the creditor to apply the statutory 10 percent prejudgment interest rate, if and

only if the contract does not stipulate a legal rate of interest. (See Gattuso, supra, 42

Cal.4th at p. 567; see also People v. Arias (2008) 45 Cal.4th 169, 177 [where a statute is

not ambiguous, the plain meaning controls].) Thus, a straightforward reading of the two

subdivisions, together in context, indicates that the presence or absence of a legal rate of

interest in the underlying contract dictates whether section 3289, subdivision (a) or (b)

applies. A creditor may not simply choose between the two provisions. Put another way,

if the creditor entered into a contractual agreement containing a legal rate of interest, it

remains bound by the terms of that agreement; prejudgment interest at the statutory rate is

available only in the absence of an applicable contractual provision.

       This interpretation is consistent with the legislative history. A previous version of

section 3289, subdivision (b) stated that "[i]f a contract entered into after January 1, 1986,

does not specify a legal rate of interest chargeable after a breach, the obligation shall bear

interest at a rate of 10 percent." But the statute was amended in 1986, and the "after a

breach" language was moved to the end of subdivision (b) so as to provide that if the

contract "does not stipulate a legal rate of interest, the obligation shall bear [10 percent]

interest . . . after a breach." (Compare Stats. 1985, ch. 663, § 1, p. 2251 with Stats. 1986,

ch. 176, § 1, p. 406.) The most reasonable explanation for this change is that the

                                              29
Legislature wished to clarify that it was not necessary for the contract to specify a rate of

interest specifically applicable after a breach, and that subdivision (b) only applied if the

contract did not include an agreement regarding any legal rate of interest.

       Further, this interpretation is also consistent with other California cases

interpreting section 3289 in slightly different contexts. As already discussed, the Ninth

Circuit in Diaz addressed a case in which the original contract did not include an interest

provision and concluded subdivision (b) was applicable "given the absence of any

provision in the contract stipulating to a particular rate of interest." 14 (Diaz, supra, 785

F.3d at p. 1330, italics added.) Similarly, in Mark McDowell Corp. v. LSM (1989) 214

Cal.App.3d 1427, the court decided that a party to a contract with a usurious interest rate

could still collect prejudgment interest at the statutory rate pursuant to section 3289,

subdivision (b) because the usurious nature rendered the contractual interest provision

void, such that the contract did not specify a legal rate of interest. (McDowell, at

pp. 1431-1432 [abrogated on other grounds by Southwest Concrete Products v. Gosh

Construction Corp. (1990) 51 Cal.3d 701, 704].) Finally, in Reidy v. Miller (1927) 85

Cal.App. 764, 768, the court considered a situation in which the contractual rate of

interest was less than the statutory 10 percent and concluded the plaintiff was entitled

only to the lower contractual rate. In each of these cases, the presence or absence of a



14     Cavalry also cites Frost, supra, 2016 U.S.Dist. Lexis 83317, a more recent
California case in which the court relied on Diaz to conclude that a debt collector did not
violate the FDCPA by charging prejudgment interest. But the court in Frost did not
address the applicable rate of interest under section 3289 or acknowledge that the
contract at issue in Diaz did not contain an interest provision. (Frost, at pp. *2-*3).
                                             30
contractual rate of interest controlled whether the creditor could rely on statutory rate of

10 percent set forth in section 3289, subdivision (b).

         Finally, the alternative interpretation proffered by Cavalry—allowing a debt buyer

to accrue interest at the statutory rate set forth in section 3289, subdivision (a) instead of

the contractual rate in subdivision (b)—would be inconsistent with section 1916-2, which

precludes a party from accruing compound interest in the absence of a clear written

agreement to do so. If the charge-off balance includes previously accrued contract

interest and/or finance fees, as it did in the present case, applying the statutory rate of

interest set forth in section 3289, subdivision (b) to that entire balance would necessarily

result in further compounding of the interest. (See, e.g., Ninety Five Ten v. Crain (1991)

231 Cal.App.3d 36, 39-40 [awarding prejudgment interest on a balance that included

previously accrued interest would violate the statutory prohibition on compounding

interest in the absence of a clear agreement to do so].) If the parties instead rely on the

contractual terms—which in the case of credit cards typically allow for compound

interest—the issue is avoided, further supporting a construction of section 3289 that

requires reliance on the contractual terms agreed upon by the parties when such terms

exist.

         Here, although the contract at issue specified a legal rate of interest, Cavalry

purported to accrue interest based on the statutory rate set forth in section 3289,

subdivision (b). While Cavalry portrays this as a consumer-friendly policy, it also

benefited Cavalry by allowing it to avoid the burdensome task of determining the specific

contract terms governing each individual account. Indeed, the record suggests that

                                               31
Cavalry did not receive a copy of the applicable written terms or agreement when it

purchased Watkins's account, such that it may not have been able to determine the exact

interest rate that applied under the contract at the time that it first contacted Watkins or

started reporting the debt to the various credit reporting agencies.

       In the SOD, the superior court found that both the underlying contract and section

3287 allowed interest to accrue on Watkins's account, but made no findings as to what

contractual rate of interest—or even specifically which set of terms—applied.

Nevertheless, the court concluded that Cavalry could choose to accrue interest at 7

percent, "below the allowable 10%." Although the SOD does not reference section 3289,

subdivision (b), the court's reliance on section 3287 and the 10 percent figure does

suggest that the court agreed with Cavalry's position that it could apply the statutory rate

set forth in section 3289, subdivision (b). As we have discussed, however, that

interpretation is inconsistent with the plain language of the statute. Because there was a

written contract between the parties that contained a specified rate of interest, section

3289, subdivision (a)—not subdivision (b)—applied.

       In its supplemental briefing, Cavalry points out that even if it were restricted to

recovering interest under section 3289, subdivision (a), the 7 percent rate it claimed was

lower than both the statutory interest rate of 10 percent and the contractual interest rate

such that Watkins has no basis for complaint. Although the superior court did not make a

finding as to the specific rate of interest under the contract, the evidence in the record

fully supports this conclusion. Each of the updated terms sent in 2008 and 2009

contained interest provisions with interest rates that exceeded 10 percent, and each also

                                              32
allowed for compound interest. Further, the superior court referred to these exhibits

when concluding that the terms and conditions of the contract allowed interest to accrue

on the past due amount (although it did not specifically identify the controlling agreement

or interest rate). Accordingly, while it appears the superior court based its ruling on what

we now conclude to be an inaccurate interpretation of section 3289, we nevertheless

agree with the court's finding that Cavalry did not improperly accrue or report interest

when it applied the 7 percent interest rate to Watkins's account. As a result, the court's

ultimate conclusion that Cavalry did not violate the Rosenthal Act was correct. 15

       C. CCRA Claims

       Watkins also asserts that Cavalry and CPS violated the CCRA by providing false

or inaccurate information to the credit reporting agencies, both because the reported

amount included post charge-off interest and because Cavalry knew or should have

known it reported amounts that it was not entitled to collect.

       As part of the CCRA, section 1785.25, subdivision (a) prohibits any "person" from

furnishing "information on a specific transaction or experience to any consumer credit

reporting agency if the person knows or should know the information is incomplete or



15      Watkins also asserts that Cavalry improperly applied an interest rate in excess of
300 percent. She arrives at this high rate by calculating the amount of interest added over
a relatively short period of time from when Cavalry purchased the account to when
Cavalry first reported a balance containing interest. However, when Cavalry purchased
the debt, it obtained all the rights of Citibank, including the right to assess prejudgment
interest from the date of charge-off, and that is what it did. Therefore, the relevant
interest rate is properly calculated using the period of time from when Citibank charged-
off the debt to when Cavalry first reported the balance. (See Diaz, supra, 785 F.3d at
p. 1330.)
                                             33
inaccurate." The statute applies to entities, like CPS, that report information regarding

consumer debts to credit reporting agencies. (See Burrell v. DFS Servs., LLC (D.N.J.

2010) 753 F.Supp.2d 438, 446.)

       Here, Watkins did not prove that CPS or Cavalry submitted information they knew

or should have known was incomplete or inaccurate. First and foremost, we have already

concluded that Cavalry was entitled to collect the $1,603.22 it sought at trial. Watkins

nevertheless argues that Cavalry knew it could not collect on the debt based on a letter

Cavalry sent her attorney on April 28, 2016, that stated, "[b]ecause of the age of your

client's debt, we will not sue your client for it." But when Cavalry sent that letter, it had

already sued Watkins for the debt, such that Watkins and her counsel should have known

the statement in the letter was made in error. Moreover, Cavalry had been reporting the

debt as disputed since April 2015, before the letter, and stopped reporting the debt

altogether in April 2016, after the letter. Thus, although the letter was somewhat

misleading with respect to Cavalry's intent to sue, it does not amount to a violation of the

CCRA or any associated statute.

       Next, the superior court found that although the reported account balance

fluctuated, it never included more than 10 percent interest and, therefore, CPS never

reported an amount that exceeded what was actually owed. As we have already

discussed, although we disagree that the 10 percent rate of section 3289, subdivision (b)

was applicable in this case, it remains true that Cavalry could charge prejudgment interest

at a rate less than the contractual rate, and the 7 percent Cavalry accrued on Watkins's

account was lower than the contract rate. We thus agree with the court that CPS never

                                              34
reported a balance that exceeded the amount it could legally claim. Accordingly,

Watkins has not proven Cavalry or CPS violated the CCRA. 16

III. Attorney Fees

       Both sides contend that the superior court's order on attorney fees was flawed,

although they disagree on the particulars. Watkins argues the court erred by awarding

attorney fees related to the defense of her cross-complaint, while Calgary asserts the court

erred in reducing the amount of fees it requested.

       The question of whether a party is entitled to attorney fees is a purely legal

question that we consider de novo. (Apex LLC v. Korusfood.com (2013) 222 Cal.App.4th

1010, 1016-1017.) We review the appropriateness of the specific amount of fees

awarded for an abuse of discretion. (Id. at p. 1017.) We presume an order granting or

denying a request for fees is correct, indulge all inferences and presumptions to support

the order, resolve evidentiary conflicts in favor of the prevailing party, and accept the

trial court's resolution of factual disputes. (Ibid.)

       A. Watkins Was Bound by the Contractual Fees Provision

       Section 1717, subdivision (a) allows the prevailing party to recover reasonable

attorney fees when the contract being enforced specifically provides for such an award.

Here, the superior court relied on the "collection costs" provision of the 2011 credit card

agreement in awarding fees. Watkins asserts this was an error because she had already

closed her account when Citibank sent the 2011 agreement. As we have already


16    In light of our conclusion, we need not address Cavalry's alternative argument
based on the "bona fide error" defense. (See §§ 1785.25, subd. (g), 1788.30 subd. (e).)
                                               35
concluded, however, while there may be some dispute regarding the applicability of the

2011 agreement, at least the 2008 and 2009 terms were binding on Watkins and those

documents each contained the exact same provision. Thus, the fee provision was binding

on Watkins regardless of which specific set of terms was controlling.

       B. The Attorney Fee Provision Did Not Extend to Defending the Claims
          Asserted in the Cross-complaint

       Next, Watkins asserts that the superior court erred by broadly interpreting the

attorney fee provision to encompass fees related to the defense of the claims in her cross-

complaint. 17 Although section 1717 relates primarily to fees associated with the contract

claims, courts have permitted recovery of fees related to associated tort claims where the

language of the fee provision is broad enough to encompass such additional fees. (See,

e.g., Cruz v. Ayromloo (2007) 155 Cal.App.4th 1270 (Cruz) and Thompson v. Miller

(2003) 112 Cal App.4th 327 (Thompson).)

       Under either California or South Dakota law, contractual agreements regarding

attorney fees are valid and subject to the same rules of construction as any other

provision. (See Mountain Air Enterprises, LLC v. Sundowner Towers, LLC (2017) 3

Cal.5th 744, 751-752 [California]; Credit Collection Services, Inc. v. Pesicka (2006) 721

N.W.2d 474, 476 [South Dakota]; Black Hills Excavating Servs. v. Retail Constr. Servs.



17     Cavalry claims that Watkins waived her right to assert the court should have
awarded fees only for the contract cause of action and not the claims in the cross-
complaint. But Watkins stated in her original opposition that section 1717 only allowed
fees related to the contract claim, and that certain fees related to the cross-complaint were
"unrelated to the contract issue" and served only to "run up" the overall fees. Thus,
Watkins sufficiently preserved the argument for purposes of appellate review.
                                             36
(2016) 877 N.W.2d 318, 325 [South Dakota].) Pursuant to rules of construction

applicable in both states, where there is ambiguity in a written form contract the terms are

to be construed against the drafter and in favor of the nondrafter. (Nguyen v. Applied

Medical Resources Corp. (2016) 4 Cal.App.5th 232, 260; Sandquist v. Lebo Automotive,

Inc. (2016) 1 Cal.5th 233, 248; Campion v. Parkview Apts. (S.D. 1999) 588 N.W.2d 897,

904.)

        Here, each of the 2008, 2009, and 2011 agreements that potentially governed the

account are form agreements drafted by Citibank, and each contained the following

provision regarding fees: "Collection Costs. To the extent permitted by law, you are

liable to us for our legal costs if we refer collection of your account to a lawyer who is

not our salaried employee. These costs may include reasonable attorneys' fees. They

may also include costs and expenses of any legal action." 18

        We agree with Watkins that this provision is not broad enough to cover fees

incurred by Cavalry in defense of the cross-complaint, particularly when construed

against Citibank, the drafter. The title of the provision is "collection costs" and the

provision allows for the recovery of fees "if we refer collection of your account to a

lawyer that is not our employee." A plain reading of the provision indicates it is limited

to fees and costs incurred by a nonemployee attorney attempting to collect an outstanding

debt. Here, the claims in the cross-complaint primarily involved actions undertaken by

Cavalry and CPS, that are not third-party attorneys, before the case was referred to Lang.



18      This language comes from the 2011 card agreement.
                                             37
Further, although the last sentence refers to "any legal action," this phrase appears under

the heading "collection costs" and, particularly when construed against Citibank,

necessarily refers to a legal action to collect on the account.

       In reaching the opposite conclusion, the superior court relied primarily on Cruz,

supra, 155 Cal.App.4th 1270 and Thompson, supra, 112 Cal App.4th 327, in which the

courts construed contractual fee provisions broadly enough to include additional claims.

We do not find those cases to be instructive. There is no indication the contracts at issue

in those cases were adhesion contracts and the provisions at issue broadly allowed for the

recovery of fees associated with a " 'civil action . . . instituted in connection with this

Agreement' " (Cruz, at p. 1277) and " 'any dispute under [the] Agreement' " (Thompson,

at p. 333). (See Cruz, at p. 1277 [prevailing party entitled to fees incurred defending tort

claims, where lease provided: " 'If civil action is instituted in connection with this

Agreement, the prevailing party shall be entitled to recover court costs and any

reasonable attorney's fees.' "]; Thompson, at p. 333 [provision in share purchase

agreement stating, " '[t]he prevailing party in any dispute under this Agreement shall be

entitled to reasonable attorneys fees incurred in such dispute,' " was broad enough to

encompass tort action for fraud].) By contrast, here, the clause at issue appears in a one-

sided adhesion contract, which must be construed against Citibank, and is expressly

limited by the title to collection costs. (See MBNA America Bank, N.A. v. Gorman (2006)

147 Cal.App.4th Supp. 1, 8 [provision allowing fees in " 'any collection proceeding' "

limited to a discrete legal proceeding that involves collection of the debt].) Moreover, the

court in Thompson distinguished between " 'any action' " and " 'any dispute,' "

                                              38
acknowledging that a defense brought as a cross-complaint was not an "action," and the

provision at issue here refers to "costs and expenses of any legal action" such that

Thompson actually supports a narrower interpretation of the Citibank clause. (Thompson,

at pp. 336, 337.)

       Cavalry also relies on several California cases where courts found fee provisions

were sufficient to cover cross-claims because defense of the cross-claims was necessarily

tied to the plaintiff's ability to prevail on the original complaint. The contract at issue in

Finalco, Inc. v. Roosevelt (1991) 235 Cal.App.3d 1301 concerned the lease of certain

computer equipment and contained a fee provision providing that the " '[m]aker agrees to

pay all costs of collection . . . including, without limitation, all attorney's fees and

expenses and court costs.' " (Id. at p. 1306.) When Roosevelt failed to pay the amount

due under the agreement, Finalco sued for breach of contract and Roosevelt filed a cross-

complaint alleging fraud, misrepresentation, and various securities laws violations. (Id.

at p. 1304.) On appeal, the court found the phrase " 'all costs of collection' " was broad

enough to support an award of fees related to defense of the cross-complaint because the

purpose of the claims in the cross-complaint was to rescind the original contract, and the

plaintiff therefore had to defend against the cross-complaint to succeed on the complaint.

(Id. at p. 1307.)

       Similarly in Calvo Fisher & Jacob LLP v. Lujan (2015) 234 Cal.App.4th 608

(Calvo), the court considered the scope of a fee provision in an engagement letter that

read, " '[i]n the unlikely event that we are required to institute legal proceedings to collect

fees and costs, the prevailing party would be entitled to a reasonable attorney's fee and

                                               39
other costs of collection.' " (Id. at p. 616.) Relying on Finalco, the court concluded the

provision was broad enough to encompass fees associated with the defense of claims in a

cross-complaint, which included, for example, fraud and unjust enrichment, because, as

in Finalco, the plaintiff had to defeat those claims to prevail on the original breach of

contract claim set forth in the complaint. (Id. at pp. 622-624.)

       Here, we agree that to recover on its complaint, Cavalry had to prove the debt was

valid and that it had purchased all of Citibank's rights under the contract. However,

Watkins's claims were broader and included assertions regarding the shifting balance of

the account and, specifically, Cavalry and CPS's reporting of the account as having a

balance in excess of the amount that Cavalry ultimately claimed Watkins owed.

Cavalry's ability to recover did not depend on whether it improperly accrued and reported

statutory interest because Cavalry was no longer seeking prejudgment interest by the time

it filed its complaint. Thus, Calvo and Finalco are distinguishable and, here, the trial

court should have limited the fee award to time spent on efforts necessary to prove the

allegations in the complaint. We therefore remand the matter to the superior court for

further consideration of the fee award in accordance with our narrower interpretation of

the contractual fee provision. 19



19     Cavalry asserts that the broad attorney fees award is proper on a variety of
alternative grounds based on its contention that Watkins's claims were frivolous, brought
in bad faith, and improperly required it to prove the truth of certain requests for
admission that Watkins unreasonably denied. (See Civ. Code, §§ 1788.30, subd. (c),
1785.31, subd. (e); Code Civ. Proc., §§ 128.5 and 2033.420, subd. (a).) The trial court
made none of the factual findings necessary to support a fee award on any of these
theories, and we decline on appeal to address them in the first instance.
                                             40
       C. The Court Did Not Err in Reducing the Fees Award for Over Litigation and
          Duplication of Efforts

       Cavalry argues the superior court erred by reducing the amount of fees awarded

based on over litigation and the duplication of efforts. Although we have already

concluded the matter must be remanded for a recalculation of the proper amount of

attorney fees, we address this independent argument unaffected by our earlier discussion.

       The trial court has broad discretion in deciding the amount of reasonable attorney

fees to award pursuant to section 1717. (PLCM Group, Inc. v. Drexler (2000) 22 Cal.4th

1084, 1094-1095.) Trial courts typically use a lodestar calculation to determine the

appropriate amount of attorney fees, multiplying the time reasonably spent by the

reasonable hourly compensation for each attorney. (Id. at pp. 1095-1096.) The court

may then adjust the award by taking into account additional factors such as the nature and

difficulty of the litigation, the amount in controversy in the case, the skill required and

employed in handling the case, and the success or failure of counsel. (Ibid.) The trial

court is in the best position to determine the value of services rendered during the trial

over which it presided and, accordingly, we will not disturb the court's decision regarding

the appropriate amount of reasonable attorney fees absent a clear abuse of discretion.

(Graciano v. Robinson Ford Sales, Inc. (2006) 144 Cal.App.4th 140, 148 (Graciano).)

       Here, the superior court concluded that the number of hours Cavalry submitted

were not justified, and accordingly reduced the requested amount. The court noted in its

decision that it had counseled the parties at the outset of the litigation not to overestimate

the amount of fees the court would award, presumably suggesting a concern that the


                                              41
parties might be engaging in unreasonable litigation tactics. Regardless, Cavalry

continued to aggressively litigate the case. For example, during discovery, it refused to

produce the PSA with Citibank, forcing Watkins to file a motion to compel. 20

       Cavalry complains that the trial court did not point out specific instances of

duplicated effort or over litigation in its order, but the court was not required to do so. In

any event, the court's order referenced the example of numerous conferences among the

attorneys included in the time entries Cavalry submitted. Because the judge who

presided over the trial was in the best position to make determinations regarding the

reasonableness of the time entries submitted, we find no abuse of discretion in the court's

decision to reduce the fee award. (See Graciano, supra, 144 Cal.App.4th at p. 148.)

However, as the superior court awarded fees associated with litigation of both the claims

in the complaint and the cross-complaint—and likely considered the over litigation of

both in its decision to reduce the overall award—it should reconsider all factors relevant

to the fee award on remand.




20     Watkins points out that Cavalry filed an anti-SLAPP motion against the first
amended cross-complaint and several appeals after the motion was denied, as well as a
summary judgment motion, which was also denied, as further examples of over litigation.
But those filings relate to the defense of claims in the cross-complaint, for which we have
now determined Cavalry was not entitled to fees.
                                              42
                                      DISPOSITION

       The judgment is affirmed, except as to the award of attorney fees to Cavalry. As

to that award, the matter is remanded to the superior court for reconsideration as specified

in part III of this opinion. The parties shall bear their own costs on appeal.



                                                                                  DATO, J.

WE CONCUR:




IRION, Acting P. J.




GUERRERO, J.




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