Filed 7/1/19

CERTIFIED FOR PUBLICATION

COURT OF APPEAL, FOURTH APPELLATE DISTRICT

DIVISION ONE

STATE OF CALIFORNIA

CAVALRY SPV I, LLC,

Plaintiff, Cross-defendant, and 

Appellant,

v.

SUE WATKINS,

Defendant, Cross-complainant, and 

Appellant;

CAVALRY PORTFOLIO SERVICES, LLC,

Cross-defendant and Appellant.

 D072299

 (Super. Ct. No. 37-2014-00016933-

 CU-BC-CTL)

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, Crosscomplainant, and Appellant Sue Watkins. 

Simmonds & Narita, Tomio B. Narita and Jeffrey A. Topor for Plaintiff, Crossdefendants, and Appellants Cavalry SPV I, LLC and Cavalry Portfolio Services, LLC. 
2

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. 
3

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. 
4

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 
5

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
6

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 
7

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. 
8

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. 
9

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 chargeoff 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. 
10

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. 
11

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.) 
12

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-interms documents sent in 2008 and 2009, establish the existence of a written agreement. 
13

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 
14

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. 
15

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. 
16

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.) 
17

" '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 
18

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 
19

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 chargeoff 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
20

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. 
21

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 
22

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, 
23

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. 
24

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. 
25

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 
26

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. 
27

(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 
28

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. 
29

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 
30

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).
31

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 
32

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 
33

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 chargedoff the debt to when Cavalry first reported the balance. (See Diaz, supra, 785 F.3d at 

p. 1330.) 
34

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 
35

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).)
36

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 crosscomplaint.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 crosscomplaint. 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. 
37

(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. 
38

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 onesided 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,' "
39

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 crosscomplaint 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 
40

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. 
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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 
42

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. 
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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.