36 Cal.App.5th 1070
Cal. Ct. App.2019Background
- Watkins opened and used a Citibank Citgo consumer credit card; she stopped paying and Citibank charged off the account in March 2011 with a balance of $1,603.22.
- Citibank sold the charged-off account to Cavalry SPV I, LLC (Cavalry) in August 2012; Cavalry added prejudgment interest (7%) and used an affiliate, Cavalry Portfolio Services (CPS), to attempt collection and report the balance to credit agencies.
- Watkins disputed the debt; Cavalry (via counsel Lang) sued in 2014 for $1,603.22. Watkins counterclaimed under the Rosenthal Fair Debt Collection Practices Act and the California Consumer Credit Reporting Agencies Act (CCRA), alleging improper accrual/reporting of post-charge-off interest and inaccurate reporting.
- Bench trial: court found a binding written contract, concluded the action was timely (4-year written-contract SOL), awarded Cavalry $1,603.22 plus attorney fees, and rejected Watkins’s Rosenthal/CCRA claims.
- On appeal the court affirmed liability for the principal, held the trial court erred in its statutory-interest analysis but nonetheless affirmed the denial of counterclaims (on other grounds), and reversed/remanded the attorney-fee award as improperly covering defense of the counterclaims.
Issues
| Issue | Plaintiff's Argument (Watkins) | Defendant's Argument (Cavalry/CPS) | Held |
|---|---|---|---|
| 1) Liability / statute of limitations | Citibank failed to prove a written contract; SOL (2 years) expired | Written card agreement and later change-in-terms bound Watkins; 4-year written-contract SOL applies | Liability for $1,603.22 affirmed; 4-year SOL applies because written agreement (or modified written terms) existed |
| 2) Waiver of post-charge-off interest / Rosenthal Act | Citibank waived post-charge-off interest by not accruing interest or sending statements; Cavalry violated Rosenthal/FDCPA by collecting/reporting interest | No waiver shown; Cavalry stepped into Citibank’s rights and could rely on statutory prejudgment interest | Waiver not proved by clear and convincing evidence; trial court erred in relying on §3289(b) but denial of Rosenthal claim affirmed because contractual interest (or §3289(a)) permitted accrual |
| 3) Statutory interest source (§3289) — may creditor choose statutory rate when contract sets a rate? | Cavalry improperly relied on §3289(b) to impose 10% when contract specified a rate | Cavalry argued it could apply statutory rate (10%) instead of identifying contract rate for each account | Court held §3289(b) applies only when contract does not stipulate a legal rate; where a contract sets a rate §3289(a) (contractual rate) controls; but here 7% charged was below contractual rate so reporting was not improper |
| 4) CCRA / reporting accuracy | CPS reported inaccurate balances (post-charge-off interest) and thus violated CCRA | Reported balances never exceeded legally collectible amount; CPS flagged disputed status; no knowledge of inaccuracy | CCRA claims fail: court found no proof CPS furnished information it knew or should have known was inaccurate |
| 5) Attorney fees — scope and amount | Fees should be limited to collection/contract claim; fees for defending counterclaims are not recoverable | Fee provision covers collection costs and "any legal action"; trial court should award full requested fees | Contractual fee clause construed against drafter: limited to collection-related legal action; trial court erred awarding fees for defense of counterclaims and must reconsider amount; fee reduction for over-litigation was not an abuse of discretion |
Key Cases Cited
- Russell v. Union Oil Co., 7 Cal.App.3d 110 (Cal. Ct. App. 1970) (contract may be accepted by conduct and modified by additional writings)
- Szetela v. Discover Bank, 97 Cal.App.4th 1094 (Cal. Ct. App. 2002) (continued use of card can constitute acceptance of amendment in a "bill stuffer")
- Diaz v. Kubler Corp., 785 F.3d 1326 (9th Cir. 2015) (prejudgment interest under §3287 available when amount is certain or capable of calculation)
- Gattuso v. Harte-Hanks Shoppers, Inc., 42 Cal.4th 554 (Cal. 2007) (statutory construction principles; plain meaning controls)
- Mark McDowell Corp. v. LSM, 214 Cal.App.3d 1427 (Cal. Ct. App. 1989) (usurious contractual interest voided so statutory rate could apply)
- Stratton v. Portfolio Recovery Assocs., LLC, 770 F.3d 443 (6th Cir. 2014) (statute construed to preclude statutory interest where contract specifies a rate)
- Haney v. Portfolio Recovery Assocs., L.L.C., 895 F.3d 974 (8th Cir. 2018) (distinguishing Stratton; statutory rate may be available depending on statutory language)
- Unifund CCR Partners v. Harrell, 509 S.W.3d 25 (Ky. 2017) (Kentucky supreme court following Stratton: contracting for a rate precludes later statutory interest)