It may have been with slight confusion that Asdrubal Alfaro read the foreclosure complaint filed against him in July 2012. An entity completely separate from the one to which he sent his monthly mortgage payments filed this case. So Mr. Alfaro called a longtime friend and attorney to help him save his home. With the representation of his friend, Mr. Alfaro mounted a successful defense. Mr. Alfaro's attorney had noticed that the plaintiff bank, which years ago claimed to have purchased the debt from the original mortgagee, did not have the paperwork necessary to prove that it owned the relevant debt. On the very day that Mr. Alfaro's attorney pressed this standing argument in objection to summary judgment, the plaintiff withdrew its summary judgment motion. Mere days later, the plaintiff withdrew the entire foreclosure action. (1) Having successfully kept Mr. Alfaro in his home without giving anything in return, his lawyer moved for attorney's fees. Based on a narrow reading of Connecticut's reciprocal-fee statute, (2) the trial and appellate courts denied Mr. Alfaro's motion. Days before this Comment went to press, however, the Connecticut Supreme Court reversed. It held that when a defendant seeks attorney's fees in a consumer case, "after a termination of proceedings that in some way favors the defendant, there exists a rebuttable presumption that the defendant is entitled to such fees." (3) Unfortunately, many consumer-defendants do not achieve a similar result; instead, they carry the burden of their attorney's fees, despite being the victor in court.
America's state trial courts have been deluged with a flood of shoddy consumer debt actions. Although swelling consumer debt explains some of this overflow, (4) another major factor is the rising tide of debt buyers, who purchase unpaid debts from consumers' original creditors at a significant discount and then bring debt-collection litigation to compel repayment. (5) Unlike the original creditor, who is imagined to have "sufficient economic and legal incentives to good behavior" (6) in light of its reputation as a debt originator, debt buyers and their attorneys are intent on one goal: forcing consumers to cough up. In their single-minded zeal to collect, debt buyers regularly seek to collect debts that consumers may have no legal obligation to pay, a task for which debt buyers receive a healthy discount. (7) As a result, whereas original creditors may have worked with defaulting consumers on a repayment plan, debt buyers often bring mass-produced lawsuits that are more likely to lead to collection through intimidation and harassment than to produce favorable judgments. (8) Consumer-defendants are often unable to check these debt collectors' abuses because they are unable to find a publicly funded legal agency with the capacity to take on their case or afford a private attorney to defend them. (9) To ensure that legal protections are observed in this brave new world of debt collection, American consumers should enjoy the same access to legal representation as the plaintiffs that they face.
Some states have pursued this goal through statutes that reciprocate otherwise-unilateral attorney's fee clauses in consumer contracts. Without reciprocal fee-shifting statutes, these clauses would allow only creditors to recover attorney's fees when they prevail. "Reciprocal-fee" statutes motivate attorneys to represent consumers when promising defenses and counterclaims exist. (10) By making attorney's fees available to consumers whenever they successfully prosecute or defend an action, these reciprocal-fee statutes make it easier for consumers to find willing legal representation. Connecticut has one such statute, and the authors saw it in action while representing Mr. Alfaro.
This Comment examines how Connecticut and other states with reciprocal-fee statutes have defined the threshold that consumer-defendants must pass to be considered a prevailing party entitled to attorney's fees. Our survey of state law reveals three major definitions of what is "successful" or "prevailing" in awarding attorney's fees. All represent deviations from the American Rule, which requires each party to bear its own litigation costs, regardless of who prevails. (11)
The first approach is the rigid stance outlined in Buckhannon Board & Care Home, Inc. v. West Virginia Department of Health and Human Resources (12): to prevail, a plaintiff or defendant must secure a judicially sanctioned change in the parties' relationship. (13) The second is the "catalyst theory," which authorizes fees whenever one party's litigation posture causes the other party to pursue the desired change. (14) The third, which we will refer to as the "golden rule," is the most balanced. It recognizes that if the plaintiff does not succeed in its litigation, then the defendant has de facto prevailed and should receive fees.
Of these approaches, the golden rule is the most consistent with the consumer-protection purposes of reciprocal-fee statutes. The Connecticut Supreme Court recognized this when it ruled for Mr. Alfaro. (15) Ultimately, then, advocates should push--and, more importantly, judges should adopt--this Comment's definition of "prevailing party." Part I of this Comment outlines the need for greater consumer representation in the millions of consumer-contract cases filed each year. Part II explains why existing state reciprocal-fee statutes have failed to increase the supply of attorneys engaged in consumer-defense work. In particular, it shows that federal jurisprudence has narrowed the application of fee-shifting statutes generally, and that states have begun to import this restricted interpretation into their reciprocal-fee statutes. Part II corresponds to our findings in the Appendix, which comprehensively account for how states have used federal precedent to interpret their reciprocal-fee statutes. Part III presents a prescription
for separating state reciprocal-fee statutes from restrictive federal interpretations, which will aid states that seek to increase legal representation in consumer cases by providing an effective incentive for attorneys to take on defensive cases. We conclude with a brief discussion of how to maximize our prescription's impact.
THE RISING FLOOD OF DEBT-COLLECTION ABUSES AND THE SHRINKING SUPPLY OF CONSUMER ADVOCATES
The need for reciprocal-fee statutes stems from asymmetric access to quality legal representation: creditors, unlike consumers, are no strangers to the courts and do not struggle to find attorneys to represent them. (16) In 2014, for instance, a debt collector was the most litigious civil plaintiff in New York. (17) Industry and consumer groups estimate that debt collection suits filed nationwide number in the millions annually. (18) In seventy-six percent of civil actions, at least one party is self-represented. (19) Almost always, the self-represented party in civil cases is the defendant, (20) especially when larger sums of money are on the line. Thus, in millions of state-court actions every year--actions that can mean the difference between financial stability and homelessness (21)--consumers are forced to forgo representation and, likely, any valid defenses they may have.
Meanwhile, the amount of debt held by U.S. consumers has continued to rise, reaching a new peak of $12.84 trillion in 2017. (22) With debt burdens increasing as wages stagnate, millions of Americans live in negative net worth, where household debt exceeds assets. (23) This rising debt burden is not spread evenly: minority households are more likely to be financially insecure and face adverse judgments in debt-collection lawsuits. (24) Additionally, low-income consumers are less likely to perceive their financial problems as legal, and less likely to seek professional help due to asymmetrical informational barriers, cost concerns, and time constraints. (25)
As a result, low-income Americans seek professional legal help for only eighteen percent of civil legal issues related to consumer finance. (26) Although consumer finance issues are the second most commonly experienced civil legal problem among low-income Americans, the rate at which legal assistance for these problems is sought remains one of the lowest across practice areas. (27) Compounding this problem is the prevalence of predatory lenders who target vulnerable populations with loans designed to fail. (28) Together, rising debt burdens and predatory lending have made debt collection an increasingly lucrative industry, recovering over thirteen billion dollars in revenue in 2016 against largely unrepresented consumers. (29)
Perhaps unsurprisingly, this post-recession flood of debt-collection actions has brought a raft of complaints against debt collectors. (30) Between July 2011 and December 2016, the Consumer Financial Protection Bureau (CFPB) processed approximately 285,000 debt-collection complaints, and the Federal Trade Commission processed nearly 900,000 in 2015 alone. (31) A common allegation in these complaints is an attempt to collect "zombie debt," or debt that consumers are no longer legally required to repay. (32) Zombie debt collectors rely on informational asymmetries and the likelihood that resource-poor consumers cannot afford legal counsel to contest collection of sums to which the collectors have no legal entitlement. Because over ninety percent of consumers fail to appear in small-claims debt-collection actions, many debt buyers' business models rest on "filing suit and betting that consumers will lack the resources to respond," resulting in default judgments. (33) Naturally, "most consumers do not know or understand their legal rights with respect to the collection of time-barred debt," making legal representation all the more crucial. (34)
Given these abuses, consumers would benefit from legal representation. (35) A fair consumer civil litigation system not only needs attorneys skilled...