Risks of Withdrawing a Case: Reciprocity of Attorneys’ Fees in Connecticut Consumer Contract Default Actions

by Murtha Cullina

Lenders beware!  If you have brought an action to seek recovery of a defaulted consumer loan whether it be foreclosure or a breach of contract action, Connecticut has a statutory scheme which provides that the debtor, if it successfully defends the lender’s action or successfully prosecutes a counterclaim, may be entitled to recover its fees.  But… what if during the course of litigation, defenses are filed and the Lender decides to withdraw its case?  If this occurs, be aware of a little known statute that might assist a debtor in a claim for fees.

Conn. Gen. Stat. § 42-150bb provides, in relevant part,

Whenever any contract or lease…., to which a consumer is a party, provides for the attorney’s fee of the commercial party to be paid by the consumer, an attorney’s fee shall be awarded as a matter of law to the consumer who successfully prosecutes or defends an action or a counterclaim based upon the contract or lease….”

It is typical for all loan documents to provide for recovery of attorneys’ fees and costs to the lender in the event of default.  However, § 42-150bb, provides a mechanism for the borrower to seek a fee award, if he/she/it successfully defends the action or if the action is withdrawn prior to conclusion.

So, you ask… why should a Lender be concerned?  What constitutes a “successful defense?”  If a Lender decides to unilaterally withdraw a case after defenses are filed, is it potentially liable to the borrower for fees incurred?  The answer is … maybe!

In a recently decided case, Connecticut Housing Finance Authority v. Asdrubal Alfaro, 163 Conn. App. 587 (2016), Judge Prescott stated “[t]o successfully defend an action, a consumer party must prevail on the merits of [its] answer or special defenses. In raising his claim on appeal, the defendant has assumed that the plaintiff withdrew its action in response to his special defense. On the basis of this assumption, the defendant argues that he successfully defended the action and, thus, is entitled to attorney’s fees under § 42-150bb. The record, however, does not indicate the reason that the plaintiff withdrew its action; it may have been because of the defendant’s defense, but it may have been for a myriad of other reasons. There was no hearing on the merits, and the defendant offered no evidence at the hearing on the motion for attorney’s fees to prove that the plaintiff withdrew the action in response to his defense.” (Internal citation omitted; quotations omitted.) Id. at 593.

The Court ultimately held that the Defendant was not entitled to reciprocal attorneys’ fees because there was no evidence of a “successful defense” of the action within the record.  The Court stated, “[t]he defendant’s argument is founded on speculation alone. This court will not speculate on what is not in the record.  Thus, there was no evidence in the record from which the court could have found that the defendant prevailed on the merits of his defense.” (Internal citation omitted; quotations omitted.) Id. at 593-94.

The Alfaro case stands as a limitation on the right to seek fees under 42-150bb but also a cautionary tale regarding best practices in that a lender should be wary of when unilaterally withdrawing any claim founded upon a consumer contract in Connecticut.  If a claim for reciprocal fees is made it is clear now that the burden is on the Defendant to prove that the action was “successfully defended” through concrete evidence however opposing such a claim will result in additional fees and costs to the lender.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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