SCRA’s relationship with service members and corporate ownership gains clarity with recent decision

September 6, 2016

Screen-shot-2011-04-13-at-7.57.17-PMThe Servicemembers Civil Relief Act allows service members to defer or suspend certain financial obligations for period of time during and following active duty.  A recent case, Davis v. City of Philadelphia, No. 15-2937, 21 F.3d 484 (3d Cir. May 4, 2016), clarifies that the protections extended to service members and their dependents do not extend to corporations that they own.

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The SCRA was implemented in order to ensure that service members are able to focus on their military service to the United States without having to worry that their homes or cars will be foreclosed upon or repossessed while they are on active duty or resettling into civilian life. Both federal regulators and individual plaintiffs have pushed to expand the SCRA’s protections to cover a broader range of obligations and liabilities, and the business obligations of individual service members has been an area of increasing focus.

In Davis, Michael Davis and his wife attempted to “insulate themselves from liability” by transferring full ownership of their rental property to a Pennsylvania corporation solely owned and managed by Davis.

Their property eventually was foreclosed upon due to failure to pay overdue property taxes. Davis alleged that the foreclosure was a SCRA violation, and the 3d U.S. Circuit Court of Appeals ultimately affirmed the district court’s holding that, although Mr. Davis was a service member, his corporation was not, and the corporation was a distinct legal entity not entitled to the SCRA’s foreclosure protection.

BuckleySandler LLP attorneys Valerie Hletko and Sasha Leonhardt explore Davis and corporate ownership under the SCRA further in this article, published in the Consumer Financial Services Law Report.