In a unanimous opinion in Davis v. City of Philadelphia, the U.S. Court of Appeals for the Third Circuit has held that Servicemembers Civil Relief Act (SCRA) protections do not extend to a servicemember's solely owned business because a corporate entity is not a servicemember under the statute.

Michael E. Davis, a longtime member of the U.S. Army Reserve, and his company, Global Sales Call Center LLC (Global), sued the City of Philadelphia over allegations that the City violated the SCRA by assessing delinquent property tax interest and penalties against Global while Mr. Davis was on active duty. The U.S. District Court for the Eastern District of Pennsylvania granted the City's motion to dismiss on the grounds that Global lacked statutory standing because it was not a servicemember under the SCRA and that Mr. Davis had not been denied relief under the SCRA because he was not personally liable for Global's tax debt.

On appeal, the Third Circuit affirmed the district court decision. The clear text of the SCRA limits its protections to property owned individually by a servicemember or jointly by a servicemember and a dependent. Accentuating the distinction between individuals and corporate entities, the court held that Mr. Davis, regardless of whether he was the sole shareholder of the company, could not state a claim for relief under the SCRA because Global owned the property in question and Global alone was liable for the tax debt. "Davis received all the benefits that come with incorporation," the court said, "and he cannot have his cake and eat it too."

The May 4, 2016, decision sheds further light on how courts are interpreting the SCRA as applied to servicemember-owned businesses and indicates that distinguishing between individuals and corporate entities with respect to both property ownership and liability is key to the analysis.

Ballard Spahr's Military Lending Task Force works with lenders and loan servicers to ensure compliance with military lending laws both at the federal and state levels. In addition to advising on compliance, we guide clients on enforcement actions and the defense of litigation when necessary.

Copyright © 2016 by Ballard Spahr LLP.
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