Business & Corporate
Winter 2017

The Servicemembers’ Civil Relief Act: What is it and What Does it Mean for Your Business?

With its roots dating back to the Civil War, the Servicemembers’ Civil Relief Act (the “Act”) is perhaps one of the most comprehensive packages of protection Congress has enacted to shelter the interests of those called to serve our country. While the Act has been amended several times, its general purpose remains the same; to allow military servicemembers to focus their efforts on national defense by affording them certain privileges in civil actions. The act does not provide any protections in criminal actions.

Generally speaking, the Act does not  relieve servicemembers of their legal obligations; however, it can be invoked by a servicemember to delay certain legal obligations. In order to receive protection under certain parts of the Act, the servicemember must show that military service has had a material effect on the financial or legal matter at hand. Although there are numerous situations in which the Act may be invoked, a general understanding of when it may arise is beneficial as it has the potential to impact civilians and servicemembers alike.

All active duty personnel from all branches of the Armed Forces, including the Army, Navy, Air Force, Marines, and Coast Guard are covered by the Act, as are reserve personnel while on active duty. Additionally, under certain circumstances, servicemembers’ dependents, including spouses, children, and any other individual directly supported by the member may also be protected. Because active duty in the Armed Forces is an absolute requirement, the Act does not cover government contractors, whether working domestically or abroad.

Perhaps the best-known protections afforded by the Act, and the ones most relevant to business owners, are its protections in the context of civil litigation and from the execution of judgments. If a servicemember requests a stay and is able to show that his or her military status had a material effect on his or her ability to defend the legal action that produced the judgment, the court must stay execution of that judgment for at least ninety days. The Act also prevents civil plaintiffs from obtaining default judgments against absent servicemembers until the court appoints counsel for the absent defendant.

In addition, since servicemembers often face the possibility of being transferred to a new location, the Act provides servicemembers with the freedom to terminate certain leases, including residential, professional, and agricultural, if the member receives orders for a permanent change of station, or deployment, for a period of no less than 90 days. Similarly, if a civilian executes a lease and subsequently enters military service, he or she may be able to terminate the lease. The Act also extends to automobile leases and allows servicemembers to terminate leases if certain conditions are met. For example, a preservice automobile lease may be terminated if the servicemember receives active duty orders for a period of 180 days or more. An automobile lease entered into while on active duty may be terminated if the member is deployed to a location outside the continental United States, or for a period of 180 days or more.

The Act also provides other protections. For example, it: (a) prohibits the eviction of servicemembers or their dependents from rented or mortgaged property, (b) provides service members the right to ask a court to review whether entry of judgment against a member was appropriate in light of his service responsibilities, and (c) caps the interest rate on certain transactions entered into prior to service at six percent.

As a practical matter for small business owners, the Act will sharply curtail the ability to collect money from a delinquent customer in the military service, or to evict a service member from rented or mortgaged real property. If a defendant simply fails to respond to a lawsuit, the Act saddles the plaintiff with the burden of proving by affidavit that the non-responsive defendant is not in the military service. The defense manpower data center does maintain a database that potential plaintiffs can use to check  a defendant’s service status, but a search requires either a social security number or complete birthdate. Accordingly, without one or the other, it may be impossible to safely aver that a defendant is not in the military service and thus impossible to obtain a default judgment against such a defendant.

Small businesses, especially those that deal frequently with individual consumers, are best protected by obtaining one of the identifiers mentioned above, in addition to a customer’s name. Of course, such personal information must be appropriately protected, and must not be obtained or used in violation of Federal or state credit, debt collection, or anti-discrimination laws.

In sum, while the Act offers salutary protections for servicemembers, it also offers de facto, and likely unintended, protection for all defendants. Because a plaintiff bears the burden of proving that an individual defendant is not in military service, the Act can function as an unintended trap for unwary business owners. Relatively minor preparation in advance may save a business from significant and unnecessary delays when collecting from those not in the military service.