Third Circuit: SCRA does not nullify collection of delinquent tax money owed to City of Philadelphia

By Nicholas Malfitano | May 9, 2016

U.S. Court of Appeals for the Third Circuit  

PHILADELPHIA – A former enlisted member of the U.S. Army Reserve who sued the City of Philadelphia in connection with an assessment of delinquent taxes on property he and his spouse rented during his tour of active duty has lost his case, a federal appellate court ruled last Wednesday.

Judges Theodore A. McKee, D. Brooks Smith and Thomas M. Hardiman ruled collectively that appellant Michael Davis’s lawsuit against the City would remain dismissed, and both he and his company would not be afforded any protections under the Servicemembers Civil Relief Act (SCRA).

Hardiman authored the Court’s May 4 opinion in the matter.

Davis and his wife purchased a two-story, three-bedroom rental property at 5624 Willows Avenue in Philadelphia on July 15, 1997. A member of the United States Army Reserve, Davis was summoned to active duty in December 2004.

A few months after being called up, Davis and his wife transferred the property to Global Sales Call Center, a Pennsylvania company solely owned and operated by Davis. Davis served six months of active duty in Iraq in 2005 and three years in Afghanistan between 2008 and 2011.

In December 2009, Davis and Global requested the Philadelphia Department of Revenue to reduce Global’s property tax debt under the SCRA, which limits any interest levied on a service member’s delinquent property taxes during their period of active duty to a rate of six percent and forbids any additional penalties.

At the time, the City determined Davis owed $17,120.47 in such property taxes, according to Court records.

The Department of Revenue denied this request, stating “the SCRA does not apply to a business owned by a service member, telling Davis that he should instead file an abatement petition with the Philadelphia Tax Review Board.”

Davis fulfilled this directive in January 2010, rehashing his SCRA argument and requesting a recalculation of the interest and penalties assessed against Global based on its overdue property taxes.

The Review Board denied Davis’s petition after a March 2011 hearing.

Two years later, the City of Philadelphia began foreclosure proceedings on Global’s property because of the unpaid property taxes, interest and penalties and won judgment in the Philadelphia County Court of Common Pleas. The Court also signed the foreclosure petition.

Davis and Global then filed suit in federal court, claiming their rights were deprived by individuals from the City acting under state law. The City challenged the suit and motioned to dismiss, arguing it applied the SCRA to Davis’s personal liabilities which arose during the brief period between Davis’s transition to active duty and his transfer of the Willows Avenue property to Global, and that both Davis and Global “lacked standing.”

The District Court granted the City’s motion, deciding the SCRA only applies to service members and that a corporation is not a “service member” under the statute. The Court concluded Global was “without statutory standing to seek relief under the SCRA” and dismissed Davis’s litigation, saying he was not denied relief under the SCRA because he was not held personally liable for Global’s debts.

Though Global did not appeal, Davis did.

“This appeal is our first opportunity to interpret the Servicemembers Civil Relief Act,” Hardiman said. “This straightforward statute provides that any interest imposed on a service member’s late property taxes during a period of active duty may not exceed six percent. Although the parties view this case purely in terms of standing, we see it somewhat differently. As we shall explain, Global lacks standing, but Davis does have standing to sue.”

Per the Third Circuit, Global had no connection to the SCRA due to not being a service member according to the letter of the law, but as a service member himself, Davis did have such a connection.

“He is precisely the sort of plaintiff that the SCRA protects. Contrary to the City’s arguments and the District Court’s implicit holding, his complaint is not defeated for lack of statutory standing,” Hardiman said. “Unfortunately for Davis, he has not – and cannot – state a claim for relief under the SCRA.”

 For a successful SCRA claim, Davis had to prove “(1) An interest at a rate above six percent, (2) Assessed against a service member while on active duty and (3) Based on delinquent property taxes relating to “property…owned individually by a service member or jointly by a service member and a dependent or dependents.”

“Davis cannot satisfy the second or third elements because it is undisputed that Global owns the property in question and that Global alone is liable for the tax debt. Under Pennsylvania law, Global has its own legal identity, so Davis may not invoke the SCRA on Global’s behalf,” Hardiman explained. “Even in the event that some or all of the money owed by Global to the City effectively comes out of Davis’s pocket, nothing in the SCRA would stand in the way so long as his non-business assets are respected.”

Hardiman called the events in this case “an unfortunate twist of law and fate”.

“The clear text of the SCRA limits its protections to property owned individually by a service member or jointly by a service member and a dependent. Because Global owns the property in question and the City has applied the SCRA’s protections to Davis’s personal liabilities, we will affirm the judgment of the District Court,” Hardiman said.

The appellant is represented by Earl D. Raynor Jr. in Philadelphia.

The appellee is represented by Michael A. Siddons in Media.

U.S. Court of Appeals for the Third Circuit case 15-2937

U.S. District Court for the Eastern District of Pennsylvania case 2:14-cv-06979

From the Pennsylvania Record: Reach Courts Reporter Nicholas Malfitano at

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