On February 2, 2023, the U.S. Department of Justice (“DOJ”) filed a complaint against the City of El Paso, Texas (the “City”) and several co-defendants alleging violations of the Servicemembers Civil Relief Act (“SCRA”) for auctioning off at least 176 motor-vehicles owned by SCRA-protected servicemembers. According to DOJ, the actions taken by the City constitute enforcement of liens on the property or effects of servicemembers, which is prohibited under the SCRA without first obtaining a court order. The case is the result of an investigation by DOJ that grew out of a referral from an Army attorney on behalf of one servicemember.
The allegations in DOJ’s action arise out of the City’s treatment of impounded vehicles. Under a local ordinance, when a vehicle is impounded, the registered owner of the vehicle is sent a written notice informing them of their right to claim it within 20 days of the notice. Anyone claiming their vehicle must first pay towing, preservation, and storage fees, which are liens against the vehicle. If the owner does not claim their vehicle within the allotted time, state and local law allow it be sold at public auction, and the City deducts the fees assessed from the sale proceeds. The City uses private companies to store and auction the vehicles, and those companies receive a percentage of the recovered fees. The two companies used by the City since December 2011 to store and auction the vehicles, United Road Towing, Inc. d/b/a UR Vehicle Management Solutions, and Rod Robertson Enterprises, are named as co-defendants.
While more attention has been paid to other SCRA provisions, such as the statute’s 6% interest rate cap and foreclosure and repossession protections, the SCRA also provides protection to servicemembers against the enforcement of storage liens. Specifically, the SCRA provides that “[a] person holding a lien on the property or effects of a servicemember may not, during any period of military service of the servicemember and for 90 days thereafter, foreclose or enforce any lien on such property or effects without a court order granted before foreclosure or enforcement.” 50 U.S.C. §3958(a)(1). There is no requirement within this provision that the servicemember inform the lienholder of their military service. This provision further protects servicemembers by providing for a stay of proceedings (by motion of the servicemember or by the court) where a court order is sought by a party to enforce their lien. 50 U.S.C. §3958(b). Like some other provisions within the SCRA, a knowing violation constitutes a misdemeanor.
The complaint alleges that none of the defendants had written policies for complying with the SCRA when holding auctions. A policy and practice of checking the Department of Defense Manpower Data Center (“DMDC”) database should have identified servicemembers within a protection period prior to proceeding to auction. Instead, it appears that no DMDC check was conducted and all unclaimed vehicles proceeded to auction.
DOJ has brought other actions under Section 3958 in recent years, including a 2022 case against a Virginia towing company that auctioned off vehicles belonging to two deployed Navy Seals, a 2021 settlement with a Dallas, Texas towing company, a 2020 settlement with a Jacksonville, Florida towing company, and a 2020 settlement involving the auction of 227 vehicles owned by servicemembers with the City of San Antonio, Texas.
The complaint filed against the City is also the latest action focused on SCRA in the context of motor vehicles. Last summer, DOJ and the Consumer Financial Protection Bureau sent a notification letter to auto finance companies regarding SCRA protections. That letter, which did not mention the lien enforcement protection under Section 3958, instead focused on vehicle repossession protection (50 U.S.C. §3952), early vehicle lease termination rights (50 U.S.C. §3955), and the 6% interest rate cap (50 U.S.C. §3957). All of those provisions have also been the subject of DOJ enforcement in recent years.
The SCRA provides a broad array of protections across a variety of products and contexts. The common theme across all of these actions is the need for policies, procedures, and practices that identify servicemembers eligible for SCRA protection. We encourage companies to look at the SCRA comprehensively and ensure your policy and procedures cover all products and contexts where the SCRA may apply. For example, a company may have a policy to extend the 6% interest rate cap in compliance with 50 U.S.C. §3957, but may not check if an individual it is litigating against is a servicemember before obtaining a default judgment, as prohibited by 50 U.S.C. §3955. Along the same lines, the action against El Paso is a reminder for companies to determine whether they conduct checks prior to actions that constitute enforcement of a lien, which can even include the drilling of a safe deposit box, without a court order.