The September 2024 complaint filed by the Justice Department describes the defendant as a North Carolina-based company that is vertically-integrated real estate developer, owner, and operator of specialty real estate products, focused primarily on self-storage facilities and marinas, and is alleged to have enforced liens on property and effects of three Servicemembers in storage at different self-service storage facilities located in Florida and South Carolina, without first obtaining authorizing court orders in violation of a federal law – the Servicemembers Civil Relief Act (SCRA).[1] The case is a reminder to movers, warehouses and self-storage operators of the need to exercise caution before proceeding with an auction sale of a consumer’s personal possessions to satisfy an arrearage covered by a statutory lien against the goods.
The SCRA provides protections to Servicemembers so that they can devote their entire energy to the defense needs of the nation. This case is proof-positive that it is critically important to be proactive by ensuring policies, procedures and agreements take the SCRA into account before contracting for storage with a consumer. This is in addition to the legal requirement that for-hire warehouses in Massachusetts have a public warehouse license and bond covering the premises where the goods are being stored.
According to the DOJ’s complaint, the Self-Storage Facility’s failure to first obtain a court order deprived the SCRA-protected Servicemembers of certain rights, including a court-authorized postponement of the auction, adjustment of the arrearage, appointment of an attorney to represent the Servicemember, requiring the lienholder post a bond with the court prior to the auction, or other orders deemed necessary to preserve the interests of the parties.
Background Facts
In July 2022, a Staff Sergeant on full-time duty in the active duty of the U.S. Air Force while stationed at MacDill Air Force Base in Tampa, entered into a self-storage rental agreement with CubeSmart Asset Management, LLC (CubeSmart).
The Staff Sergeant then deployed to Jordan.
A month later, the Tampa facility was sold to an affiliate of the defendant Self-Storage Facility operator and took over the management and operation of the Tampa facility from CubeSmart.
The automatic bill-pay by credit card was not transferred from CubeSmart to the Self-Storage Facility operator and consequently, the Staff Sergeant’s credit card authorization was turned off. Emails sent to the Staff Sergent’s personal email address regarding rent for the leased space went unanswered because while deployed overseas, they were not read. Consequently, the Staff Sergent was unaware that her automatic rent payments had been turned off.
After 5 months of non-payment, the Staff Sergeant’s personal property was sold at a public auction for $390. Items sold or disposed of included many irreplaceable items of great sentimental value, including her military awards and coins. The Staff Sergent valued all her possessions stored in the unit to be worth approximately $29,000.
A second customer that had rented a storage unit and then later entered into military service as a U.S. Army Servicemember had the contents of his storage unit sold at a public auction. A third Servicemember had his goods sold at a public auction. The “notes history” associated with his unit indicate that two days prior to the auction, he requested that his “military items” be removed from the unit.
The complaint alleges that the Self-Storage Facility operator failed to implement policies or procedures that would identify SCRA-protected Servicemembers and thereby prevent foreclosing on its lien by auctioning or otherwise disposing of the goods in accordance with State law. Failures alleged to include not requiring its employees to perform a database search of the customer through a free service (a website tool) offered by the Department of Defense Manpower Data Center (DMDC).
Corrective Action
The government and Self-Storage Facility operator agreed to a “consent order” which, if approved by the court and complied with to the government’s satisfaction, will result in dismissal of the civil action with prejudice four years after court approval. The consent order, requires the Self-Storage Facility operator to incorporate specific changes to storage agreements, written notices regarding SCRA rights, and written waiver of SCRA rights for current and prospective customers; policies and procedures for conducting lien enforcement proceedings and employee training. In addition, for the duration of the consent order, any “material[]” changes to SCRA policies and procedures must be pre-cleared by the government; all records regarding storage lien activities and consent order-specific activities must be retained and made available upon request by the government; and, within five business days of receipt, production to the government of any SCRA or military-related complaints. As of the date of the consent order, the defendant had 99 self-service storage facilities in the Southeast.
Monetary Damages and Civil Penalty
As to the loss claim asserted by the Staff Sergeant, the Self-Storage Facility operator agreed to pay her $80,000 and, as to the two other Servicemembers ($5,000 each) in exchange for releases. In addition, the Self-Storage Facility agreed to a civil penalty of $40,000 to the United States to “vindicate the public interest.” Contrast the results of this case with a 2020 case against a Boston Mover that we reported on here.[2] The Boston case resulted in a consent order requiring the Mover to pay $60,000 to settle a claim against a single Servicemember, $5,000 penalty and establishment of practices and procedures to comply with SCRA and court supervision for 3 years.
SCRA Consumer Protections
The SCRA generally protects the rights of Servicemembers while on active duty by suspending or modifying certain civil obligations so that they can devote themselves fully to the Nation’s defense. Violations raise an issue of significant public importance, thus triggering the Attorney General’s authority to sue. It includes imposing additional procedural and substantive protections for the Servicemember and in some cases their dependents when it comes to lien enforcement for storage of the property or effects of a Servicemember. Under the SCRA, a person holding a lien on property or effects of a Servicemember (i.e., a carrier, warehouse, or self-storage operator) may not, during any period of military service of the servicemember and for 90 days thereafter, enforce a lien on such property or effects without a court order granted before lien enforcement. In other words, when it applies, SCRA requirements are in addition to other applicable lien enforcement procedures, such as the state uniform commercial code, self-service storage facility operator’s lien laws, and other statutes conferring liens on personal property.
Significantly, for purposes of compliance with the SCRA, there is no affirmative obligation that the Servicemember inform the lien holder of his or her military service. In effect, in the absence of having proper procedures in place to identify such customers, the SCRA becomes a strict liability statute if violated by failing to obtain an appropriate order from the court.[3]
Violation of the SCRA includes possible criminal and civil liability. In addition to the US Attorney seeking relief for Servicemembers and other civil penalties, Servicemembers may bring a private right of action on their own behalf, or as a representative plaintiff on behalf of a class of claimants. In addition to monetary damages, the claimant may seek equitable, declaratory and “all other appropriate relief.” Attorney’s fees may be awarded to a claimant prevailing on his or her SCRA claim. The statute does not preclude or limit any remedy otherwise available under law, including consequential and punitive damages.[4] Accordingly, remedies available in the commonwealth under the consumer protection law, G. L. 93A providing for multiple damages and attorney’s fees, could be claimed.
Takeaways
This case provides welcome clarity on the issue of what pre-contract steps a business can take when onboarding a storage customer to identify his or her SCRA-protected status and gather needed information to be able to later search the DMDC, and other actions.
The case highlights the importance of having effective policies and procedures in place and understood by management and pertinent staff so that when a moving and storage company accepts a Servicemember’s personal possessions, there is clear documentation (rather than conflicting circumstantial evidence) which documentation informs the mover/warehouse or operator on how to conduct lien enforcement proceedings in compliance with the SCRA and other applicable laws; the Massachusetts eviction storage statute being one example.
Dated: Sudbury, MA
September 29, 2024
Andresen & Borovick, LLP
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Sudbury, Massachusetts 01776
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[1]United States of America v. Morningstar Properties, LLC d/b/a Morningstar Storage, 24-02208 (M.D. Fl Tampa Div., Sep. 19, 2024). Simultaneous with the filing of the complaint, the parties filed a proposed 24-page consent order. As part of the consent order, Morningstar denies the United States’ allegations in the complaint that it engaged in a pattern or practice of violating the SCRA.
[2]United States of America v. PRTaylor Enterprises LLC, 20-11551 (D. Mass., Aug. 18, 2020) (Consent Order).
[3] Gordon v. Pete’s Auto Service of Denbigh, Inc., 837 F.Supp.2d 581, 585 (E.D. Va 2011) (citing United States v. B.C. Enters., Inc., 667 F.Supp.2d 650, 662-64 (E.D. Va 2009) (predecessor to section 3958 “is a strict liability statute; it does not require proof of any mens rea to establish civil liability.”).
[4] Ensley v. Gene’s Wrecker Service, Inc., 16-713 Report and Recommendation (N.D. Fl., Feb. 4, 2019) ($50,000 punitive damages award by court. Court looked in part to 50 USC 4041(a) and (b)(3)(1) as a ‘guidepost’).