December 4, 2024
Corporate Transparency Act: Texas Court Issues Nationwide Injunction!
Yesterday, with a little less than one month to go before the compliance date for the Corporate Transparency Act, a federal district court in Texas has issued a preliminary injunction that blocks the Department of Treasury from enforcing the reporting requirements under that statute. The court also stayed the compliance deadline. (Hat tip to my Fredrikson colleagues for alerting me! Here’s our memo.)
This holding – Texas Top Cop Shop v. Garland (E.D. Tex.; 12/24) – follows an Alabama decision from earlier this year that also found the CTA unconstitutional. In the Alabama case, FinCEN followed up with a notice that clarified the court’s order applied only to the specific plaintiffs in that litigation. Here, though, the court was very clear that its order applies to all entities – on a nationwide basis. Here’s an excerpt from the opinion:
Having determined that Plaintiffs have carried their burden, the Court GRANTS Plaintiff’s Motion for a Preliminary Injunction. Therefore, the CTA, 31 U.S.C. § 5336 is hereby enjoined. Enforcement of the Reporting Rule, 31 C.F.R. 1010.380 is also hereby enjoined, and the compliance deadline is stayed under § 705 of the APA. Neither may be enforced, and reporting companies need not comply with the CTA’s January 1, 2025, BOI reporting deadline pending further order of the Court.
The court found that the statute is likely unconstitutional as outside of Congress’s power, and that the final rule implementing the CTA is likely unconstitutional for the same reason. With these CTA cases, all that time studying the commerce clause in law school has finally become relevant to what we do!
The U.S. Chamber of Commerce applauded the ruling. Here’s an excerpt from their release:
The preliminary relief will remain in effect until the conclusion of legal proceedings, at which point the court may enter a permanent injunction. In the meantime, the government will likely appeal the preliminary injunction.
Unless and until an appellate court overrules or narrows the injunction, no businesses are obligated to comply with the reporting requirements.
This Bloomberg article says that the DOJ hasn’t indicated yet whether it will appeal this holding. In the Alabama case from earlier this year, the DOJ appealed to the 11th Circuit. We’ll stay tuned for any updates or guidance from FinCEN, as well.
– Liz Dunshee