A Texas federal court has just saved a zillion businesses (and family trusts and mere holding companies) the effort of complying with the onerous filing burden under the draconian, oppressive, vague and unconstitutional Corporate Transparency Act (and zillions more not even aware of the requirement), applying a preliminary injunction against the CTA nationally.
As i posted previously, different court earlier this year also ruled CTA unconstitutional, but limited its decision to the plaintiffs in that case (no national injunction).
I have been advising clients to hold off on filing at least until the 12/31/24 deadline, but now it appears they can hold off longer and my guess is that Trump will not enforce this evil law, passed over his veto, and will seek its repeal or substantial modification.
Hat tip to Foley Hoag for additional detail:
In a striking decision on December 3, 2024, the U.S. District Court for the Eastern District of Texas issued a nationwide preliminary injunction in favor of the plaintiffs in Texas Top Cop Shop, Inc. et al. v. Garland. The Texas federal court found that the CTA is likely unconstitutional because it goes beyond Congressional powers under the Commerce Clause or the Necessary and Proper Clause in relation to any enumerated power, concluding that the plaintiffs demonstrated a substantial likelihood of success on the merits of their Tenth Amendment challenge. The Texas federal court did not consider the plaintiffs’ additional challenges under the First and Fourth Amendments.
The Texas court’s preliminary injunction applies nationally. It specifically enjoins the enforcement of the CTA (31 U.S.C. § 5336) and the Reporting Rule (31 C.F.R. 1010.380) and stays the compliance deadline under § 705 of the Administrative Procedure Act (APA) throughout the U.S. As a result, all reporting companies are no longer required to comply with the CTA’s January 1, 2025 beneficial ownership (BOI) reporting deadline pending further orders from the district court or on appeal. You can read the district court’s decision here.
The Texas court’s preliminary injunction would be subject to review on appeal (which would be heard by the U.S. Court of Appeals for the Fifth Circuit). The Department of Justice (“DOJ”) will now have to decide whether to appeal that ruling, and whether to seek any immediate emergency relief from the Fifth Circuit Court of Appeals while the appellate process plays out (which ordinarily could take many months). The impending transition to a new administration and new DOJ leadership in January 2025 will obviously have an impact on those decisions. The U.S. Department of the Treasury’s Financial Crimes Enforcement Network (“FinCEN”) has yet to comment on the decision.
The Texas federal district court’s findings align with those of Nat’l Small Bus. United v. Yellen, a case decided earlier this year by the U.S. District Court for the Northern District of Alabama, which found the CTA unconstitutional (but limited its injunctive relief to the plaintiffs in that case only). The Alabama federal court’s decision is now under review by the U.S. Court of Appeals for the 11th Circuit in an appeal expected to be decided this coming spring. In that case, the Department of Justice decided not to seek emergency relief from the narrower injunction ordered there.
