Federal Court Enjoins U.S. Government from Enforcing Corporate Transparency Act
On December 3, 2024, Judge Amos L. Mazzant of the U.S. District Court for the Eastern District of Texas granted a sweeping, nationwide preliminary injunction enjoining the federal government from enforcing the Corporate Transparency Act (the “CTA”).[1]
The CTA requires “reporting companies” in the United States to disclose information about their “beneficial owners” to the Financial Crimes Enforcement Network (“FinCen”), a unit of the Treasury Department.
Judge Mazzant’s ruling, which can be reviewed here, found that the plaintiffs were likely to succeed on the merits of their claim that the CTA violated their constitutional rights and that Congress lacked the power to enact the CTA. Judge Mazzant ruled that neither the CTA nor the related rules promulgated by FinCen may be enforced and that reporting companies need not comply with the January 1, 2025 deadline to file beneficial ownership reports.
While many business owners may be breathing a sigh of relief, this is not the end of the road. Judge Mazzant’s ruling is only a preliminary injunction, not a final decision. If the government appeals or ultimately succeeds on the merits of the case[2], enforcement of the CTA may resume.
This is not the only ongoing legal challenge to the CTA. Previously, Judge Liles C. Burke of the U.S. District Court for the Northern District of Alabama ruled that the CTA was unconstitutional, although Judge Burke declined to issue a nationwide injunction.[3] The federal government has announced that it intends to appeal Judge Burke’s opinion to the 11th Circuit Court of Appeals.
Note, however, that the federal government has not been entirely unsuccessful in defending the constitutionality of the CTA. On September 20, 2024, a U.S. District Judge for the District of Oregon rejected different plaintiffs’ request for a preliminary injunction against the enforcement of the CTA in Firestone, et al. v. Janet Yellen, Case No. 3:24-cv-1034-SI (D. Ore.). There are also challenges pending in Ohio[4], Maine[5], Michigan[6], and Massachusetts.[7]
Given the potential for conflicting opinions by the lower courts, the question of whether Congress had the power to enact the CTA may ultimately be decided by the U.S. Supreme Court.
[1] See Texas Top Cop Shop, Inc., et al v. Merrick Garland, Attorney General of the United States, et al, Civ. Act. No. 4:24-cv-478 (E.D. Tex., Dec. 3, 2024).
[2] Although the preliminary injunction is preliminary in nature, it seems unlikely that that the final judgment will differ given the analysis set forth in Judge Mazzant’s lengthy opinion.
[3] See Nat’l Small Bus. United v. Yellen, No. 5:22-cv-01448-LCB, 2024 WL 899372 (N.D. Ala. Mar. 1, 2024).
[4] See Robert J. Gagasz Co. LPA, et al v. Janet Yellen, et al, Case No. 1:23-cv-02468-CEF (N.D. Ohio).
[5] See William Boyle v. Janet Yellen, et al., Case No. 2:24-cv-00081-LEW (D. ME).
[6] See Small Business Association of Michigan, et al. v. Yellen, et al, Case No. 1:24-cv-00314-RJJ-SJB (W.D. MI)
[7] See Black Economic Council of Massachusetts, Inc., et al v. Janet Yellen, et al, Case No. 1:24-cv-11411-PBS (D. Mass.)
