Navigating the Appeal of the Corporate Transparency Act

 

In early December I wrote a blog (Texas Federal Court Enjoins Corporate Transparency Act) explaining that a Texas federal court had imposed a nationwide preliminary injunction against the Corporate Transparency Act (CTA) in Top Cop Shop, Inc. v. Garland, No. 4:24-CV-478 (E.D. Texas 2024), resulting in the temporary enjoinment of enforcement of the CTA.

The government filed an emergency motion seeking a stay of that ruling before the United States Circuit Court of Appeals for the Fifth Circuit (Fifth Circuit), to allow the enforcement of the CTA.

A 3-judge motions panel of the Fifth Circuit entered an order on December 23, 2024 granting the government’s motion to stay the District Court’s December 3, 2024 order and injunction, meaning that the CTA would go into effect.

The panel considered the following four factors when deciding to grant a stay: (1) whether the stay applicant has made a strong showing that he is likely to succeed on the merits; (2) whether the applicant will be irreparably injured absent a stay; (3) whether issuance of the stay will substantially injure the other parties interested in the proceeding; and (4) where the public interest lies, and concluded that the government had satisfied each.

As to the first factor, the panel stated the “government has made a strong showing that it is likely to succeed on the merits in defending CTA’s constitutionality”, noting “When Congress passed the bipartisan statute in 2021, it used its “broad authority under the Commerce Clause” to regulate economic activity.”

Analyzing the second fact, the panel found the “last-minute injunction of a statute proposed and passed by the people’s representatives necessarily inflicts irreparable harm”.

The panel also concluded that the government has satisfied the third and fourth factors by showing that “that the balance of the equities weighs heavily in
favor of granting the stay”, stating

To start, the harm that a stay would cause the Businesses is minimal. FinCEN estimated that a typical, simple company would spend about ninety minutes (or about $85 worth of time) to complete and file CTA’s required report, which may be filed for free. 87 Fed. Reg. 59498, 59589–90 (Sept. 30, 2022). The Businesses neither contend that they have more complex structures that would require more time or money, nor state their potential costs with any particularity.

Upon consideration of the emergency motion by the merits panel, on December 26, 2024 the Fifth Circuit entered a 2-page order reversing the December 23, 2024 order, thereby reimposing the stay of enforcement of the CTA. The order states,

in order to preserve the constitutional status quo while the merits panel considers the parties’ weighty substantive arguments, that part of the motions-panel order granting the Government’s motion to stay the district court’s preliminary injunction enjoining enforcement of the CTA and the Reporting Rule is VACATED.

Briefing on the expected appeal to the Fifth Circuit is to be completed by February 28, 2025, and oral argument has been scheduled for March 25, 2025.

In the interim, on December 31, 2024 the government has filed an application before the Supreme Court of the United States to enjoin the order of the Fifth Circcuit merits panel and thereby allow the CTA to go into effect.

Unless the Supreme Court grants that application, the nationwide injunction against the enforcement of the CTA remains in place and the filing of beneficial ownership information reports with FinCEN is strictly voluntary.

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