On December 3, 2024, the United States District Court for the Eastern District of Texas imposed a nationwide preliminary injunction on both the Corporate Transparency Act (“CTA”) and its respective implementation regulations (the “Reporting Rule”) imposed by the Financial Crimes Enforcement Network (“FinCen”). See Texas Top Cop Shop, Inc., Et Al., v. Merrick Garland, Et Al., Cause No. 4:24-CV-478.
As a result, if an entity needed to report under the CTA or Reporting Rule, the entity no longer needs to file a beneficial ownership report with FinCEN until Texas Top Cop Shop is finally decided on its merits.
The Case – Texas Top Cop Shop
Texas Top Cop Shop included six plaintiffs, five individuals, and one association. Importantly, the plaintiff association represented over 300,000 of its individual members from across the nation. After deciding that each plaintiff had standing to bring their claims, the Court analyzed the plaintiffs’ necessity for a preliminary injunction of the CTA and Reporting Rule.
The Court found that the Government, through the CTA and Reporting Rule, was likely to impose irreparable harm on the plaintiffs on two separate fronts: (1) compliance costs and legal expenses; and (2) violations under the First, Fourth, Ninth, and Tenth Amendments to the Constitution.
Additionally, the Court found that the plaintiffs were likely to succeed on the merits of their case. The plaintiffs brought two constitutional challenges to the CTA and Reporting Rule: a facial challenge and an as-applied challenge. The Court found the CTA and Reporting Rule facially invalid and likely unconstitutional under the Commerce Clause, Necessary and Proper Clause, or any other Clause. Because the Court found in favor of the plaintiffs’ facial challenge, the Court did not analyze the plaintiffs’ as-applied challenge.
As a result, the Court imposed a preliminary injunction against the Government regarding the CTA and the Reporting Rule. Importantly, the Court’s injunction extended nationwide. The Court imposed such nationwide preliminary injunction for two reasons (1) the plaintiff association’s membership extended nationwide; and (2) the CTA and Reporting Rule extend nationwide to approximately 32.6 million reporting companies. In order for the Court to effectively afford relief to the plaintiffs, the preliminary injunction needed to apply nationwide.
Considerations
While the Court imposed a nationwide preliminary injunction, the Court has yet to decide the case on its merits. Thus, the Court only found that the CTA and the Reporting Rule are likely unconstitutional. Once the Court finally decides the case on its merits, reporting companies nationwide may likely receive the finality and certainty to the painstaking question, “Do I have to report under the CTA?”
Until that time, we will keep you updated with any CTA or Reporting Rule developments. For now, reporting companies need not report their beneficial owners to FinCEN. Feel free to reach out to us with any questions at info@beresfordlaw.com or 425-776-4100.