Federal District Court Issues Nationwide CTA Injunction

Key Takeaways

• On December 3, 2024, a federal district court issued a preliminary injunction, temporarily halting the implementation of the Corporate Transparency Act (CTA).
• The ruling applies to all potential CTA filers, not just the named plaintiffs - meaning that CTA compliance is not required unless and until the preliminary injunction is stayed or overturned on appeal.
• As of the publication of this alert, the Financial Crimes Enforcement Network (FinCEN) has not issued a press release or other statement regarding whether it intends to seek a stay or expedited appeal of the district court's decision.

On December 3, 2024, a Texas federal district court in Texas Top Cop Shop, Inc., et al. v. Garland, et al. (E.D. Tex., No. 4:24-cv-00478, 12/3/24) granted the plaintiffs' motion to preliminarily enjoin the U.S. government from enforcing the CTA and issued a stay of the upcoming January 1, 2025 initial filing deadline. But unlike the Alabama district court decision issued earlier this year, this ruling was not limited to only the named plaintiffs. In this case, the court determined that a nationwide injunction and stay of the compliance deadline were appropriate.

In granting the preliminary injunction, the court held that plaintiffs had established (i) a substantial likelihood of success on the merits of their claims that the CTA is unconstitutional, finding that the CTA was not likely to be justified under either the Commerce Clause or the powers to regulate foreign affairs or collect taxes, in each case as supplemented by the Necessary and Proper Clause; (ii) a substantial threat that they will suffer irreparable harm absent injunctive relief; (iii) that the threatened injury outweighs any damage that the injunction might cause the government; and (iv) that the injunction will not harm the public interest.

Notably, the plaintiffs sought only an injunction that would apply to the plaintiffs before the court, which include, among others, approximately 300,000 members of the National Federation of Independent Business (NFIB). In response, the government asserted that the practical effect of such an injunction would have a nationwide impact. The court "agreed with the Government's point," and therefore, held that a "nationwide injunction [was] appropriate in this case."

The court acknowledged that nationwide relief issued by lower courts is subject to "ongoing debate" and "controversy." Nevertheless, the court reaffirmed that it had the authority to apply the preliminary injunction nationwide and that doing so was appropriate.

Impact and Next Steps

As of now, the preliminary injunction enjoins FinCEN from enforcing the CTA against any entity - not just the named plaintiffs. We expect the government to at least appeal the injunction, but it is not clear whether it will seek an immediate stay of the decision pending that appeal or attempt to expedite the appeal. Given that the year-end deadline for all nonexempt, preexisting entities is merely a few weeks away, pursuing the stay could create even more uncertainty and chaos, depending on if and when it is granted.

If the government is going to seek a stay or expedition in an attempt to preserve the Jan. 1 deadline, it will have to move fast. An initial stay motion would likely appear on the district court docket as soon as today or tomorrow and be followed by quick filings, as necessary, in the appeals court. On the other hand, no action on the docket may indicate that the government does not intend to seek immediate relief from the injunction and will let the appeal play out in the ordinary course, which could take months.

Based on the government's response to the Alabama district court decision, we anticipate that the government will issue a notice of its next steps in the next few days to signal their intended course of action so that millions of potential filers nationwide are not left guessing with the initial filing deadline looming. As of the time of this alert, no such notice has been issued.

We will continue to provide updates regarding any further developments as they arise.