Texas District Court Enjoins the Corporate Transparency Act Nationwide (12/5/24)

In Texas Top Cop Shop, Inc. v. Garland, ___ F.Supp.4th ___, 2024 U.S. Dist. LEXIS 218294 (ED TX 12/3/24), GS here [to come] and CL here, the Court ordered a preliminary nationwide (or universal) injunction enjoining enforcement of the Corporate Transparency Act, codified at 31 U.S. C. § 5336. (The relief is sometimes called vacatur under the APA which has the same effect of a nationwide injunction, see Slip Op. p. 77.)

Four courts have spoken on the issue, with two granting preliminary injunctions (with different scopes as noted) and two denying preliminary injunction.

Granting preliminary injunction:

• Nat'l Small Business United v. Yellen, ___ F. Supp.4th ___, 2024 WL 899372 , 2024 U.S. Dist. LEXIS 36205  (N. D. Ala. 2024), GS here and CL here; and
• Texas Top Cop Shop, Inc. v. Garland, ___ F.Supp.4th ___, 2024 U.S. Dist. LEXIS 218294  (W.D. TX 12/3/24), GS here [to come] and CL here.

Denying preliminary injunction

• Community Assocs. Inst. v. Janet Yellen, 2024 U.S. Dist. LEXIS 193958 (E.D. Va. 10/25/24), GS here and CL here; and
• Firestone v. Yellen, 2024 WL 4250192, 2024 U.S. Dist. LEXIS 170085 (D. Or. Sep. 20, 2024), GS here and CL here

 All of the cases are on appeal, with the Alabama case being fully briefed.

The difference between the two sets of cases is the courts’ respective assessments of the likelihood of prevailing on the merits. Those cases granting the preliminary injunctive relief held that the CTA was unconstitutional, thus satisfying the preliminary injunction requirement that the plaintiffs be likely to prevail. Those cases denying the preliminary injunctive relief held that the CTA was likely constitutional, thus plaintiffs had not satisfied the requirement that they would likely prevail,

In any event, the Texas Top Cop Shop injunction until changed means that the CTA cannot be enforced. Of course, I am sure that there has been significant filings by now. The injunction should prevent FinCEN from using the data or making it available to persons who, under the CTA, could have access.

Finally, I said before in blogging on the Alabama case: “This opinion is dumb, stupid.” The Texas case is wrapped in a greater fog of words, but alas in my view, is also dumb, stupid. For context in assessing my assessment, I am not a constitutional law scholar. But, I don’t think the Constitution should be interpreted so rigidly that reasonable accommodations to the world we live in now (rather than over 200 years ago) cannot be made in governing doctrines. Constitutional text cannot be ignored but it can be interpreted reasonably. I think the Courts in the Virginia and Oregon cases made those accommodations.

Other JAT Comments:

1. The key merits discussion in the opinion is at Slip Op. 32-78 under the headings Likelihood of Success (pp. 32-73), Balance of Equities (pp. 73-74), and Scope of the Injunction (pp. 74-78).

2. Being a tax lawyer (at least wannabe), the tax discussion (Slip Op. 66-73) caught my attention. The Court says that the Government asserts (Slip Op, 66) a tax justification for the CTA because it was otherwise “backed into the corner.” As elsewhere in the opinion, the Court uses cliches to bat back the argument: “this final card does not arm the Government’s hand with a royal flush to conquer Plaintiffs’ arguments.” Basically, the Court ends up asserting (Slip Op, 71) that “what little connection the Government suggests the CTA has with the at-large taxing system imposed upon Americans is tenuous at best”—meaning not enough to justify a tax reason for the reporting requirements of the CTA. I find that analysis weak, quite weak.

3. I suspect that, in picking the venue for this litigation, the Plaintiffs or at least one of them may have preferred a Fifth Circuit venue for the reason that litigants desiring to hobble the system prefer the Fifth Circuit.

4. Picky Issues.

  a. I think there is an error in the outline structure. For those wanting to track that down, the missing point in the outline structure is in the Analysis after II.B. 1. which seems to require II.B.2. (which I infer because there are two sets of subheadings a-c after II.B.1 which seem to require that there be II.B.2. before the second set of subheadings). I know, picky, picky.

  b, Citation issues (also picky):

    (1) The Court refers to M’Culloch v. Maryland, 17 U.S. 316 (1819). A Lexis search finds M’Culloch v. Maryland in 382 cases and McCulloch v. Maryland in 3,052 cases. (This is consistent with my private database of cases and articles where McCulloch is overwhelmingly used McCulloch rather than M’Culloch. I have made no attempt to determine whether either or both of the usages are “correct” but will continue to use McCulloch until the right answer appears.

     (2) The Court (p. 67-68) “shorthands” Helvering v. Mitchell, 303 U.S. 391 (1938) as “Helvering.” As I have noted before that is a rookie -- at least tax rookie -- way to refer to cases where the IRS official, like Guy Helvering in this instance, appears in the name. Real tax lawyers would refer to the case as “Helvering v. Mitchell” or “Mitchell.” See 11th Circuit on Third Consideration Seals FBAR Willful Penalty Except for Relatively Small Amount Held Excessive Fine under 8th Amendment (Federal Tax Procedure 9/4/24), here (Comment # 3 at the end of blog). 

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