Texas District Court Enjoins the Corporate Transparency Act Nationwide (12/5/24; 1/6/25)

On 12/31/24, the Solicitor General filed for the United States an Emergency Application for a stay of injunction issued by the United States District Court pending appeal. See paragraph 8 below.

In Texas Top Cop Shop, Inc. v. Garland, ___ F.Supp.4th ___, 2024 U.S. Dist. LEXIS 218294 (ED TX 12/3/24), GS here [here] 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). 

5. Added 12/21/24 2:22pm: On 12/17/24, the district court denied the Government's motion to stay the injunction pending appeal. Texas Top Cop Shop, Inc. v. Garland (E.D. TX Civ. No. 4:24-cv-00478 12/17/24), CL here, GS here, and TN here.

6. Added 12/24/24 2:00pm: By unpublished panel order of 12/23/24, here, the Fifth Circuit stayed the injunction (see pars. 4 & 5), holding in a short opinion (7 pages) the Government met the requirements for a stay of the injunction. That is the right answer at this stage. However, I am sure that the Fifth Circuit has enough ideologues prepping for a Trump appointment to the Supreme Court to either get that reversed en banc or produce some strong very Trumpian dissents. Either way, there will be more fireworks and perhaps the choice of forum in the Fifth Circuit was justified. My cut, the district court's injunction was “dumb, stupid,” as I said above, hence the stay was eminently justified. 

7. Added 12/2924 12:15pm: By yet another apparently unpublished order signed by the Clerk but "ENTERED AT THE DIRECTION OF THE COURT," the Fifth Circuit vacated the stay, thus resurrecting the district court's injunction. The explanation offered is:

The merits panel now has the appeal, which remains expedited, and a briefing schedule will issue forthwith. However, 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.

I repeat my view that this commotion is "dumb, stupid." But then readers need to remember that this is the Fifth Circuit motivated by "dumb, stupid" stuff. 

8. Added 1/4/25 2:00pm: The United States through the Solicitor General filed an Application for a stay of injunction issued by the United States District Court for the Eastern District of Texas, which the Court styled as Application (24A653) for a stay of injunction issued by the United States District Court pending appeal. See Application here and docket entries here. I incorporate the SG's arguments in support of my own conclusion that the District Court's stay was "dumb, stupid" with the intervening machinations to support the District Court's stay as of the same ilk.

9. Added 1/6/24 2:30pm: Professor Steve Vladek, a Supreme Court Scholar (Georgetown Law bio here), has an informative discussion of the United States’ Emergency Application.  Steve Vladek, 116. The Corporate Transparency Act and Nationwide Injunctions (One First 1/6/25), here. Key points are:

a. “On the merits, the dispute over the CTA raises an important (if not especially intricate) question about the scope of Congress’s power to regulate interstate commerce under Article I of the Constitution.” (Emphasis supplied by JAT.)

b. “But the Biden administration isn’t just asking the justices to put the statute back into effect pending further litigation; it’s also asking the Court to grant certiorari ‘before judgment’ in the Fifth Circuit—and to conduct expedited plenary review solely on a procedural issue, i.e., when/whether district courts can issue ‘nationwide’ injunctions in the first place.” (Of course, granting certiorari “before judgment” on this basis does not address the issue of whether the district court’s interim nationwide injunction should be stayed.)

There are two unrelated procedural issues—(1) whether the Supreme Court should accept certiorari “before judgment;” and (2) whether “nationwide injunctions” are appropriate. I don’t propose to get into these questions because they are not tax-related. They are fascinating  questions that have drawn great interest recently in the administrative law community.

The merits issue (see paragraph 1 above) is where I believe most readers of this blog have interest. Does Congress have the power to enact and does the Executive (FinCEN) have the power to implement the CTA?

In the Application, the SG asserts (pp. 2-3)

This Court should stay the district court’s injunction. The government is likely to succeed on the merits of respondents’ claim. The Act’s reporting requirements are important to the government in preventing, detecting, and prosecuting crimes such as money laundering, tax fraud, and the financing of terrorism. The requirements therefore fall comfortably within Congress’s authority under the Commerce Clause to regulate economic activities (here, the anonymous operation of business entities) [*3] that substantially affect interstate commerce. The requirements are also necessary and proper to effectuate several of Congress’s enumerated powers, including the power to regulate interstate and foreign commerce and to collect taxes, as well as Congress’s powers with respect to foreign affairs. Even if there might be outlier circumstances in which the Act could be thought to exceed Congress’s powers, the Act complies with the Constitution in most of its applications, which suffices to defeat respondents’ facial challenge.

That is the opening summary of the merits position. The argument is fleshed out later in the Application. (See pp, 10-26.)

There is a lot more that could be said and certainly will be said by persons more qualified on the subject than I am.

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