The Guardian or Authority of Law, created by sculptor James Earle Fraser, rests on the side of the U.S. Supreme Court. (Photo by Al Drago/Getty Images)
Getty ImagesThe Supreme Court has ruled—for now—on the Corporate Transparency Act (CTA). Today, it granted the government's application for a stay of a Texas ruling that had blocked the beneficial ownership interest (BOI) reporting requirements in the CTA.
But wait. There’s more.
While the High Court was considering the Department of Justice’s request that the Texas injunction be blocked, another Texas court got into the act (with a different result). Bottom line: The legal drama is continuing and it does not appear that businesses need to rush to file just yet.
On its website, FinCEN—the agency where companies file their BOI reports—noted: In light of a recent federal court order, reporting companies are not currently required to file beneficial ownership information with FinCEN and are not subject to liability if they fail to do so while the order remains in force. However, reporting companies may continue to voluntarily submit beneficial ownership information reports.
Supreme Court's Ruling
In announcing that the application for a stay presented was granted, the Court made clear that the December 5, 2024, amended order of the U.S. District Court for the Eastern District of Texas "is stayed pending the disposition of the appeal in the United States Court of Appeals for the Fifth Circuit and disposition of a petition for a writ of certiorari, if such a writ is timely sought."
The Court went on to say that “Should certiorari be denied, this stay shall terminate automatically. In the event certiorari is granted, the stay shall terminate upon the sending down of the judgment of this Court.”
That's a lot of legalese. Let's break it down, with some context.
Application For Stay
On December 31, 2024, the Department of Justice filed an application with the Supreme Court in an effort to put the brakes on the nationwide preliminary injunction that had barred the government from enforcing BOI reporting.
In the application for a stay of the injunction, the government argued that the Court "has traditionally applied a strong presumption that "Acts of Congress * * * should remain in effect pending a final decision on the merits by this Court."
(A stay is a court order that stops a legal proceeding—it's usually temporary.)
That's exactly what happened. The stay puts a halt on the injunction granted by the Fifth Circuit. That injunction had stopped the government from enforcing the CTA. The result is that the government can enforce the CTA while appeals make their way through the system. (Remember, there are a lot of moving parts.)
How We Got Here
In Texas Top Cop Shop, Inc., et al. v. Garland, et al., U.S. District Court Judge Mazzant from the Eastern District of Texas granted the request of the National Federation of Independent Business (NFIB) for a preliminary injunction, blocking the U.S. Department of Treasury from enforcing the CTA's reporting requirements. Because NFIB and its nearly 300,000 members were a party to this case, the judge blocked enforcement of the BOI reporting requirements nationwide.
On December 17, on appeal, Mazzant ruled that a nationwide preliminary injunction barring FinCEN from enforcing the CTA would stand.
The government appealed the matter to the Fifth Circuit, which initially granted the government's request to stay the injunction. Days later, however, a separate Fifth Circuit panel vacated the stay, blocking enforcement. That meant the ruling that stayed the injunction no longer applied, and the injunction was back in play.
As a result, on December 27, FinCEN updated its website to note: In light of a recent federal court order, reporting companies are not currently required to file beneficial ownership information with FinCEN and are not subject to liability if they fail to do so while the order remains in force. However, reporting companies may continue to voluntarily submit beneficial ownership information reports. (Emphasis added.)
Fifth Circuit Action
If you're wondering why the Supreme Court appeared to defer to the Fifth Circuit, it's because that court—the Fifth Circuit—still has the appeal.
Remember, a preliminary injunction—and any ruling related to the preliminary injunction—is not a final resolution of a case. The appeal has been expedited at the Fifth Circuit, and oral arguments are now calendared for March 25, 2025.
In its application to the Supreme Court, the government suggested that the Court "may wish to treat the application as a petition for a writ of certiorari before judgment on the question whether the district court lacked authority to enter a universal injunction, grant the petition, and set the remedial question for argument this Term."
Procedurally, a party seeking to be heard on an appeal from a lower court decision—like this one—must file a writ of certiorari. Certiorari is Latin (remember, lawyers love Latin), which means "to be more fully informed."
If the Supreme Court decides to hear the matter, it's called a grant of certiorari—by practice, at least four justices must vote to hear the case to be granted cert. Usually, cert is granted in a case of considerable importance or involving a circuit split. Here, the government suggests that certiorari would be proper since the lower court held an act of Congress unconstitutional.
The error the government is flagging is tied to the original injunction which applies nationwide. Whether the district court has that power, the government argued, is not settled, writing, "the issue whether district courts may award universal relief has evaded this Court's review."
The U.S. Supreme Court did not have to agree to hear the matter or answer the government's application. It did answer the application by granting the stay.
However, if the justices agree to grant certiorari, the case could become much bigger than the CTA—and could have massive implications for future lawsuits challenging federal laws.
As part of the most recent order, the Court made clear that if certiorari is denied, the stay would end (and that means that the injunction would again be in force). If certiorari is granted, the stay would end after the Court issued a ruling.
A Concurrence And A Dissent
Justice Gorsuch issued a concurring opinion, meaning that he agreed with the decision but had a different reasoning. Gorsuch wrote that he would have gone a step further and "as the government suggests, take this case now to resolve definitively the question whether a district court may issue universal injunctive relief." That refers to the additional question raised by the government.
Justice Jackson issued a dissenting opinion, meaning she disagreed with the decision. While not addressing whether the government might ultimately be successful, she wrote that "emergency relief is not appropriate because the applicant has failed to demonstrate sufficient exigency to justify our intervention." Citing the expedited appeal to the Fifth Circuit and the previous deferred implementation (the law, which was passed in 2021 didn't take effect until 2024), Jackson wrote that there is "no indication that injury of a more serious or significant nature would result if the Act's implementation is further delayed while the litigation proceeds in the lower courts." She would have, she noted, denied the application and allowed the matter to play out in the courts.
Another Texas Court Ruling
The stay would seem to indicate that the reporting requirements are back on. But, as noted, there’s a wrinkle: On January 7, 2025, a U.S. District Judge in Texas (sound familiar?) granted a preliminary injunction and stay that would prohibit FinCEN from enforcing the new law. In that case, Smith v. U.S., Judge Jeremy D. Kernodle, a 2018 Trump appointee, found that the plaintiffs “have demonstrated that the CTA and its implementing rule are likely unconstitutional, that they face a substantial risk of irreparable harm absent an injunction, and that the balance of equities and public interest support preliminary relief.” As a result, the court enjoined the government from enforcing the CTA against the Plaintiffs, Samantha Smith and Robert Means, and their related entities while the lawsuit continues.
The ruling, however, was bigger than that—the injunction purports to apply nationwide. In Smith, the plaintiffs moved for a stay (there’s that word again) of the reporting rule. Judge Kernodle granted that motion, staying (temporarily stopping) the effective date of the reporting rule (the BOI rules found at 31 C.F.R. § 1010.380) while the lawsuit is pending.
FinCEN acknowledged the Smith ruling on Friday, posting on its website that a “separate nationwide order issued by a different federal judge in Texas (Smith v. U.S. Department of the Treasury) still remains in place” which means that “reporting companies are not currently required to file beneficial ownership information with FinCEN despite the Supreme Court’s action in Texas Top Cop Shop.”
Other Court Rulings
The Top Shop case isn't the only case pending in the courts.
Earlier this year, U.S. District Judge Liles C. Burke of the Northern District of Alabama, Northeastern Division, found the CTA unconstitutional "because it exceeds the Constitution's limits on Congress' power." The Alabama ruling resulted from a lawsuit filed by the National Small Business United (also known as the National Small Business Association, or NSBA) and Isaac Winkles, and bars the U.S. Treasury from enforcing the CTA against the Plaintiffs—members of the NSBA—but does not enjoin enforcement against others. The federal government has since appealed the case. Oral arguments were heard in October of 2024.
In addition to National Small Business United v. Yellen, two other courts—the United States Court of Appeals for the Fourth Circuit (Community Associations Institute, et al. v. Yellen) and the United States Court of Appeals for the Ninth Circuit (Firestone et al v. Yellen)—also have CTA case appeals on their dockets. In both of those cases, the courts declined to issue a preliminary injunction on behalf of plaintiffs challenging the constitutionality of the CTA.
Reactions
The reporting requirements are the result of a 2021 law, the Corporate Transparency Act—or CTA—which requires reporting companies to file reports with FinCEN. One of the cited purposes of the law is to enhance measures to combat financial crimes, such as money laundering and terrorism financing.
Reaction from the Financial Accountability and Corporate Transparency (FACT) Coalition was immediate. “For years, police and prosecutors have tried to combat a flood of dirty money associated with often violent crimes, but that can’t happen if they run into a wall of shell companies and secrecy," said Ian Gary, Executive Director of the FACT Coalition. "Today’s order is a reminder of the urgency of opening the money trail so our law enforcement officials can crack down on criminals who abuse the system.”
(Note: Updated to reflect a statement on the FinCEN website.)
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