5th Circuit Stays Injunction on Corporate Transparency Act's Reporting Requirements
The U.S. Court of Appeals for the 5th Circuit on Dec. 23 stayed a Texas court's order enjoining the enforcement of the Corporate Transparency Act's (CTA's) beneficial ownership information reporting requirements. Judges Carl Stewart, Catharina Haynes and Stephen Higginson said the government is likely to succeed in defending the CTA's constitutionality given that the act's reporting requirements squarely fall within over a century of the U.S. Supreme Court's jurisprudence regarding Congress' power under the commerce clause, the court said (Texas Top Cop Shop v. Merrick Garland, 5th Cir. # 24-40792).
Sign up for a free preview to unlock the rest of this article
Timely, relevant coverage of court proceedings and agency rulings involving tariffs, classification, valuation, origin and antidumping and countervailing duties. Each day, Trade Law Daily subscribers receive a daily headline email, in-depth PDF edition and access to all relevant documents via our trade law source document library and website.
The appellate court responded to an emergency stay motion from the government appellants, led by Attorney General Merrick Garland, which was filed after the U.S. District Court for the Eastern District of Texas enjoined enforcement of the CTA's reporting requirements (see 2412060058). The Texas court said the law intrudes on individual states' rights under the Ninth and Tenth amendments, compels speech and harms the right of association under the First Amendment, and violates the Fourth Amendment by "compelling disclosure of private information."
The various businesses challenging the reporting requirements argued before the 5th Circuit that the government was likely to fail on its defense of the measure under the commerce clause due to the high court's ruling in the case against the Affordable Care Act. In that decision, the Supreme Court found the ACA unworkable under the commerce clause because it regulated commercial inactivity rather than activity.
The 5th Circuit distinguished that case from the present action, finding that the CTA enacted reporting requirements for corporations whose "defining feature" is their "ability and propensity to engage in commercial activity." Meanwhile, Congress needs only a "rational basis" to find that a regulated activity affects interstate commerce, the court noted, finding that the legislature adequately laid out this basis by "imposing modest disclosure requirements to ... facilitate a regulatory scheme aimed at combatting financial crimes."
The appellate court added that the harm would be much greater to the government, as opposed to the businesses affected by the reporting requirements, in letting the injunction proceed. FinCEN estimated that a "typical, simple company would only spend about ninety minutes" filling out the reporting requirements, whereas the U.S. would be greatly encumbered in combating financial crimes, the court said.
In response, the businesses challenging the CTA filed an emergency petition for rehearing en banc, urging the entire 5th Circuit to review the injunction. The businesses relied on the Supreme Court's decision on the ACA and argued that Stewart, Haynes and Higginson engaged in a "heavy-handed weighing of the equities in the government's favor" that warrants rehearing. The companies said the three-judge panel "improperly discounted, or ignored, serious harms to plaintiffs and the public" and "improperly credited the government's claimed harms."