Three unknown judges on the U.S. Court of Appeals for the Fifth Circuit on Thursday issued an order reinstating a nationwide injunction barring enforcement of the Corporate Transparency Act and a related reporting rule, three days after a panel that did identify itself had lifted the nationwide ban.
Firearm retailer Texas Top Cop Shop filed its lawsuit May 28 challenging the anti-money laundering law, alleging the CTA’s requirements that businesses disclose who controls them is unconstitutional. A nationwide injunction barring enforcement went into effect earlier this month, setting the stage for the Fifth Circuit appeal.
The unidentified panel’s two-page ruling issued Thursday states that “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.”
While the court’s original order, issued Monday, was signed by the three judges who issued it — Judges Carl E. Stewart, Catharina Haynes and Stephen A. Higginson — the subsequent order putting the nationwide injunction back in place was not signed, but entered instead by the clerk of the court at the direction of the court.
Oral arguments have been set for March 25.
U.S. District Judge Amos L. Mazzant heard arguments for about an hour on the motion for a preliminary injunction in October and took the matter under advisement until Dec. 3, when he granted the motion.
In a 79-page opinion and order, Judge Mazzant wrote that while the CTA’s intentions are “seemingly benign,” it “marks a drastic two-fold departure from history.”
“First, it represents a Federal attempt to monitor companies created under state law — a matter our federalist system has left almost exclusively to the several states,” he wrote. “Second, the CTA ends a feature of corporate formation as designed by various states — anonymity.”
“For good reason, plaintiffs fear this flanking, quasi-Orwellian statute and its implications on our dual system of government … Despite attempting to reconcile the CTA with the Constitution at every turn, the government is unable to provide the court with any tenable theory that the CTA falls within Congress’s power. And even in the face of the deference the court must give Congress, the CTA appears likely unconstitutional. Accordingly, the CTA and its implementing regulations must be enjoined.”
The federal government filed its notice of appeal two days later.
Judges Carl E. Stewart, Catharina Haynes and Stephen A. Higginson issued a seven-page order Dec. 23 granting the government’s emergency motion for a stay of the injunction pending appeal and expedited the case for oral arguments before a panel.
In part, the panel held that the federal government had made a “strong showing that it is likely to succeed on the merits in defending the CTA’s constitutionality.”
“When Congress passed the bipartisan statute in 2021, it used its ‘broad authority under the Commerce Clause’ to regulate economic activity,” the panel explained. “As stated, the CTA requires certain corporate entities to report their beneficial ownership interest in order to target illicit financial activity. In doing so, it regulates anonymous ownership and operation of businesses. Those ‘are part of an economic class of activities that have a substantial effect on interstate commerce.’ Thus, a reporting requirement for entities engaged in these economic activities falls within ‘more than a century of [the Supreme] Court’s Commerce Clause jurisprudence.’”
The panel addressed in a footnote arguments from Texas Top Cop Shop and other businesses bringing the challenge that lifting the injunction days before the Jan. 1 compliance deadline would cause an undue burden.
“They fail to note, however, that they only filed suit in May 2024 and the district court’s preliminary injunction has only been in place for less than three weeks as compared to the nearly four years that the businesses have had to prepare since Congress enacted the CTA, as well as the year since FinCEN announced the reporting deadline,” the panel wrote.
Texas Top Cop Shop is represented by Caleb Kruckenberg and Christian Clase of The Center for Individual Rights, Andrew Grossman of Baker Hostetler and John Clay Sullivan of S|L Law.
The federal government is represented by Daniel Tenny, Steven Hazel, Sophia Shams, Faith Lowry and Stuart Robinson of the Department of Justice.
The case number on appeal is 24-40792. The case number in the district court is 4:24-cv-00478.