Enforcement of the Corporate Transparency Act was blocked by another Texas federal judge, days before the US Supreme Court is set to weigh in on a separate challenge to the law.
Judge Jeremy D. Kernodle of the US District Court for the Eastern District of Texas enjoined enforcement of the CTA against two Texans, Samantha Smith and Robert Means, as well as the LLCs they formed to hold real estate. It’s the latest legal challenge to the CTA, which has already been halted by nationwide injunction, been reinstated, had its deadline moved back, and been halted again, causing significant uncertainty.
“The Corporate Transparency Act is unprecedented in its breadth and expands federal power beyond constitutional limits,” Kernodle wrote. “It mandates the disclosure of personal information from millions of private entities while intruding on an area of traditional state concern.”
The law requires approximately 32.6 million existing US businesses to file reports listing their beneficial ownership information to the Financial Crimes Enforcement Network. The act would carry $500-a-day fines for willful noncompliance.
The interstate commerce clause regulates interstate commerce, but a private company formed under state law “is not a channel or instrumentality of commerce because it is not a pathway of commerce or an item moving in commerce,” Kernodle said.
The plaintiffs were “likely to succeed on the merits of their claim that the CTA and its implementing rule are unconstitutional” because their LLCs each control just a single property in Texas.
Twists and Turns
The injunction comes just days before the nominal deadline for most businesses to report their information to FinCEN on Jan. 13.
Judge Amos L. Mazzant III, also of the Eastern District of Texas, issued a nationwide injunction against the CTA in early December in a suit filed by Texas Top Cop Shop Inc., a firearms retailer. The government quickly appealed to the Fifth Circuit.
A motions panel of the Fifth Circuit lifted the injunction Dec. 23, ruling that the government was likely to succeed in showing the law’s constitutionality, only for the merits panel to again block it Dec. 26.
FinCEN has continued to collect ownership information on a voluntary basis as the government has appealed the move.
The US Department of Justice asked the Supreme Court to weigh in on the injunction, and a response by Justice
The Texas Public Policy Foundation represents the plaintiffs.
The case is Smith v. Dep’t of the Treasury, E.D. Tex., No. 6:24-cv-00336, 1/8/25.
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