Eastern District of Texas Issues Preliminary Injunction on Enforcement of the Corporate Transparency Act

On December 3, 2024, Judge Amos L. Mazzant of the United States District Court for the Eastern District of Texas, Sherman Division [1] issued a nationwide, preliminary injunction against the enforcement of the Corporate Transparency Act (CTA). [2]   

In their motion for a preliminary injunction, the plaintiffs argued that the CTA and its enabling regulations are “unconstitutional both facially and as applied because: (1) the CTA intrudes upon states’ rights under the Ninth and Tenth Amendments; (2) the CTA compels speech and burdens plaintiffs’ right of association under the First Amendment; and (3) the CTA violates the Fourth Amendment by compelling disclosure of private information.”

Because this was a hearing for a preliminary injunction, the court did not reach a final determination regarding the constitutionality of the CTA or have a full trial on the merits. Rather, the court applied the standard for a preliminary injunction, considering the following factors: (1) the plaintiff’s likelihood of success on the merits at trial; (2) whether the CTA and its rules cause the plaintiffs irreparable harm; (3) whether the threatened harm to plaintiffs outweighs any damage the injunction might have on the government; and (4) whether preliminary injunctive relief would harm the public.

Applying this standard, the court concluded that plaintiffs satisfied the prerequisites for a preliminary injunction. In this court’s preliminary determination, the CTA likely intrudes on the states’ reserved power under the Tenth Amendment because enacting CTA was beyond Congress’s power under either the Commerce Clause or the Necessary and Proper Clause. The court did not address the plaintiffs’ probability of success under the First, Fourth and Ninth Amendments. Based on the court’s preliminary determinations, it enjoined enforcement of the CTA and its enabling reporting rules.   

It is important to keep in mind that Judge Mazzant himself may revisit this injunction when the case goes to trial. In addition, the government can appeal the court’s preliminary injunction to the Fifth Circuit and, if that is unsuccessful, to the Supreme Court. For now, the CTA and its reporting rules are on hold but they are not necessarily gone forever.   

Williams Mullen will continue to monitor the impact of this ruling, subsequent action by this court, and any ensuing appeals along with FinCEN’s implementation of the CTA, and we will provide updates and alerts when warranted.