ARTICLE
6 January 2025

Fifth Circuit Reinstates Nationwide Preliminary Injunction That Enjoined Reporting And Enforcement Under The Corporate Transparency Act

FH
Foley Hoag LLP

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In a highly unusual and unexpected order, late on December 26, 2024, a "merits panel" of the Fifth Circuit (made up of different judges than the "motions panel" that stayed the nationwide...
United States Corporate/Commercial Law

Key Takeaways:

  • On December 26, 2024, the U.S. Fifth Circuit Court of Appeals reinstated a preliminary nationwide injunction of the Corporate Transparency Act previously issued by the U.S. Federal District Court for the Eastern District of Texas. 
  • The reinstated injunction is applicable nationally, so all reporting companies are no longer obligated to comply with CTA filing deadlines, including those that were recently extended by FinCEN, pending further court action. 
  • FinCEN has not yet provided public guidance in response to the Fifth Circuit's latest ruling.

In a highly unusual and unexpected order, late on December 26, 2024, a "merits panel" of the Fifth Circuit (made up of different judges than the "motions panel" that stayed the nationwide preliminary injunction on December 23, 2024) vacated the stay and reinstated the nationwide preliminary injunction of the Corporate Transparency Act ("CTA") (the "Fifth Circuit Merits Panel Order").

To summarize recent dramatic events related to the CTA, as described in our client alert from earlier this week, on December 23, 2024, a three-judge panel of the United States Court of Appeals for the Fifth Circuit ("Fifth Circuit") issued an Order (the "Fifth Circuit Stay Order") staying the nationwide preliminary injunction issued earlier in the month, on December 3, 2024, by the U.S. District Court for the Eastern District of Texas (the "District Court") enjoining the enforcement of the CTA (31 U.S.C. § 5336) and the Reporting Rule (31 C.F.R. 1010.380) issued by the U.S. Treasury Department's Financial Crimes Enforcement Network ("FinCEN") and staying the compliance deadline under § 705 of the Administrative Procedure Act (APA) throughout the U.S.

The District Court found that the CTA is likely unconstitutional because it goes beyond Congressional powers under the Commerce Clause or the Necessary and Proper Clause in relation to any enumerated power, concluding that the plaintiffs demonstrated a substantial likelihood of success on the merits of their Tenth Amendment challenge. 

The Fifth Circuit Stay Order resulted in reporting companies (other than the plaintiffs covered by a more limited injunction issued by a federal district court in Alabama) having to again comply with the CTA's beneficial ownership information ("BOI") reporting requirements. The Fifth Circuit Merits Panel Order essentially returns the situation to that which existed prior to the Fifth Circuit Stay Order, i.e.pending further court action, all reporting companies are no longer obligated to comply with CTA filing deadlines, including those that were recently extended by FinCEN.

FinCEN's Response

In response to the Fifth Circuit Stay Order, on December 23, 2024, FinCEN announced it had extended certain reporting deadlines, most notably by extending the date by which reporting companies created or registered prior to January 1, 2024 have to submit initial BOI to January 13, 2025.

FinCEN has not yet responded to the Fifth Circuit Merits Panel Order, but the practical effect of that order is that even FinCEN's extended reporting deadlines are no longer operative.

Next Steps

The Fifth Circuit has now scheduled oral arguments for March 25, 2025, on the merits of the District Court's nationwide preliminary injunction. The Department of Justice could seek an emergency reconsideration of the Fifth Circuit Merits Panel Order requesting a decision prior to the March 25, 2025 hearing, but has not yet done so. Numerous court challenges to the CTA continue to work their way through various federal district and appellate courts, and may ultimately reach the U.S. Supreme Court. Reporting companies should continue to monitor developments in these cases. In addition, there are efforts in Congress to repeal the CTA.

Clients and reporting companies should stay alert for further updates from Foley Hoag, as additional developments or rulings may impact their compliance obligations under the CTA. For more information on the CTA, reporting companies can visit Foley Hoag's CTA resource center here, or reach out to one of the contacts listed below.

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