More HH Legal Updates
Impact of Nationwide Injunction on Enforcement of Corporate Transparency Act
On Tuesday, December 3, 2024, in the case of Texas Top Cop Shop, Inc., et al. v. Garland, et al., No. 4:24-cv-00478 (E.D. Tex.), a federal district court in the Eastern District of Texas, Sherman Division, issued a nationwide injunction on the federal government from enforcing the Corporate Transparency Act (“CTA”) and its regulations and the implementation of the beneficial ownership information (“BOI”) reporting requirements. Specifically, the Texas Court’s order stays the impending January 1, 2025 compliance deadline for existing reporting companies and halts all other deadlines for newly formed reporting companies. In its ruling, the Texas Court determined that the CTA is likely unconstitutional and is unenforceable anywhere in the United States. As expected, the Department of Justice, on behalf of the Department of the Treasury, filed a Notice of Appeal to the Fifth Circuit Court of Appeals on December 5, 2024.
Litigation Status
On December 11, 2024, the Department of Justice filed a motion with the Texas Court to stay the injunction or narrow the ruling to only the plaintiffs in the case, and on December 13, 2024, filed an Emergency Motion with the Fifth Circuit Court of Appeals, requesting the Fifth Circuit to stay the nationwide injunction. The Texas Court denied the government’s motion on December 17, 2024, stating in part that “it is always in the public interest to prevent a violation of a party’s constitutional rights.” The Fifth Circuit immediately issued a letter directive to the parties advising Plaintiffs to file a response to the government’s Motion on or before December 17, 2024, with a reply to the response due by the Appellants due on or before December 19, 2024, by 12:00 pm. The Fifth Circuit’s swift response indicates that it is prepared to issue a ruling prior to the end of 2024.
In February, we issued a detailed article on the CTA and how to comply with the BOI reporting requirements. Many business owners and clients are asking – what now?
FinCEN’s Response
With this flurry of activity happening in December, the CTA battle is far from over. The Financial Crimes Enforcement Network (FinCEN), the arm of the United States Department of Treasury handling the processing of the BOI Reports and enforcement of the CTA, issued an alert in response to the initial Texas court ruling:
“While this litigation is ongoing, FinCEN will comply with the order issued by the U.S. District Court for the Eastern District of Texas for as long as it remains in effect. Therefore, reporting companies are not currently required to file their beneficial ownership information with FinCEN and will not be subject to liability if they fail to do so while the preliminary injunction remains in effect. Nevertheless, reporting companies may continue to voluntarily submit beneficial ownership information reports.” (emphasis added)
Conclusion
FinCEN has not elaborated on whether, if upheld, companies who elect not to file BOI reports by the original January 1, 2025 deadline will be given a grace period to do so once the injunction is lifted. However, the accelerated timeline provided by the Fifth Circuit indicates that it may make a decision on the injunction in 2024. Therefore, given the uncertainty of how the litigation will unfold and the likelihood that there will be a tight turnaround time to file once a 5th Circuit decision is issued, we believe that reporting companies should complete their BOI reports now to avoid missing the deadline in the event that the Texas decision is overturned. Alternatively, any reporting company that does not comply with the January 1, 2025 deadline should prepare for eventual compliance if the CTA is upheld by the Fifth Circuit Court of Appeals or, ultimately, the Supreme Court of the United States.
If you need assistance or have questions about BOI reports, contact us today! We are monitoring the progress of the cases daily and will provide updates as they become available.
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Our firm offers individualized solutions and the highest quality, client-driven and cost effective legal services. Houston Harbaugh, P.C., is a well-known law firm in Pittsburgh, serving Pennsylvania, West Virginia and Ohio. Our diverse practice areas include Business Law, Business Litigation, Estate and Succession Planning, Intellectual Property Litigation and Prosecution, Employment and Labor, Employee Benefits, Oil and Gas, Landowner and Property Dispute Counseling and Litigation, Health Care, Environmental, Real Estate, Construction, Complex Tort and Catastrophic Injury Litigation, Insurance coverage and Bad Faith Law, Mediation, Arbitration and Special Master appointment work. As one of the 20 largest law firms in Pittsburgh, our lawyers serve clients on a regional and national basis.
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Since our inception as a health care practice in 1975, our attorneys have represented clients in state and federal courts in Pennsylvania, West Virginia, Ohio and throughout the nation. We have grown into a multi-disciplinary practice with the ability to handle complex business transactional and litigation matters. We counsel on estate and succession planning and on trust and guardianship matters. We have a strong employment and labor practice. We represent clients in trade secret counseling and federal Defend Trade Secret Act (DTSA) counseling and litigation. Our DTSALaw® practice group is well versed in this federal body of trade secret law. We counsel, draft, litigate and defend claims involving employment non-compete, restrictive covenants, non-disclosure agreements and breach of contract matters. We service clients in the collection of debts and in bankruptcy creditor matters. Houston Harbaugh litigates in Orphans and Probate courts for matters involving estates and trusts. We also provide mediation and arbitration services to parties involved in litigation and our lawyers are currently serving as court appointed special masters in the Federal Courts.
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