Corporate Transparency Act: Fast-Moving Judicial Developments in Texas Top Cop Shop Case

The U.S. Department of Justice (DOJ) on Dec. 13, 2024, filed an emergency motion with the U.S. Court of Appeals for the Fifth Circuit to stay the nationwide preliminary injunction that was issued by the U.S. District Court for the Eastern District of Texas in Texas Top Cop Shop, Inc., et al. v. Garland, et al. The district court's order, issued on Dec. 3, 2024, enjoined enforcement of the Corporate Transparency Act (CTA), including its beneficial ownership information (BOI) reporting rules and reporting deadlines. The emergency motion was filed pending the DOJ's appeal of the district court's order.

On the same day that the emergency motion was filed, the Fifth Circuit, on its own initiative, accelerated the briefing schedule the DOJ had proposed so that the appellate court would be able to fully consider the issues by Dec. 19.

As a result of the accelerated briefing schedule, the Fifth Circuit is well positioned to issue a ruling by Dec. 27 or shortly thereafter. Its decision could encompass a stay of the entire order, a partial stay – e.g., with respect to the nationwide application of the preliminary injunction – or a denial of the stay altogether.

In view of the foregoing fast-moving developments, the CTA's reporting deadline for pre-2024 reporting companies of Jan. 1, 2025, could well be reinstated. Accordingly, pre-2024 reporting companies that have not yet finalized their BOI reports should take steps to be ready to file if the Fifth Circuit were to stay the entire order of the district court or restrict the order only to the plaintiffs in Texas Top Cop Shop.

Events

The fast-moving developments related to Texas Top Cop Shop are set forth below. (See Holland & Knight's previous alerts, "Corporate Transparency Act Reporting," Dec. 4, 2024, and "Developments in the Texas Top Cop Shop Case Impact Corporate Transparency Act," Dec. 9, 2024.)

• Dec. 3, 2024. In Texas Top Cop Shop, the Eastern District of Texas issued an order granting a nationwide preliminary injunction that enjoins enforcement of the CTA, including the implementing regulations concerning BOI reporting requirements and reporting deadlines.
• Dec. 5, 2024. The DOJ filed a Notice of Appeal.
• Dec. 6, 2024. The U.S. Department of the Treasury's Financial Crimes Enforcement Network (FinCEN) announced on its BOI webpage: In light of a recent federal court order, reporting companies are not currently required to file beneficial ownership information with FinCEN and are not subject to liability if they fail to do so while the order remains in force. However, reporting companies may continue to voluntarily submit beneficial ownership information reports.
• Dec. 11, 2024. The DOJ filed with the district court "Defendants' Motion to Stay Injunction Pending Appeal." In its motion, the DOJ asserted that it "intends to seek relief from the Fifth Circuit on Thursday, December 12, or Friday, December 13 if this Court [the district court] has not granted relief by then, in order to allow the motion to be fully briefed in time for the Fifth Circuit to resolve it, and will report to the Fifth Circuit if the Court rules while the government's motion is pending there." With respect to the stay of the district court's order, the DOJ stated: "[A] nationwide injunction is not warranted. Given the skepticism expressed by multiple Justices about the increasingly prevalent practice of nationwide injunctions, and that courts in other jurisdictions have rejected efforts to enjoin the CTA and reporting rule, this Court should at a minimum stay the impact of its injunction beyond the name parties or identified members of the Plaintiff organizations. And again, such a stay is warranted to ensure that the relief does not exceed Plaintiffs' own request."
• Dec. 12, 2024. The district court rebuked the government for having disregarded the local rule requirements for filing an application that sought emergency relief and directed the plaintiffs to file their response to the motion by noon on Dec 16.
• Dec. 13, 2024. The DOJ filed with the Fifth Circuit an "Emergency Motion for Stay Pending Appeal." The government proposed a briefing schedule and requested "a ruling on this motion as soon as possible, but in any event no later than December 27, 2024, to ensure that regulated entities can be made aware of their obligation to comply before January 1, 2025." The government argued that the district court's issuance of a nationwide injunction is overbroad, sweeps beyond the parties in the case and disregards other pending litigation involving the CTA. In conclusion, the government argued that "the district court's order should be stayed pending appeal. In the alternative, the injunction should be narrowed to the companies that have been specifically identified in the district court or, at a minimum, to the members of the [business association]."
• Dec. 13, 2024. On the same day that it received the emergency motion to stay, the Fifth Circuit advised counsel for appellees (the plaintiffs) of an accelerated briefing schedule: "This letter will serve to advise the Appellees that the court has requested a response to the Appellants' Motion for stay pending appeal be filed in this office on or before December 17, 2024, by 5:00 PM. The Appellants are then requested to file a reply to the response on or before December 19, 2024, by 12:00 NOON."

Comments

• Where do things stand? The government has brought two motions in rapid succession to stay the order of the district court. First, it did so with the same district court that issued the preliminary injunction. Second, without having received the immediate relief from that district court, it petitioned the appellate court – the Fifth Circuit. Pursuant to that court's instructions, appellees are required to respond to the government's Emergency Motion for Stay Pending Appeal by 5 p.m. ET on Dec. 17, and the government then has until noon ET Dec. 19 to reply. In the district court, the plaintiffs were to file their response by noon ET Dec. 16 and did so, arguing that the court should deny the defendants' request for a stay pending appeal.¹ We are awaiting the district court's decision on the stay.
• Regardless of how the district court responds, it is possible that by Dec. 20 or soon thereafter the Fifth Circuit will rule to stay the nationwide preliminary injunction on enforcement of the CTA and its reporting rules and reimpose the BOI reporting rules, particularly the deadline of Jan. 1, 2025, for reporting companies formed prior to Jan. 1, 2024, to file their BOI reports.
• Subject to a pending decision by the Fifth Circuit – and a possible subsequent ruling by the U.S. Supreme Court in the event of an emergency application – pre-2024 reporting companies that have not yet completed their BOI initial reports should take steps to gather relevant information, finalize their BOI reports for filing and be ready to file by Jan. 1, 2025, if the Fifth Circuit were to stay the order of the district court.

For more information or questions, please contact the authors.

Notes

¹ The plaintiffs argued that the merits and the equities strongly favor the plaintiffs.

Information contained in this alert is for the general education and knowledge of our readers. It is not designed to be, and should not be used as, the sole source of information when analyzing and resolving a legal problem, and it should not be substituted for legal advice, which relies on a specific factual analysis. Moreover, the laws of each jurisdiction are different and are constantly changing. This information is not intended to create, and receipt of it does not constitute, an attorney-client relationship. If you have specific questions regarding a particular fact situation, we urge you to consult the authors of this publication, your Holland & Knight representative or other competent legal counsel.