CTA: Government's Emergency Application to Supreme Court to Impose Stay – What's Next?

As reported by Holland & Knight on Dec. 27, 2024, companies and individuals impacted by the Corporate Transparency Act (the CTA) reasonably could have believed there was a respite from the "off again, on again, off again" saga of the December Texas Top Cop Shop court proceedings relating to the CTA. On Dec. 26, 2024, a merits panel of the U.S. Court of Appeals for the Fifth Circuit revived the injunction against the CTA that had been lifted just days earlier and also established a briefing schedule for the parties (February 2025) and oral argument (March 25, 2025) on an expedited appeal of the preliminary injunction.

But the pause was short-lived. On Dec. 31, 2024, the government filed an "Application for a Stay of the Injunction Issued by the United States District Court for the Eastern District of Texas" with the U.S. Supreme Court (Application).

The Application set forth specific requests for relief:

• a stay of the nationwide preliminary injunction of the CTA entered by the district court (and, as a consequence, reinstatement of the preexisting CTA reporting requirements while the litigation is pending)
  • in full or
  • at a minimum, a stay of the preliminary injunction with respect to the nonparties in Texas Top Cop Shop (including members of the plaintiff trade organization that were not identified in the district court complaint)
• that the Court treat the government's Application as a petition for a writ of certiorari¹ before judgment (in advance of a ruling by the Fifth Circuit in the expedited appeal of the preliminary injunction) to permit the Court to address the limited issue of whether the district court improperly imposed a preliminary injunction "on a universal basis"; the government made clear its position that the issue of nationwide injunctions is ripe for the Court to address in view of their frequent recurrences in the lower courts and historic elusion from judicial rulings in cases that are disposed of on the merits, as well as the stated preference of certain justices to address the issue
• a (continuing or prospective) stay of the injunction against enforcement of the CTA and its Reporting Rule if, on appeal, the Fifth Circuit were to affirm any part of the preliminary injunction for the time period pending a (future) timely filing and disposition of a petition for a writ of certiorari and any further proceedings in the Supreme Court

The Stay

The government noted that "[e]mergency applications usually require the Court to address issues 'on a short fuse without benefit of full briefing and oral argument.'"²

The Application relied on two legal authorities: Rule 23 of the Rules of the Supreme Court and the All Writs Act. Rule 23 provides that a single justice may grant the stay and sets forth the procedures and requirements involved in an applicant's seeking the Court's consideration of a stay of a lower court's judgment, including review of a decision holding an Act of Congress unconstitutional.

The All Writs Act, 28 U.S.C. Section 1651, provides, in part, that "[t]he Supreme Court and all courts established by Act of Congress may issue all writs necessary or appropriate in aid of their respective jurisdictions and agreeable to the usages and principles of law." The Supreme Court's procedures for obtaining a stay are described in the note below.³

In cases seeking a stay of a district court's injunction pending the disposition of a petition for a writ of certiorari, the petitioner in this case, the government, must show 1) a reasonable probability that this Court would grant certiorari, 2) a likelihood of success on the merits and 3) a likelihood of irreparable harm in the absence of a stay.⁴ The Court will grant a stay if at least five justices vote to do so.

The Application

The Application contains a comprehensive and clear recitation of the legal and practical underpinnings of the government's reasons that the Supreme Court should adopt its position. The government contends that the Supreme Court traditionally has embraced the principle that a challenged Act of Congress enjoys a strong presumption of remaining in force pending final review, and the Court should apply that principle here.

As a preliminary matter, the government argues that a grant of certiorari essentially would be inevitable if the Fifth Circuit were to affirm the district court's injunction because Supreme Court review is common when a lower court holds an Act of Congress unconstitutional. The government next argues that the CTA is constitutional and would be upheld because 1) the Commerce clause empowers Congress to adopt the CTA's reporting requirements, 2) the Necessary and Proper Clause empowers Congress to adopt the CTA's reporting requirements and 3) the plaintiffs have not satisfied the high standards for bringing a constitutional facial challenge to a statute which the Supreme Court has deemed the "most difficult challenge to mount successfully." Indeed, to prevail on a facial challenge, the challenger is required to "establish that no set of circumstances exists under which the Act would be valid." (Citation omitted.)

A recitation of the government's arguments is as follows:

This Court should stay the district court's injunction. The government is likely to succeed on the merits of respondents' claim. The Act's reporting requirements are important to the government in preventing, detecting, and prosecuting crimes such as money laundering, tax fraud, and the financing of terrorism. The requirements therefore fall comfortably within Congress's authority under the Commerce Clause to regulate economic activities (here, the anonymous operation of business entities) that substantially affect interstate commerce. The requirements are also necessary and proper to effectuate several of Congress's enumerated powers, including the circumstances in which the Act could be thought to exceed Congress's powers, the Act complies with the Constitution in most of its applications, which suffices to defer respondents' facial challenge.

The government also informed the Supreme Court that several district courts have held that the CTA is likely constitutional and, on that basis, denied preliminary injunction motions that raised substantially similar constitutional issues.⁵

Further, the government contended that the equities would cause it to suffer irreparable harm, particularly, if a permanent injunction of the CTA were to be imposed. According to the government, grave injury would ensue from an ongoing CTA enforcement pause since the U.S. Department of the Treasury's Financial Crimes Enforcement Network (FinCEN) has expended more than $4.3 million in a public awareness campaign, as well as thousands of employee hours, which generated "an exponential increase in reporting" – with an increased filing rate of "nearly one million reports filed per week" in the weeks leading up to the district court's injunction. (Citation omitted.)

As a result, the government submits an ongoing injunction would cause 1) the dedicated resources to have been "squandered," 2) continuation of "widespread confusion" among the public and 3) practical difficulty for FinCEN to resume reeducating the public and enforcing compliance. Of great importance to the Treasury Department is the progress the U.S. has made in improving the implementation of its Anti-Money Laundering/Countering the Funding of Terrorism (AML/CFT) measures in its fifth-round Financial Action Task Force (FATF) mutual evaluation to be conducted in 2025. Any setback in its beneficial ownership information initiatives could detrimentally impact the U.S.' FATF evaluation, a consequence the Treasury Department would like to avoid.

What Will Happen Next?

At this juncture, the outcome from the Supreme Court is not clear. However, in light of Justice Samuel Alito's request for the respondents-plaintiffs to respond to the government's petition by Jan. 10, 2025, no ruling concerning a stay is expected before Jan. 10 – and perhaps not for up to a couple of weeks thereafter. If the stay is granted and the reporting requirements are reinstated, FinCEN may extend the reporting deadlines to provide additional time for Reporting Companies to comply with the reporting requirements.

A Supreme Court decision concerning a stay by mid- to late January should also be considered in the context of the timing of the Fifth Circuit's expedited merits appeal; just five or six weeks later, the expedited appeal of the lower court's preliminary injunction will have been fully briefed and argued, and the Fifth Circuit will be positioned to issue its ruling on the merits. To complicate matters further, a ruling from the U.S. Court of Appeals for the Eleventh Circuit in National Small Business United v. Yellen on a similar constitutional challenge could be issued any day. Thus, the Supreme Court's review of an application for a stay now coincides with the consideration by two appellate courts and several district courts of overlapping constitutional issues – all arising in a compressed judicial schedule. The timing factor itself could militate against the government's request for a stay.

Fundamentally, if a stay of the preliminary injunction ordered by the district court were issued by Justice Alito or the full Supreme Court, reporting obligations would be expected to be reinstated with new deadlines – before the Fifth Circuit rules on the merits appeals. The consequences of a stay for both plaintiff and nonparty Reporting Companies – before the appeal is decided – would, as a practical matter, undermine arguments made to the appellate court (on behalf of plaintiffs and also applicable to nonparty allies) and prejudice their interests. The harm to Reporting Companies for complying with their reporting obligations will already have been caused by the filing, and the disclosure of personal information will not be able to be retracted. As a result, in the event that a stay were to be imposed and the Fifth Circuit ultimately were to uphold the lower court's order, a substantial portion of the preliminary injunction enjoining enforcement of the CTA would already have been vitiated.

Effectively:

• On one hand, the government argues that, based on the merits and equities of the case, the Supreme Court should stay the preliminary injunction and reinstitute the CTA and its Reporting Rule.
• On the other hand, the plaintiffs have argued that the CTA implicates constitutional issues that cannot be resolved quickly. Compelling the plaintiffs to file beneficial ownership information reports before an expedited appeal on the constitutionality can be adjudicated may unfairly prejudice plaintiffs' claims and right to be heard – even if ultimately the plaintiffs were not to prevail on the merits.

One thing is clear: This now more-than-a-month-long series of back-and-forth litigation, spanning proceedings from the district court to the Fifth Circuit to the Supreme Court, has left Reporting Companies, beneficial owners, advisors and others impacted by the CTA in a state of disquiet and hold-your-breath bewilderment.

Finally, as a wildcard on the legislative front, while Republican House members previously had introduced the Repealing Big Brother Overreach Act, HR 8147, to repeal the CTA, there may now be some legislative momentum for Congress to enter the CTA fray.

On Jan. 2, 2025, two congressional representatives⁶ wrote an opinion piece for The Wall Street Journal advocating repeal of the CTA with the caption, "Congress shouldn't rely on the courts to undo its mistakes," articulating that the obligations of the statute would crush small business owners throughout the country while also "invad[ing] their privacy and violat[ing] their constitutional rights." WSJ, a. 11. So, will Congress act to implement a goal of Project 2025 to repeal the CTA?

All we can say at this point is – stay tuned and buckle up!

For more information or questions, please contact the authors.

Notes

¹ A writ of certiorari is a legal document requesting that the Supreme Court review a lower court's ruling. Granting cert. – i.e., accepting the case for review – requires the approval of four justices.

² Application for a Stay of the Injunction issued by the U.S. District Court for the Eastern District of Texas, p. 12.

³ The request for a stay, called an application, summarizes the facts and history of the case and the legal arguments supporting the applicant's position that the lower court's ruling should be put on hold. The application initially is referred to a single justice, the "circuit justice," who has been assigned to handle appeals from the particular geographic region where the case originated. Supreme Court Justice Samuel Alito is the circuit justice assigned for the Fifth Circuit. That circuit justice has the authority to grant or deny the application himself. Alternatively, the circuit justice can refer the application to the full court for all justices to consider and vote on. The assigned circuit justice also may order the opposing party in the case to file a response to the request. Unlike the opinions that the court issues after oral argument, an order granting or denying a request for a stay is routinely brief. The justices generally do not explain their decision, and the order often does not explicitly indicate how each justice voted. Justices who disagree with the outcome may decide to do so publicly, either with a short statement included toward the end of the court's order or in a dissenting opinion. See SCOTUS blog: Emergency Appeals: Stay Requests.

⁴ Hollingsworth v. Perry, 558 U.S. 183, 190 (2010) (per curiam).

⁵ See Community Ass'ns Institute v. Yellen, No. 24-cv-1597, 2024 WL 4571412, at *10 (E.D. Va. Oct. 24, 2024); Firestone v. Yellen, No. 24-cv-1034, 2024 WL 4250192, at *14 (D. Or. Sept. 20, 2024). A third district court denied a preliminary-injunction motion because the plaintiffs had failed to show irreparable harm. See ECF No. 25, at 50, Small Business Ass'n v. Yellen, No. cv-314 (W.D. Mich. Apr. 29, 2024).

⁶ The congressional representatives were Rep. Harriet Hageman (R-Wyo.) and Warren Davidson (R-Ohio). Mr. Davidson was a sponsor of HR 8147.

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