Corporate Disclosure Order Can’t Derail Separate Appeal, US Says

A Texas federal judge’s nationwide preliminary injunction halting enforcement of the Corporate Transparency Act reflects “multiple serious errors” and shouldn’t impact a pending appeal in a separate case, the federal government told the Eleventh Circuit.

The US appealed the Dec. 3 order from Judge Amos L. Mazzant III of the US District Court for the Eastern District of Texas to the US Court of Appeals for the Fifth Circuit on Thursday. But the government already was challenging a separate, narrower injunction before the Eleventh Circuit.

Mazzant’s order relied on the same faulty reasoning the government rebutted during oral arguments before the Eleventh Circuit because plaintiffs’ claims in both suits failed to meet the high bar for supporting a facial challenge to an act of Congress, the Justice Department told the Eleventh Circuit in a Thursday letter.

The Texas court’s injunction also recognized that its opinion would “not trench on the Eleventh Circuit’s authority to render a decision,” the government said.

Congress passed the CTA to crack down on illicit financial schemes—like money laundering and drug trafficking—which employ anonymous shell companies. The law required US entities to disclose their beneficial owners’ identities to the Treasury Department’s Financial Crimes Enforcement Network.

But federal district courts considering challenges to the law have been split over whether Congress has the authority to impose such disclosure requirements under the Commerce Clause.

“As the government has explained, and as multiple district court have recognized, plaintiffs come nowhere near” meeting the threshold for their facial attack, the government’s Thursday letter said. “The statute in fact regulates businesses whose defining feature is their authority and propensity to engage in commercial transactions.”

Federal courts in Virginia, Michigan, and Oregon have declined to block the CTA, while federal judges in Alabama and Texas chose to do so. Mazzant was the first to enjoin enforcement nationwide.

Also responding to that order, National Small Business United—which brought the case pending in the Eleventh Circuit—told the appeals court that the nationwide injunction supports their position.

“The Texas district court’s order directly implicates Appellees’ principal argument: Congress does not have constitutional power to enact the CTA because it does not regulate commercial activity,” NSBU said Dec. 4.

Hughes, Hubbard & Reed LP represents NSBU.

The case is Nat’l Small Bus. United v. US Dep’t of Treasury, 11th Cir., No. 24-10736, response to supplemental authority filed 12/5/24.