Federal Judge Upholds CTA, Denies Requests for Injunction

In late September, a federal court in Oregon denied the requests of several named plaintiffs for a temporary injunction under the Corporate Transparency Act.  After going through the plaintiffs' constitutional arguments (on 1st and 4th Amendment grounds of free speech and unreasonable search and seizure, among others), the court found both that Congress was within its constitutional rights to enact the CTA and that plaintiffs were unlikely to win overall.  It therefore held that the plaintiffs were not entitled to enjoin enforcement of the CTA pending full litigation of their claims.

Earlier this year, a federal court in Alabama came to a different conclusion: that the CTA is unconstitutional.  On the basis of its findings, it granted the plaintiffs in that case relief from filing under the CTA, pending full disposition of their claims.  Neither opinion is applicable nationwide, and therefore is not binding on any other named plaintiffs.

WHY IT MATTERS

There are currently half a dozen cases pending that seek to hold the CTA unconstitutional.  Most will apply only to the particular named plaintiffs in the relevant action.  Regardless of their outcome, those cases cannot be used to argue that any other company is spared the effect of the CTA.

Two of the cases, however, seek a nationwide ban on enforcing the CTA at all.  National injunctions, because of their breadth, are generally granted sparingly (although that has become less true in the last decade or so).  

Because there is now a split in authority, it is harder for any one court to find that plaintiffs are likely to prevail on the merits of a CTA constitutionality claim.  That, in turn, reduces the odds that a court will issue temporary relief in the form of an injunction – especially one with national effect.  

In sum: the courts are not looking like a good bet for any company that has held off doing its CTA filings.  If your company is subject to the CTA, you are very likely to have to file by the year-end deadline.