The Corporate Transparency Act (CTA) has ignited a firestorm of legal challenges in the Fifth Circuit.  In the last five weeks alone, three different district judges have issued three separate opinions resulting in two nationwide injunctions—one of which is already before the Supreme Court. 

In Texas Top Cop Shop, Inc. v. Garland, the plaintiffs contested the constitutionality of the CTA, arguing that it oversteps Congress’s powers under the Commerce Clause and infringes on state authority.  The district court sided with the plaintiffs, granting a preliminary injunction and halting the enforcement of the CTA.  The court determined that the CTA does not regulate channels or instrumentalities of commerce.  Instead, it targets entities formed under state law, which do not inherently engage in interstate commerce.  The court emphasized that the CTA compels companies to disclose beneficial ownership information, an action that does not constitute an economic activity substantially affecting interstate commerce.  Additionally, the court rejected the government’s argument that the CTA is a necessary and proper exercise of Congress’s power to regulate commerce, foreign affairs, or tax collection, and found that the CTA’s requirements are not incidental to any enumerated power. The court concluded that enforcing the CTA would cause irreparable harm to the plaintiffs by compelling them to disclose private information, thereby violating their constitutional rights.

Texas Top Cop Shop is still in the early stages of the life cycle of an appeal, but it already has a robust and unique procedural history.  Shortly after Judge Mazzant issued his decision in early December, the government appealed to the Fifth Circuit and sought an emergency stay.  On December 23, 2024, a motions panel granted the government’s motion for a stay pending appeal and expedited the case for argument.  Three days later, the merits panel reversed the motions panel’s stay and set the case for argument on March 25, 2025.  The United States subsequently asked the Supreme Court to stay the injunction for the pendency of the appeal.

While all of that was happening, two other district courts in the Fifth Circuit issued opinions on the same CTA issue.

The plaintiffs in Hotze v. United States Department of the Treasury also sought a preliminary injunction against enforcement of the CTA.  But rather than engage on the merits, Judge Kacsmaryk denied the motion as moot, citing the nationwide injunction issued in Texas Top Cop Shop.  Judge Kacsmaryk found that the relief sought by the plaintiffs had already been granted by the nationwide injunction in Texas Top Cop Shop, so issuing another injunction would be redundant and amount to an advisory opinion. Judge Kacsmaryk’s brief order emphasized the importance of judicial efficiency and avoiding duplicative litigation, but reminded the plaintiffs that they could “reurg[e] their Motion should the outstanding universal injunction be reversed, or otherwise lifted or curtailed, on appeal.”

Smith v. United States Department of the Treasury involved plaintiffs challenging the CTA’s constitutionality and seeking a preliminary injunction, too.  Last week, Judge Kernodle agreed with the plaintiffs and issued a nationwide injunction against the Reporting Rule.  Similar to Texas Top Cop Shop, the court found that the CTA’s Reporting Rule does not regulate economic activities that substantially affect interstate commerce.  The act of filing formation documents with a state is not inherently economic.  The court rejected the argument that the Reporting Rule is necessary and proper for regulating foreign commerce, foreign affairs, or tax collection, and found no sufficient link between the Rule and those enumerated powers.  The court determined that the plaintiffs would suffer irreparable harm if forced to comply with the CTA’s Reporting Rule, as it would compel them to disclose private information and thereby violate their constitutional rights.  Judge Kernodle did not engage with the mootness issue.

As a result, the CTA is presently subject to two different nationwide injunctions in the Fifth Circuit.  That dynamic potentially tees up two big questions for the Supreme Court:  (1) Is the CTA a valid exercise of Congress legislative authority; and (2) Has the time finally come to deal with nationwide injunctions?

Damonta D. Morgan is an associate at a law firm in Washington, D.C.