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Fifth Circuit Weighs In On Constitutionality of the Corporate Transparency Act
Events have moved swiftly and symptomatically lately in the Fifth Circuit. Long known as the circuit with the greatest skepticism of federal regulation of the economy, it turned its attention to the Corporate Transparency Act (CTA), 31 U.S.C. §5336, which requires non-exempt companies to report the identity of their beneficial owners. While many companies saw the CTA as burdensome and ill-advised, the statute had seemed constitutionally safe because it only regulated commercial activity and only required information. Yet, on Dec. 3, 2024, a district court in the Eastern District of Texas held that the CTA was unconstitutional and issued a nationwide injunction against the enforcement of the CTA and its implementing rule. See, Tex. Top Cop Shop, Inc. v. Garland, 2024 U.S. Dist. LEXIS 218294 (E.D. Tex. Dec. 3, 2024).
This result may have seemed par for the course in terms of recent decisions in the Fifth Circuit, which decisions have also struck down the SEC’s Climate Change Disclosure Rules and the Federal Trade Commission’s attempts to prohibit covenants not to compete and, more ominously, resurrected the long dormant anti-delegation doctrine in a way that questions the constitutionality of many administrative agencies. See, Consumers’ Rsch. Cause Based Commerce, Inc. v. FCC, 109 F.4th 743 (5th Cir. 2024) (finding the combination of broad delegation and possible future delegation to a private entity to violate the separation of powers).
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