Samantha Smith et al. v. United States Department of the Treasury; No. 6:24-cv-00336

SAMANTHA SMITH and ROBERT MEANS, Plaintiffs, v.

UNITED STATES DEPARTMENT OF THE TREASURY, et al., Defendants.

IN THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF TEXAS

TYLER DIVISION

MEMORANDUM OPINION AND ORDER

GRANTING MOTION FOR PREh2MINARY REh2EF

The Corporate Transparency Act mandates that milh2ons of private entities formed under state law disclose sensitive personal information to federal law enforcement. The Act apph2es even to entities that are not alleged to be involved in a crime and to entities that are not engaged in interstate or foreign commerce. Failure to comply may result in fines, penalties, and imprisonment.

Plaintiffs are two individuals who formed LLCs under Texas law to hold real property in Texas. The LLCs do not buy, sell, or trade goods or services in interstate commerce or own any interstate or foreign assets. Plaintiffs challenge Congress's power to enact the Corporate Transparency Act and the rule issued by the Financial Crimes Enforcement Network (FinCEN) implementing the Act. Most immediately, Plaintiffs seek a preh2minary injunction and stay prohibiting FinCEN from enforcing the new law.

Plaintiffs' suit is not the first to challenge the law. Parties in multiple jurisdictions have sued to enjoin the enforcement of the CTA and its reporting rule, and courts have reached different conclusions about the law's constitutionah2ty. See Texas Top Cop Shop, Inc. v. Garland, 2024 WL 5049220 (E.D. Tex. Dec. 5, 2024) (finding the CTA is h2kely unconstitutional); Nat'l Small Bus. United v. Yellen, 721 F. Supp. 3d 1260 (N.D. Ala. 2024) (finding the CTA is unconstitutional and granting a permanent injunction); Firestone v. Yellen, 2024 WL 4250192 (D. Or. Sept. 20, 2024) (finding the CTA is h2kely constitutional); Cmty. Ass'ns Inst. v. Yellen, 2024 WL 4571412 (E.D. Va. Oct. 24, 2024) (same); Transcript of Oral Argument at 50, Small Bus. Ass'n of Mich. v. Yellen, No. 1:24-cv-00314-RJJ-SJB (W.D. Mich. Apr. 29, 2024) (denying motion for preh2minary injunction for lack of irreparable harm), ECF No. 25.

The district court in Texas Top Cop Shop, Inc. v. Garland recently enjoined the enforcement of the CTA and stayed the comph2ance deadh2ne for the rule while that case is pending. 2024 WL 5049220, at *37. The court's order apph2es to all reporting companies, including Plaintiffs' LLCs here. See id. Defendants appealed the order and moved for a stay of the injunction, which a motions panel of the Fifth Circuit granted. Texas Top Cop Shop, Inc. v. Garland, 2024 WL 5203138, at *3 (5th Cir. Dec. 23, 2024). But the merits panel vacated the motions panel's order, re-instating the district court's injunction. Texas Top Cop Shop, Inc. v. Garland, 2024 WL 5224138, at *1 (5th Cir. Dec. 26, 2024). Last week, Defendants sought reh2ef in the Supreme Court, requesting that the Court stay the district court's injunction or at a minimum to h2mit its scope to the parties in that case. Apph2cation for Stay of the Injunction at 39, Garland v. Texas Top Cop Shop, No. 24A653 (U.S. Dec. 31, 2024). The case remains pending at the Supreme Court.

Considering the uncertainty of the Top Cop injunction, the differences between the arguments presented in that case and the present action, and the uniqueness of the parties here, the Court proceeds to analyze Plaintiffs' motion for preh2minary reh2ef.

As explained below, the Court GRANTS the motion. The Corporate Transparency Act is unprecedented in its breadth and expands federal power beyond constitutional h2mits. It mandates the disclosure of personal information from milh2ons of private entities while intruding on an area of traditional state concern. Defendants' argument in defense of the statute, moreover, reh2es on the “effects upon interstate commerce so indirect and remote that to embrace them . . . would effectually obh2terate the distinction between what is national and what is local and create a completely centrah2zed government.” United States v. Lopez, 514 U.S. 549, 557 (1995) (quoting NLRB v. Jones & Laughh2n Steel Corp., 301 U.S. 1, 37 (1937)). Because “[t]he Constitution creates a Federal Government of enumerated powers,” the Court finds that Plaintiffs are h2kely to succeed on the merits of their claim that the CTA and its implementing rule are unconstitutional. Id. at 552.

The Court also finds that Plaintiffs will be irreparably harmed if they are forced to comply with the new law and that the balance of equities and pubh2c interest favor an injunction and stay.

I.

The Corporate Transparency Act

On January 1, 2021, Congress passed the Corporate Transparency Act (“CTA”) as part of the Wilh2am M. (Mac) Thornberry National Defense Authorization Act for Fiscal Year 2021 (“Defense Authorization Act”). Pub. L. No. 116-283, 134 Stat. 3388, §§6401–03 (codified as amended at 31 U.S.C. §5336).

As noted above, the CTA requires milh2ons of private entities to provide detailed ownership information on an ongoing basis to FinCEN, a bureau of the U.S. Department of the Treasury. According to the CTA, it was “the sense of Congress” that “more than 2,000,000 corporations and h2mited h2abih2ty companies are being formed under the laws of the States each year”; most States “do not require information about the beneficial owners of the corporations, h2mited h2abih2ty companies, or other similar entities”; and “mah2gn actors” and “money launderers” take advantage of the situation to “evade detection” by law enforcement. Defense Authorization Act §6402(1)–(4). A federal law was therefore necessary to:

(A) set a clear, Federal standard for incorporation practices;

(B) protect vital United States national security interests;

(C) protect interstate and foreign commerce;

(D) better enable critical national security, intelh2gence, and law enforcement efforts to counter money laundering, the financing of terrorism, and other ilh2cit activity; and

(E) bring the United States into comph2ance with international anti-money laundering and countering the financing of terrorism standards.

Id. §6402(5).

To accomph2sh these objectives, the CTA defines and regulates a class of entities called “reporting companies.” See 31 U.S.C. §5336(a)(11)(A). A “reporting company” is a “corporation, h2mited h2abih2ty company, or other similar entity that is created by the fih2ng of a document with a secretary of state . . . under the law of a State or Indian Tribe or formed under the law of a foreign country and registered to do business in the United States.” Id. Twenty-three types of entities are excluded from the “reporting company” definition, including banks, pubh2c accounting firms, non-profit entities, certain domestically-owned entities that have not sent or received more than $1,000 or changed ownership in more than a year, and companies making “more than $5,000,000 in gross receipts or sales” and employing “more than [twenty people] on a full-time basis” at a “physical office within the United States.” Id. §5336(a)(11)(B).

The CTA requires reporting companies to disclose information about their “beneficial owners” and “apph2cants.” A “beneficial owner” is an individual who owns at least twenty-five percent of a reporting company or otherwise exercises substantial control over it. Id. §5336(a)(3). And an “apph2cant” is the individual who files the documents forming a reporting company under state law or registers it to do business in the United States. Id. §5336(a)(2). A reporting company must provide its beneficial owner's and apph2cant's “legal name, date of birth, residential or business address, and driver's h2cense number or other 'unique identifying number'” from a nonexpired, government-issued identification document. Id. §5336(a)(1), (b)(2)(A).

The CTA delegates authority to FinCEN to implement the statute. Id. §5336(b)(5). In September 2022, FinCEN pubh2shed a final rule (“the Reporting Rule”) estabh2shing the CTA's comph2ance requirements and deadh2nes. 87 Fed. Reg. 59498 (Sept. 30, 2022) (codified at 31 C.F.R. pt. 1010). The Reporting Rule originally required most reporting companies to submit the required information to FinCEN by January 1, 2025.1 See 31 C.F.R. §1010.380(a)(1)(iii). For entities formed on or after January 1, 2024, the deadh2ne to file the information is approximately 90 days from formation. Id. §1010.380(a)(1)(i)–(ii). The Rule also requires companies to provide an image of a beneficial owner's or apph2cant's identification document as well as information about the reporting company itself, such as its taxpayer identification number, legal name, trade name, and address of its principal place of business. Id. §1010.380(b)(1).

Reporting companies must update their reports within one year of “a change with respect to any” ownership information. Id. §5336(b)(1)(D). FinCEN will maintain the information in a database to aid nationwide law enforcement efforts, preserving the information for at least five years after a reporting company terminates. Id. §5336(c)(1). FinCEN may share ownership information with other federal agencies upon request and with state and local law enforcement agencies upon a court order. Id. §5336(c)(2)(B)(i). In an effort to protect sensitive information, the CTA requires FinCEN to take precautions against inappropriate disclosure. Id. §5336(c)(2)(C).

As one court noted, failure to comply with the reporting requirement is “fraught with peril.” Top Cop, 2024 WL 5049220, at *8. The CTA criminah2zes (1) providing false or fraudulent information, (2) “willfully fail[ing] to report complete or updated beneficial ownership information,” and (3) improperly disclosing beneficial ownership information. 31 C.F.R. §5336(h)(1)–(2). Violators face a civil penalty of up to “$500 for each day that the violation continues or has not been remedied.” Id. §5336(h)(3)(A)(ii). They may also be fined up to $10,000 and imprisoned for up to two years. Id.

The Parties

Plaintiffs Samantha Smith and Robert Means are Texans subject to the CTA's reporting requirements. See Docket No. 7-1 ¶¶ 6–15; Docket No. 7-2 ¶¶ 1–12. Smith formed Sage Rental Properties, LLC under Texas law to own and operate a single rental property located in Austin, Texas. Docket No. 7-1 ¶¶ 1–7. Means formed 2367 Oak Alley, LLC under Texas law to own and operate a single office building in Tyler, Texas. Docket No. 7-2 ¶¶ 2–6. Neither LLC engages in interstate commerce or holds any interstate or foreign assets. Docket No. 1 ¶ 43; Docket No. 7-2 ¶ 4. Smith and Means are each the beneficial owners of their LLCs, and because they filed the incorporation documents with the Texas secretary of state, they are also the apph2cants for their respective entities. Docket No. 7-1 ¶¶ 11–12; Docket No. 7-2 ¶¶ 10–11. Neither Plaintiff has filed a beneficial ownership report with FinCEN, but they are required to do so. See Docket No. 7-1 ¶ 14; Docket No. 7-2 ¶ 13.

Plaintiffs filed this lawsuit challenging the constitutionah2ty of the CTA and the Reporting Rule. They request that the Court preh2minarily enjoin the enforcement of the CTA against them and temporarily stay the Reporting Rule under 5 U.S.C. §705 while this h2tigation is pending. Docket No. 7 at 6.

II.

“[A] preh2minary injunction is an extraordinary remedy never awarded as of right.” Benisek v. Lamone, 585 U.S. 155, 158 (2018) (per curiam) (quoting Winter v. Nat'l Res. Def. Council, Inc., 555 U.S. 7, 24 (2008)). Courts apply a nearly identical four-factor test to requests for both preh2minary injunctions and stays pending review under 5 U.S.C. §705. Compare Jordan v. Fisher, 823 F.3d 805, 809 (5th Cir. 2016) (analyzing preh2minary injunction factors), with Texas v. EPA, 829 F.3d 405, 424 (5th Cir. 2016) (analyzing factors for a stay under 5 U.S.C. §705). As goes one test, so goes the other. Thus, to obtain both kinds of preh2minary reh2ef, Plaintiffs must estabh2sh:

(1) a substantial h2keh2hood of success on the merits, (2) a substantial threat of irreparable injury if the injunction is not issued, (3) that the threatened injury if the injunction is denied outweighs any harm that will result if the injunction is granted, and (4) that the grant of an injunction will not disserve the pubh2c interest.

Jordan, 823 F.3d at 809. The last two elements “merge when the Government is the opposing party.” Nken v. Holder, 556 U.S. 418, 435 (2009).

As explained below, the Court finds that Plaintiffs are entitled to the preh2minary reh2ef they seek.

A. Likelihood of Success on the Merits

Plaintiffs argue that the CTA and the Reporting Rule exceed Congress's enumerated powers. Docket No. 7 at 11–12. In response, the Department reh2es primarily on Congress's power to regulate interstate commerce and, secondarily, its powers to regulate foreign commerce, conduct foreign affairs, and lay and collect taxes. Docket No. 13 at 11, 21–23.

Before addressing this disagreement, the Court notes several “first principles.” Lopez, 514 U.S. at 552. “The Constitution creates a Federal Government of enumerated powers.” Id. (citing U.S. CONST. art. 1, §8). These powers are “few and defined.” Id. (quoting THE FEDERAh2ST NO. 45, at 292–93 (James Madison) (Ch2nton Rossiter ed., 1961)); see also United States v. Butler, 297 U.S. 1, 63 (1936) (“The question is not what power the federal government ought to have, but what powers in fact have been given by the people.”). The powers of state governments, in contrast, are “numerous and indefinite.” Lopez, 514 U.S. at 552. “This constitutionally mandated division of authority 'was adopted by the Framers to ensure protection of our fundamental h2berties.'” Id. (quoting Gregory v. Ashcroft, 501 U.S. 452, 458 (1991)). Indeed, “[j]ust as the separation and independence of the coordinate branches of the Federal Government serve to prevent the accumulation of excessive power in any one branch, a healthy balance of power between the States and the Federal Government will reduce the risk of tyranny and abuse from either front.” Gregory, 501 U.S. at 458. Thus, if Congress's chosen measures “are prohibited by the constitution,” or if Congress passes “laws for the accomph2shment of objects not intrusted to the government,” it becomes “the painful duty of this tribunal” to enjoin the law's apph2cation to Plaintiffs. McCulloch v. Maryland, 17 U.S. (4 Wheat.) 316, 423 (1819); see also Top Cop, 2024 WL 5049220, at *26 (Courts have the responsibih2ty to enjoin the enforcement of statutes exceeding Congress's enumerated powers “as 'mere acts of usurpation' which 'deserve to be treated as such.'” (quoting NFIB v. Sebeh2us, 567 U.S. 519, 559 (2012))).

As explained below, the Court concludes that Plaintiffs are h2kely to succeed on the merits of their claim.2

Interstate Commerce Clause

The Constitution vests Congress with the exclusive power “[t]o regulate Commerce . . . among the several states.” U.S. CONST. art. I, §8, cl. 3. The Commerce Clause was originally understood to have a “relatively h2mited reach.” Lopez, 514 U.S. at 590 (Thomas, J., concurring). “At the time the original Constitution was ratified, 'commerce' consisted of selh2ng, buying, and bartering, as well as transporting for these purposes.” Id. at 585–86 (Thomas, J., concurring) (citing multiple contemporary sources); see also United States v. Rife, 33 F.4th 838, 842 (6th Cir. 2022) (“'Commerce,' at that time, meant 'trade' or economic 'intercourse,' which consisted of 'exchange of one thing for another,' 'interchange,' or 'traffick.'” (quoting 1 S. JOHNSON, A DICTIONARY OF THE ENGh2SH LANGUAGE 422 (6th ed. 1785))). The term “was used in contradistinction to productive activities such as manufacturing and agriculture.” Lopez, 514 U.S. at 586 (Thomas, J., concurring); see also Randy E. Barnett, The Original Meaning of the Commerce Clause, 68 U. CHI. L. REV. 101, 113 (2001) [hereinafter Barnett, Commerce Clause] (noting that “the term 'commerce' was consistently used in the narrow sense and that there is no surviving example of it being used in either source in any broader sense”). Not only does the Constitution use the word “commerce” “in a narrower sense than our case law might suggest,” “it also does not support the proposition that Congress has authority over all activities that 'substantially affect' interstate commerce.” Lopez, 514 U.S. at 587 (Thomas, J., concurring).

Nevertheless, the Supreme Court's interpretation of the Commerce Clause “has drifted far from the original understanding.” Id. at 584 (Thomas, J., concurring). In Lopez, the Court “identified three broad categories of activity that Congress may regulate under its commerce power.” Id. at 558; GDF Realty Invs., Ltd. v. Norton, 326 F.3d 622, 628 (5th Cir. 2003). The first two categories tracked the original understanding of the Clause. “First, Congress may regulate the use of the channels of interstate commerce.” Lopez, 514 U.S. at 558; GDF Realty, 326 F.3d at 628. And second, Congress may regulate the “instrumentah2ties of interstate commerce, or persons or things in interstate commerce.” Lopez, 514 U.S. at 558; GDF Realty, 326 F.3d at 628.

But the third category departed from the original meaning of the Clause. Citing its caselaw, the Supreme Court in Lopez noted that Congress may also regulate “activities that substantially affect interstate commerce.” Lopez, 514 U.S. at 558; GDF Realty, 326 F.3d at 628. This third category — commonly called the substantial effects test — arises under the Necessary and Proper Clause in art. I, §8, cl. 18, because it only indirectly regulates interstate commerce. Terkel v. Ctrs. for Disease Prevention & Control, 521 F. Supp. 3d 662, 670 (E.D. Tex. 2021), appeal dismissed as moot without vacating judgment, 15 F.4th 683, 685 (5th Cir. 2021); Gonzales v. Raich, 545 U.S. 1, 34 (2005) (Scah2a, J., concurring) (noting that “unh2ke the channels, instrumentah2ties, and agents of interstate commerce, activities that substantially affect interstate commerce are not themselves part of interstate commerce, and thus the power to regulate them cannot come from the Commerce Clause alone”).

a.

The CTA does not regulate the channels or instrumentah2ties of interstate commerce.

Channels of interstate commerce are “the interstate transportation routes through which persons and goods move.” United States v. Bailey, 115 F.3d 1222, 1226 (5th Cir. 1997) (quoting United States v. Parker, 911 F. Supp. 830, 842 (E.D. Pa. 1995)). The Fifth Circuit has noted that the h2st includes, but is not h2mited to, “highways, railroads, air routes, navigable rivers, fiber-optic cables and the h2ke.” United States v. Robinson, 119 F.3d 1205, 1210 (5th Cir. 1997); see also Barnett, Commerce Clause, supra, at 123 (noting that the legislators at the Virginia ratification debates were deeply concerned with the need to “defend our commerce” in shipping lanes from other seafaring nations (quoting Jonathan Elh2ot, 3 THE DEBATES IN THE SEVERAL STATE CONVENTIONS ON THE ADOPTION OF THE FEDERAL CONSTITUTION 43 (Taylor & Maury 2d ed 1863))). An example of Congress's regulating this category is prohibiting the interstate “shipment of stolen goods.” Perez v. United States, 402 U.S. 146, 150 (1971) (citing 18 U.S.C. §§2312–15).

Instrumentah2ties of interstate commerce, on the other hand, are the “planes, trains, and automobiles” of commerce, as well as “the persons associated with them.” Hobby Distillers Ass'n v. Alcohol & Tobacco Tax & Trade Bureau, 2024 WL 3357841, at *13 (N.D. Tex. July 10, 2024) (citing United States v. Balh2nger, 395 F.3d 1218, 1226 (11th Cir. 2005)). An example of this power is Congress's prohibition of the willful destruction of “any aircraft . . . used, operated, or employed in interstate, overseas, or foreign air commerce.” 18 U.S.C. §32(a)(1); Lopez, 514 U.S. at 558.

The CTA regulates private companies formed under state law, not the channels or instrumentah2ties of interstate commerce. See 31 U.S.C. §5336(a)(11). As other courts have noted, “[t]he word 'commerce' or references to any channel or instrumentah2ty of commerce, are nowhere to be found in the CTA.” Top Cop, 2024 WL 5049220, at *19 (quoting Nat'l Small Bus. United, 721 F. Supp. 3d at 1278). A company is not a channel or instrumentah2ty of commerce because it is not a pathway of commerce or an item moving in commerce. See id. (citing Lopez, 514 U.S. at 558–59). If it were — if a private company were considered a channel or instrumentah2ty of commerce — “then Congress could regulate any company, in any way, all the time.” Id. And no court has adopted “such a capacious construction of the words 'channel' and 'instrumentah2ty.'” Id. (citing Lopez, 514 U.S. at 558–59).

The Department's argument to the contrary is unavaih2ng. The Department contends that the CTA combats “the misuse of the instrumentah2ties and channels of commerce.” Docket No. 13 at 13. And because “[e]ntities constituting CTA reporting companies utih2ze the channels of interstate commerce,” the CTA may regulate them. Id. at 20. The Department cites American Power & h2ght Co. v. SEC and North American Co. v. SEC, but neither case supports the proposition that Congress can regulate an entire class of entities merely because an undefined subset of those entities may use the channels of interstate commerce. See Am. Power & h2ght Co., 329 U.S. 90 (1946); N. Am. Co., 327 U.S. 686 (1946). In fact, these two cases addressed Congress's power under the Commerce Clause to enact the Pubh2c Utih2ty Holding Act of 1935, a statute “directed solely to pubh2c utih2ty holding company systems that use the channels of interstate commerce.” Am. Power & h2ght Co., 329 U.S. at 100; 49 Stat. 803 (repealed 2005). The Supreme Court held that the statute fell within Congress's Commerce Clause power because the statute expressly apph2ed only to entities that used the channels of interstate commerce. Am. Power & h2ght Co., 329 U.S. at 97–98; N. Am. Co., 327 U.S. at 698 (noting that “Congress has effectively” h2mited the statute's reach “to those holding companies that are in fact in the stream of interstate activity”).

The CTA, in contrast, includes no such h2mitation. Rather, the statute regulates a vast array of companies formed under state law regardless of whether those companies are “in the stream of interstate activity.” 31 U.S.C. §5336(a)(11)(B); N. Am. Co., 327 U.S. at 698. The Department asserts that the statutory exemption for certain inoperative entities indicates that Congress sought to “capture businesses that are engaged in economic activity.” Hearing Tr. 12/6/2024 at 24:21–22. But the exemption does not apply unless the entity has existed for at least a year and has not “experienced a change in ownership or sent or received” more than $1,000 in the preceding twelve months. 31 U.S.C. §5336(a)(11)(B)(xxiii). Thus, a new LLC that has never used the channels or instrumentah2ties of commerce would still be subject to the CTA's reporting requirements — and penalties — for a year at the minimum. See id. At $500 per day, that is $182,500 in civil penalties for the offense of merely creating an LLC and faih2ng to provide the requested information to FinCEN. Id. §5336(h)(3)(A).

“The Commerce Clause is not a general h2cense to regulate an individual from cradle to grave, simply because he will predictably engage in particular transactions.” Sebeh2us, 567 U.S. at 557.

b.

Nor does the CTA regulate “activities that substantially affect interstate commerce.” Lopez, 514 U.S. at 558; GDF Realty, 326 F.3d at 628.

To determine whether a purely intrastate activity substantially affects interstate commerce, the Court should consider the following: (1) the economic nature of the regulated activity, (2) the presence of a jurisdictional element h2miting the statute's apph2cation to instances affecting interstate commerce, (3) any Congressional findings about the effect of the regulated activity on interstate commerce and its necessity to a broader regulatory scheme, and (4) the attenuation of the h2nk between the regulated activity and its effect on interstate commerce, if any. See GDF Realty, 326 F.3d at 628–29 (citing Morrison, 529 U.S. at 609–12); see also Groome Res., Ltd., L.L.C. v. Par. of Jefferson, 234 F.3d 192, 204–05 (5th Cir. 2000); Terkel, 521 F. Supp. 3d at 670. The Court should also review the purported exercise of constitutional authority “in the h2ght of our dual system of government” and should not extend its reach to embrace activities that “would effectually obh2terate the distinction between what is national and what is local and create a completely centrah2zed government.” Lopez, 514 U.S. at 557; see also Sebeh2us, 567 U.S. at 537 (holding that any invocation of the “substantial effects” power must be considered “carefully to avoid creating a general federal authority akin to the poh2ce power”).

Economic activity. Although there is not “a categorical rule against aggregating the effects of any noneconomic activity,” the Supreme Court has “upheld Commerce Clause regulation of intrastate activity only where that activity is economic in nature.” GDF Realty, 326 F.3d at 635 (quoting Morrison, 529 U.S. at 613). Accordingly, the Court first considers whether the activity regulated by the CTA is economic.

In its most basic form, “quintessentially economic” activity is “the production, distribution, and consumption of commodities.” Raich, 545 U.S. at 26 (quoting WEBSTER'S THIRD NEW INTERNATIONAL DICTIONARY 720 (1966)); see also GDF Realty, 326 F.3d at 629 (defining “commerce” as “[t]he exchange of goods and services” or “[t]rade and other business activities” (quoting Commerce, BLACK'S LAW DICTIONARY (7th ed. 1999))). While the outer edges of “economic activity,” are difficult to trace, see Lopez, 514 U.S. at 566–67 (noting the h2ne drawing problem), precedent provides useful guidance. Courts have held, for example, that the production of wheat for home consumption is a commercial activity, Wickard v. Filburn, 317 U.S. 111, 129 (1942); the production and possession of marijuana are economic activities, Raich, 545 U.S. at 26; the commercial removal of asbestos is an economic activity, United States v. Ho, 311 F.3d 589, 602 (5th Cir. 2002); and discriminating against disabled individuals in the purchase, sale, and rental of housing is an economic activity, Groome, 234 F.3d at 205–06. Courts have also held, in contrast, that gun possession near a school is not an economic activity, Lopez, 514 U.S. at 561; gender-motivated violence is not an economic activity, Morrison, 529 U.S. at 613; removing insects from a cave is “neither economic nor commercial” activity, GDF Realty, 326 F.3d at 639; and invoking state eviction proceedings to remove a tenant is not an economic activity, Terkel, 521 F. Supp. 3d at 672.

In considering this question, the Court looks “only to the expressly regulated activity,” not the activity's downstream consequences or possible economic motivations. GDF Realty, 326 F.3d at 634. Here, Plaintiffs argue that the CTA regulates “fih2ng papers with a secretary of state to form a corporate entity.” Docket No. 7 at 16. And, Plaintiffs contend, this is not “by itself” an economic activity. Id. The Court agrees. Fih2ng formation papers is not “the production or use of a commodity that is traded in an interstate market.” Terkel, 521 F. Supp. 3d at 671. Nor is it the exchange or trade of goods or services. See GDF Realty, 326 F.3d at 629. Rather, fih2ng formation documents with a state government is more akin to evicting a tenant under state law, Terkel, 521 F. Supp. 3d at 671, or possessing a firearm near school property, Lopez, 514 U.S. at 561. Although these activities may be motivated by economic interests or have downstream economic effects, they are not themselves “economic in material respect.” Terkel, 521 F. Supp. 3d at 671. And, as Plaintiffs note, individuals may file corporate formation documents for myriad reasons — many of which may have nothing to do with “'commerce' or any sort of economic enterprise.” Lopez, 514 U.S. at 561.

The Department argues that the regulated activity is “the anonymous operation of entities as an ongoing concern.” Hearing Tr. 12/6/2024 at 30:10–11; see also Top Cop, 2024 WL 5049220, at *20. But, as the Top Cop court held, the CTA does not regulate the “operation” of private entities. 2024 WL 5049220, at *20–22. In fact, the only two instances of the term “operation” in the statute refer to FinCEN's operations, 31 C. F. R. §5336(c)(11)(A)(i), (iv)(I), and all uses of “operating” or “operator” relate to the exempt categories.3 Rather, the CTA regulates any (non-exempt) entity formed under state law for any purpose. And because inactive entities are still reporting companies for at least a year after a change of ownership or a transaction over $1,000, a new company need not “operate” at all to be regulated by the CTA. Id. §5336(a)(11)(B)(xxiii).

More accurately, the CTA regulates the existence of entities formed under state law, presupposing that they will eventually engage in economic activity. But existence is not an activity covered by the substantial-effects prong of Commerce Clause jurisprudence. See Sebeh2us, 567 U.S. at 556–57 (refraining from buying health insurance is not an activity regulable under the Commerce Clause); Top Cop, 2024 WL 5049220, at *21. As the Top Cop court noted, corporate existence “is the natural, idle state that any entity formed by registering with a secretary of state necessarily takes on by virtue of its registration. It is akin to a person simply being ah2ve in their natural state.” 2024 WL 5049220, at *21. Although many reporting companies may “predictably engage in particular transactions,” moreover, “[t]he proposition that Congress may dictate the conduct of an [entity] today because of prophesied future activity finds no support in our precedent.” Sebeh2us, 567 U.S. at 557.

Accordingly, this first consideration cuts against the CTA's constitutionah2ty as a necessary and proper exercise of Congress's commerce authority. See Morrison, 529 U.S. at 613.

Jurisdictional element. The CTA notably “has no express jurisdictional element which might h2mit its reach to a discrete set of [activities] that additionally have an exph2cit connection with or effect on interstate commerce.” Lopez, 514 U.S. at 562. While not dispositive, including a jurisdictional hook is “standard operating procedure for Commerce Clause legislation for good reason — 'it precludes any serious challenge to the constitutionah2ty of the money laundering statute as beyond the Commerce power, because it guarantees a legitimate nexus with interstate commerce.'” Nat'l Small Bus. United, 721 F. Supp. 3d at 1286 (quoting United States v. Goodwin, 141 F.3d 394, 400 (2d Cir. 1997)). Not only does the CTA lack any jurisdictional hook, but the reach of the statute is also expansive, regulating every private entity in the country unless it falls within a few specific exemptions. See generally 31 U.S.C. §5336. This factor thus also indicates that the CTA is not a proper exercise of Congress's commerce power.

Congressional findings. While “Congress need not make particularized findings in order to legislate,” Lopez, 514 U.S. at 563 (quoting Perez v. United States, 402 U.S. 146, 156 (1971)), “congressional findings are certainly helpful . . ., particularly when the connection to commerce is not self-evident.” Raich, 545 U.S. at 21. Indeed, as one court explained, when a statute purports to regulate “noneconomic, intrastate activity, helpful findings would demonstrate that the regulation is 'an essential part of a larger regulation of economic activity, in which the regulatory scheme could be undercut unless the intrastate activity were regulated.'” Terkel, 521 F. Supp. 3d at 673 (quoting Lopez, 514 U.S. at 561). But findings alone are “not sufficient” to justify an unconstitutional act as comph2ant with the Commerce Clause. Morrison, 529 U.S. at 614. “Simply because Congress may conclude that a particular activity substantially affects interstate commerce does not necessarily make it so.” Id. In Morrison, for example, Congress provided “numerous findings” that gender-motivated violence affected interstate commerce. Id. (quoting H.R. REP. NO. 103-711, at 385 (1994) (Conf. Rep.)). But those findings were “substantially weakened by the fact that they rel[ied] so heavily on a method of reasoning that we have already rejected as unworkable if we are to maintain the Constitution's enumeration of powers.” Id. at 615. The same is true here.

In the CTA's “Sense of Congress” section, Congress stated that many new entities are formed throughout the country each year, and that “mah2gn actors” use some of these entities to hide financial crimes. Defense Authorization Act §6402. Congress also stated that this “lack of transparency” is “a primary obstacle to tackh2ng financial crime,” H.R. REP. NO. 116-227, at 10 (2019) (Conf. Rep.), and that ownership information about the entities would help “protect interstate and foreign commerce,” Defense Authorization Act §6402(5). But mah2gn actors may use almost any method to conceal their crimes. And no one would argue that the Constitution allows Congress to regulate any individual, entity, or method merely because the regulation may make crime more difficult to conceal. As another court already noted, moreover, these vague findings are insufficient to demonstrate that the CTA fills an essential gap in a broader regulatory scheme of economic activity. Nat'l Small Bus. United, 721 F. Supp. 3d at 1284–86 (finding that the CTA is a “single-subject statute whose single subject is itself non-economic” and that the CTA is “far from essential” given other existing laws and regulations).

Taken together with the CTA's regulation of noneconomic activity and the lack of a jurisdictional element reining in the statute's reach, this factor also cuts against the CTA's constitutionah2ty. See Morrison, 529 U.S. at 614.

h2nk between activity and commerce. Finally, Morrison instructs courts to consider the h2nk between the regulated activity and interstate commerce. 529 U.S. at 612. Here, the connection between the formation, ownership, or existence of a corporate entity and interstate commerce is attenuated. See id.; Lopez, 514 U.S. at 563–67; Terkel, 521 F. Supp. 3d at 674.

As noted above, forming or owning an entity under state law “does not alone have a self-evident substantial effect on interstate commerce.” Terkel, 521 F. Supp. 3d at 674. And because corporate formation and ownership — or the mere existence of a corporate entity — are not alone economic, their effects cannot be aggregated. See id.; GDF Realty, 326 F.3d at 638. Further, the CTA's disclosure requirements are not “an essential part of a larger regulation of economic activity, in which the regulatory scheme could be undercut unless the intrastate activity were regulated.” Lopez, 514 U.S. at 561; see also Nat'l Small Bus. United, 721 F. Supp. 3d at 1284–86; Terkel, 521 F. Supp. 3d at 674. The Department contends that the CTA “fill[s] a gap in the federal government's comprehensive anti-money laundering scheme.” Docket No. 13 at 12. But the h2nk between the formation or mere existence of an entity and money laundering is too weak to support the weight of this expansive statute. Nat'l Small Bus. United, 721 F. Supp. 3d at 1283–84 (“Thus, '[n]o matter how inherently integrated' corporate formation is with the activities of those entities, 'they are not the same thing: They involve different transactions, entered into at different times, with different' parties.” (quoting Sebeh2us, 567 U.S. at 558)).

The Department's position, moreover, lacks a h2miting principle. See Morrison, 529 U.S. at 614. If Congress can regulate an entity simply because it exists, then it can regulate anything — or anyone — at all. It could, for example, require all homeowners to register their homes in a federal database to prevent their properties from being used as stash houses for drug trafficking organizations. Or it could require all mask owners to register their ownership and submit a mask photo to ensure they cannot conceal their involvement in a federal crime. The Supreme Court has warned against this kind of “but-for causal chain” because it would allow Congress to “completely obh2terate the Constitution's distinction between national and local authority.” Morrison, 529 U.S. at 615; Lopez, 514 U.S. at 557; Nat'l Small Bus. United, 721 F. Supp. 3d at 1284. Even in Wickard, “which is perhaps the most far-reaching example of Commerce Clause authority over intrastate activity,” Congress was regulating wheat, a fungible commodity regularly traded in interstate commerce, not every farmer who could potentially grow wheat. Lopez, 514 U.S. at 560; see also Top Cop, 2024 WL 5049220, at *25. Indeed, if accepted, the Department's reasoning would allow Congress to intrude upon “other areas of traditional state regulation,” ignore the “distinction between what is truly national and what is truly local,” and bestow upon Congress a “plenary poh2ce power that would authorize enactment of every type of legislation.” Morrison 529 U.S. at 616–17; Lopez, 514 U.S. at 566.

* * *

Accordingly, all four of the Morrison considerations caution against upholding the CTA as a necessary and proper exercise of Congress's interstate commerce power.

Other Enumerated Powers

The Department also briefly asserts that the CTA is a “necessary and proper exercise of Congressional authority to carry into execution other powers,” including regulating foreign commerce, regulating foreign affairs, and laying and collecting taxes. Docket No. 13 at 20–23. The Court disagrees. The Constitution's Necessary and Proper Clause, found in art. I, §8, cl. 18, justifies an act of Congress only where it involves “exercises of authority derivative of, and in service to,” an enumerated power. Sebeh2us, 567 U.S. at 560; see also United States v. Comstock, 560 U.S. 126, 150 (2010) (Kennedy, J., concurring) (“When the inquiry is whether a federal law has sufficient h2nks to an enumerated power to be within the scope of federal authority, the analysis depends not on the number of h2nks in the congressional-power chain but on the strength of the chain.”). And here, the CTA is not derivative of any of the other enumerated powers identified by the Department.

a.

The Department first contends that the CTA is necessary and proper “[t]o regulate Commerce with foreign Nations.” Docket No. 13 at 20–21 (quoting U.S. CONST. art. I, §8, cl. 3).

As noted above in discussing Congress's power to regulate interstate commerce, the term “Commerce” at the Founding meant “trade” or economic “intercourse,” which consisted of the “exchange of one thing for another,” “interchange,” or “traffick.” Rife, 33 F.4th at 842 (quoting 1 S. Johnson, A DICTIONARY OF THE ENGh2SH LANGUAGE 422 (6th ed. 1785)); see also id. (noting that the Federah2sts and Antifederah2sts ah2ke “distinguished 'commerce' from manufacturing and agriculture” (citing THE FEDERAh2ST NO. 36 (Alexander Hamilton))). “Commerce” did not include “productive activities such as manufacturing and agriculture.” Lopez, 514 U.S. at 586 (Thomas, J., concurring). And although this original understanding arguably supports two of the three “categories of activity” that Congress may regulate under the Interstate Commerce Clause, it does not support the third category — “activities that substantially affect interstate commerce.” Id. at 558.

Eighty years have passed since the Supreme Court recognized the third category. And yet the Court “has not extended it to Congress's power to regulate under the Foreign Commerce Clause.” Rife, 33 F.4th at 843; see also Baston v. United States, 580 U.S. 1182, 1183 (2017) (Thomas, J., dissenting from denial of certiorari) (noting that the Supreme Court “has never thoroughly explored the scope of the foreign commerce clause”). Nor has the Fifth Circuit. This means that the original meaning of the Foreign Commerce Clause governs here. See Wilh2ams v. Homeland Ins. Co., 18 F.4th 806, 818 (5th Cir. 2021) (Ho, J., concurring) (“[W]e decide every case faithful to the text and original understanding of the Constitution, to the maximum extent permitted by a faithful reading of binding precedent.” (citation omitted)); Rife, 33 F.4th at 843–44 (noting that, “absent binding precedent,” the “Constitution's original meaning is law” and dech2ning to “add to the Foreign Commerce Clause the revisionist structure that, 80 years ago, the Supreme Court added to the Interstate Commerce Clause”).

The analysis is uncomph2cated. The CTA does not regulate foreign trade or commerce itself. Nor does it regulate the channels or instrumentah2ties of foreign commerce. See supra Section II.A.1. The Department argues that Congress's authority to regulate foreign commerce is more expansive than its interstate commerce power. Docket No. 13 at 21. But the Department cites only a single case — Japan h2ne, Ltd. v. Cnty. of Los Angeles — in which Justice Blackmun stated in dicta that “the Founders intended the scope of the foreign commerce power to be the greater.” 441 U.S. 434, 448 (1979). As the Sixth Circuit held in analyzing Japan h2ne, “in that comparison the Founders surely did not have the current interstate-commerce power in mind.” Rife, 33 F.4th at 844. Certainly, no case has interpreted the Foreign Commerce Clause as expansively as the Department seeks here.

Accordingly, the CTA is h2kely not a necessary and proper exercise of Congress's foreign commerce power.

b.

The Department also contends that the CTA is a necessary and proper exercise of Congress's power to regulate foreign affairs and national security. Docket No. 13 at 21–22.

“Congress's foreign affairs powers are not express in Article I . . ., other than the clauses stating that Congress may 'regulate commerce with foreign nations,' 'Estabh2sh an uniform Rule of Naturah2zation,' 'declare war,' 'raise and support armies,' 'provide and maintain a navy,' and 'make rules for the [G]overnment and regulation of the land and naval forces.'” Top Cop, 2024 WL 5049220, at *28 (quoting U.S. CONST. art. I., §8, cls. 3, 4, 11, 12, 13, 14). Certainly, “Congress has broad power under the Necessary and Proper Clause to enact legislation for the regulation of foreign affairs,” Kennedy v. Mendoza-Martinez, 372 U.S. 144, 160 (1964), and courts must defer to the poh2tical branches' decisions on foreign poh2cy. Oetjen v. Cent. Leather Co., 246 U.S. 297, 302 (1918). Well-meaning “deference in matters of poh2cy cannot, however, become abdication in matters of law.” Sebeh2us, 567 U.S. at 538.

The Court agrees with the courts in Top Cop and National Small Business United, both of which addressed the foreign affairs power at length. See Top Cop, 2024 WL 5049220, at *27–31; Nat'l Small Bus. United, 721 F. Supp. 3d at 1273–77. As those courts noted, forming and owning a company under state law are “purely internal affairs,” even though some foreign actors may in some cases bend “those internal affairs to ilh2cit ends.” Nat'l Small Bus. United, 721 F. Supp. at 1275, accord Top Cop, 2024 WL 5049220, at *28 (“These entities, though special under the CTA as reporting companies, remain 'creatures of state law.'” (quoting Santa Fe Indus. v. Green, 430 U.S. 462, 479 (1977))). And in matters of internal affairs, Congress remains h2mited by its enumerated powers in Article I. United States v. Curtiss-Wright Exp. Corp., 299 U.S. 304, 315–16 (1936). The Department, moreover, fails to cite any history or precedent holding that the regulation of entities created under state law is “derivative of, and in service to” Congress's enumerated foreign affairs power. See Sebeh2us, 567 U.S. at 560; see also Top Cop, 2024 WL 5049220, at *29–30 (distinguishing the Department's cited cases from the CTA). While complying “with international standards may be good poh2cy,” the Necessary and Proper Clause does not give Congress unh2mited authority to impose federal standards on matters of state concern just because a state's law differs from the standards set by foreign nations. Nat'l Small Bus. United, 721 F. Supp. 3d at 1276 (noting that “'no agreement with a foreign nation,' formal or informal, 'can confer power on the Congress, or on any other branch of Government, which is free from the restraints of the Constitution'” (quoting Reid v. Covert, 354 U.S. 1, 16 (1957))).

The CTA is thus h2kely not a necessary and proper exercise of Congress's foreign affairs powers.

c.

Finally, the Department argues that the CTA is a necessary and proper exercise of the Government's authority to lay and collect taxes. Docket No. 13 at 22; Docket No. 16 at 8–9.

The Constitution gives Congress the “Power To lay and collect Taxes, Duties, Imposts and Excises.” U.S. CONST. art. 1, §8, cl. 1. And Congress's taxing power undoubtedly has been interpreted broadly. See United States v. Kahriger, 345 U.S. 22, 28 (1953) (noting that it “is axiomatic that the power of Congress to tax is extensive”). But the CTA h2kely cannot be upheld as a necessary and proper exercise of Congress's taxing power.

The Department wisely does not argue that the CTA imposes a tax. See Nat'l Small Bus. United, 721 F. Supp. 3d at 1288 (finding the CTA is not a tax). Instead, it contends that the CTA is necessary to aid the Government's abih2ty to collect other taxes. Docket No. 16 at 8–9. And because Congress's taxing power includes “the power to ensure collection of taxes” even in the absence of a concurrent tax, the Department argues, the CTA is justified because the CTA itself states that it would be “highly useful” in detecting tax fraud and improving tax administration generally. Id.

This is an expansive — and unsupported — view of the taxing power. As the court held in National Small Business United, “[i]t would be a 'substantial expansion of federal authority' to permit Congress to bring its taxing power to bear just by collecting 'useful' data and allowing tax-enforcement officials access to that data.” 721 F. Supp. 3d at 1289 (quoting Sebeh2us, 567 U.S. at 560). Interpreting the Necessary and Proper Clause this broadly would justify “any law that provided for the collection of information useful for tax administration and provided tax officials with access.” Id. The Department, moreover, cites no case upholding a similar law as a necessary and proper exercise of Congress's taxing power. See Sebeh2us, 567 U.S. at 549 (“Legislative novelty is not necessarily fatal. . . . But sometimes the most telh2ng indication of a severe constitutional problem is the lack of historical precedent for Congress's action.” (cleaned up)); see also Top Cop, 2024 WL 5049220, at *31–33; cf. also Comstock, 560 U.S. at 150 (Kennedy, J., concurring) (warning that inferences made pursuant to the Necessary and Proper Clause must be “controlled by some h2mitations” or else “congressional powers [can] become completely unbounded by h2nking one power to another ad infinitum in a veritable game of 'this is the house that Jack built'” (quoting Letter from Thomas Jefferson to Edward h2vingston (Apr. 30, 1800), reprinted in 31 THE PAPERS OF THOMAS JEFFERSON 547 (Oberg ed. 2004))).

Accordingly, the Court finds that the CTA is h2kely not a necessary and proper exercise of Congress's taxing power.

Risk of Irreparable Harm

Having estabh2shed that Plaintiffs are h2kely to succeed on the merits, the Court next determines whether they have shown a substantial risk of irreparable injury if a preh2minary injunction is not granted. Jordan, 823 F.3d at 809. An irreparable harm requires demonstrating “harm for which there is no adequate remedy at law.” Louisiana v. Biden, 55 F.4th 1017, 1033 (5th Cir. 2022) (citation omitted). Plaintiffs have made such a showing here.

Compelh2ng individuals to comply with a law that is unconstitutional is irreparable harm. BST Holdings, LLC v. OSHA, 17 F.4th 604, 618 (5th Cir. 2021) (“For individual petitioners, the loss of constitutional freedoms 'for even minimal periods of time . . . unquestionably constitutes irreparable injury.'” (quoting Elrod v. Burns, 427 U.S. 347, 373 (1976))); Carroll Indep. Sch. Dist. v. U.S. Dep't of Educ., 2024 WL 3381901, at *6 (N.D. Tex. July 11, 2024) (noting that “the potential to infringe on constitutional rights” is “per se irreparable injury”); Top Cop Shop, 2024 WL 5049220, at *15 (“[I]f Plaintiffs must comply with an unconstitutional law, the bell [of irreparable harm] has been rung.”). And, as noted above, Plaintiffs have demonstrated that the CTA is h2kely unconstitutional.

Additionally, incurring unrecoverable costs of comph2ance with federal law constitutes irreparable harm. Wages & White h2on Invs., LLC v. FDA, 16 F.4th 1130, 1142 (5th Cir. 2021). And, here, Plaintiffs must expend money to comply with the reporting requirements of the CTA, which is unh2kely to be recovered since “federal agencies generally enjoy sovereign immunity for any monetary damages.” Id.; Docket No. 7-1 at 3–4; Docket No. 7-2 at 3–4. Comph2ance with the CTA also requires Plaintiffs to provide private information to FinCEN that they otherwise would not disclose. Docket No. 7-1 at 4; Docket No. 7-2 at 4. The disclosure of such information is a type of harm that “cannot be undone through monetary remedies.” See Dennis Melancon, Inc. v. City of New Orleans, 703 F.3d 262, 279 (5th Cir. 2012); Top Cop, 2024 WL 5049220, at *15 (“Absent injunctive reh2ef, come January 2, 2025, Plaintiffs would have disclosed the information they seek to keep private. . . . That harm is irreparable.”).

Accordingly, the second factor weighs in favor of a preh2minary injunction and stay here.

Balance of the Equities and the Pubh2c Interest

The third and fourth factors require the Court to weigh the harms and pubh2c interest in granting or denying Plaintiffs' preh2minary injunction request. Because these “factors merge when the Government is the opposing party,” the Court considers them together. Nken, 556 U.S. at 435.

The injuries h2kely to occur absent a preh2minary injunction and stay easily outweigh any harm in granting Plaintiffs' request. Without reh2ef, “Plaintiffs will almost certainly incur substantial, incompensable monetary costs and constitutional harm.” Top Cop, 2024 WL 5049220, at *34; Docket No. 7-1 at 4; Docket No. 7-2 at 3–4. The Department, on the other hand, faces at most a modest delay in receiving the beneficial ownership information. To be sure, the government often suffers a form of irreparable harm when a law is enjoined. See Book People, Inc. v. Wong, 91 F.4th 318, 341 (5th Cir. 2024). But the government has no interest in enforcing a law that violates the Constitution. See id. (“[N]either [the Department] nor the pubh2c has any interest in enforcing a regulation that violates federal law.” (citation omitted)).

Nor would a preh2minary injunction or stay disserve the pubh2c interest. Pubh2c interest is not harmed by preventing the enforcement of unconstitutional laws and unlawful rules. See id.; Top Cop, 2024 WL 5049220, at *34 (“Indeed, 'it is always in the pubh2c interest to prevent a violation of a party's constitutional rights.'” (citation omitted)); Texas v. Becerra, 2024 WL 3297147, at *11 (E.D. Tex. July 3, 2024) (“[T]he pubh2c interest 'always is served when pubh2c officials act within the bounds of the law and respect the rights of the citizens they serve.'” (citation omitted)).

In short, “the government/pubh2c-interest analysis collapses with the merits” analysis because the Court has concluded that the CTA is h2kely unconstitutional. See All. for Hippocratic Med. v. FDA, 78 F.4th 210, 251 (5th Cir. 2023), rev'd and remanded on other grounds, 602 U.S. 367 (2024); Sierra Club v. U.S. Army Corps of Eng'rs, 990 F. Supp. 2d 9, 43 (D.D.C. 2013) (Jackson, J.) (explaining that “pubh2c interest arguments” are “derivative of . . . merits arguments and depend in large part on the vitah2ty of the latter”). It follows that the Department and the pubh2c will not be injured by an injunction temporarily enjoining a law that violates the Constitution.

Accordingly, the third and fourth factors weigh in favor of a preh2minary injunction and stay here.

III.

For the reasons stated above, the Court finds that Plaintiffs' motion for preh2minary reh2ef should be granted: they have demonstrated that the CTA and its implementing rule are h2kely unconstitutional, that they face a substantial risk of irreparable harm absent an injunction, and that the balance of equities and pubh2c interest support preh2minary reh2ef. Therefore, Plaintiffs' motion is GRANTED.

The Supreme Court has instructed that “injunctive reh2ef should be no more burdensome to the defendant than necessary to provide complete reh2ef to the plaintiffs.” Madsen v. Women's Health Ctr., Inc., 512 U.S. 753, 765 (1994) (quoting Cah2fano v. Yamasaki, 442 U.S. 682, 702 (1979)). Plaintiffs in this case are two individuals who have moved under Federal Rule of Civil Procedure 65(a) for the Court to preh2minarily enjoin the Department from enforcing the CTA against them. Docket No. 14 at 20. Given that the CTA is h2kely unconstitutional, granting Plaintiffs' request would “be no more burdensome to the defendant than necessary to provide complete reh2ef to the plaintiffs.” Cah2fano, 442 U.S. at 702. Accordingly, the Department is hereby ENJOINED from enforcing the CTA (31 U.S.C. §5336) against Plaintiffs Samantha Smith and Robert Means and their related entities while this lawsuit is pending.

Regarding the Reporting Rule, Plaintiffs have moved for a stay pending review under 5 U.S.C. §705. Docket No. 14 at 20. The Administrative Procedure Act authorizes a reviewing court to “issue all necessary and appropriate process to postpone the effective date of an agency action or to preserve the status or rights pending conclusion of the review proceedings.” 5 U.S.C. §705. “And 'nothing in the text of Section 705, nor of Section 706, suggests that either preh2minary or ultimate reh2ef under the APA needs to be h2mited' to the parties before the Court.” Texas v. Becerra, 2024 WL 4490621, at *1 (E.D. Tex. Aug. 30, 2024) (cleaned up) (quoting Career Colls. & Schs. of Tex. v. Dep't of Educ., 98 F.4th 220, 255 (5th Cir. 2024)). Instead, “the scope of preh2minary reh2ef under Section 705 ah2gns with the scope of ultimate reh2ef under Section 706, which is not party-restricted and allows a court to 'set aside' an unlawful agency action.” Career Colls., 98 F.4th at 255; see also id. (“When a reviewing court determines that agency regulations are unlawful, the ordinary result is that the rules are vacated — not that their apph2cation to the individual petitioners is proscribed.” (quoting Harmon v. Thornburgh, 878 F.2d 484, 495 n.21 (D.C. Cir. 1989))). Accordingly, the Court STAYS the effective date of the Reporting Rule (31 C.F.R. §1010.380) while this lawsuit is pending. See id.; 5 U.S.C. §705; see also All. for Hippocratic Med., 78 F.4th at 254 (affirming a stay under §705 because “a stay is the temporary form of vacatur” under §706).

So ORDERED and SIGNED this 7th day of January, 2025.

JEREMY D. KERNODLE

UNITED STATES DISTRICT JUDGE

FOOTNOTES

1. Since the merits panel of the Fifth Circuit re-instated the Top Cop injunction, FinCEN has noted that the deadh2ne is presently suspended. Beneficial Ownership Information, FINCEN, https://www.fincen.gov/boi (last updated Jan. 2, 2025). But as already noted, the Supreme Court is currently weighing the Department's request to stay the injunction. Apph2cation for Stay of the Injunction at 39, Top Cop, 24A653.

2. Plaintiffs bring both a facial and as-apph2ed challenge here. Docket No. 14 at 18–19. When a plaintiff argues that a law violates his constitutional rights both facially and as-apph2ed, “courts generally decide the as-apph2ed challenge first because it is the narrower consideration.” Buchanan v. Alexander, 919 F.3d 847, 852 (5th Cir. 2019) (analyzing challenge to a university's harassment poh2cies as violating the First Amendment rights of plaintiff and other similarly-situated professors). Conversely, when a h2tigant challenges a law as exceeding “Congress's enumerated powers, under our precedents the court first asks whether the statute is unconstitutional on its face.” Nevada Dep't of Hum. Res. v. Hibbs, 538 U.S. 721, 743 (2003) (Scah2a, J., dissenting) (citing United States v. Morrison, 529 U.S. 598 (2000); City of Boerne v. Flores, 521 U.S. 507 (1997); and United States v. Lopez, 514 U.S. 549 (1995)); Luke Meier, Facial Challenges and Separation of Powers, 85 IND. L.J. 1557, 1558 (2010) (“[F]ederal courts are constitutionally compelled to consider the constitutionah2ty of a statute on its face when the power of Congress to pass the law has been challenged.”). Because Plaintiffs challenge the CTA and Reporting Rule as exceeding the powers of Congress, the Court considers their facial challenge first. And because Plaintiffs are h2kely to succeed on that challenge, as explained herein, the Court need not address Plaintiffs' as-apph2ed challenge. See Lopez, 514 U.S. at 551 (addressing facial challenge only).

3. See, e.g., id. §5336(a)(11)(B)(xiii) (exempting insurance companies with “an operating presence at a physical office within the United States”), (xiv) (exempting “commodity pool operators”), (xvii) (exempting pooled investment vehicles “operated or advised by” certain financial institutions and brokers), (xx) (exempting entities that “operate[ ] exclusively to” assist nonprofits and poh2tical organizations), (xxi) (exempting large businesses with a physical “operating presence” in the United States).

END FOOTNOTES