Fifth Circuit Weighs In On Constitutionality of the Corporate Transparency Act

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).

Still, there were additional factors that made this case seem a particularly unusual example of judicial overreaching. First, the injunction was issued on the eve of the initial reporting deadline under the CTA, and it thus spared all companies from an obligation to file, even though three decisions in other circuits had either upheld the CTA as constitutional or granted only a stay covering the parties (and thus kept the deadline in force with respect to others). Even more surprising, no party in the Tex. Top Cop Shop case had requested any such nationwide injunction. That was an invention of the district judge. Thinking that the decision was an outlier, the government filed an emergency motion with the Fifth Circuit seeking to stay the injunction.