Smith et al v. United States Department of The Treasury et al

Filing 30

MEMORANDUM OPINION AND ORDER Granting 7 MOTION for Preliminary Injunction and Relief Under 5 U.S.C. § 705 filed by Samantha Smith, Robert Means. Signed by District Judge Jeremy D. Kernodle on 1/7/2025. (esw)

IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF TEXAS
TYLER DIVISION
SAMANTHA SMITH and ROBERT
MEANS,
Plaintiffs,
v.
UNITED STATES DEPARTMENT OF
THE TREASURY, et al.,
Defendants.

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Case No. 6:24-cv-336-JDK

MEMORANDUM OPINION AND ORDER
GRANTING MOTION FOR PRELIMINARY RELIEF
The Corporate Transparency Act mandates that millions of private entities
formed under state law disclose sensitive personal information to federal law
enforcement. The Act applies 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 preliminary injunction and stay prohibiting FinCEN from enforcing
the new law.

1

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 constitutionality. See
Texas Top Cop Shop, Inc. v. Garland, 2024 WL 5049220 (E.D. Tex. Dec. 5, 2024)
(finding the CTA is likely 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 likely 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 preliminary 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 compliance deadline for the rule while that
case is pending. 2024 WL 5049220, at *37. The court’s order applies 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 relief in the
Supreme Court, requesting that the Court stay the district court’s injunction or at a
minimum to limit its scope to the parties in that case. Application for Stay of the

2

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 preliminary
relief.
As explained below, the Court GRANTS the motion.

The Corporate

Transparency Act is unprecedented in its breadth and expands federal power
beyond constitutional limits. It mandates the disclosure of personal information
from millions of private entities while intruding on an area of traditional state
concern. Defendants’ argument in defense of the statute, moreover, relies on the
“effects upon interstate commerce so indirect and remote that to embrace
them . . . would effectually obliterate the distinction between what is national and
what is local and create a completely centralized government.” United States v.
Lopez, 514 U.S. 549, 557 (1995) (quoting NLRB v. Jones & Laughlin 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 likely 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 public
interest favor an injunction and stay.

3

I.
A. The Corporate Transparency Act
On January 1, 2021, Congress passed the Corporate Transparency Act (“CTA”)
as part of the William 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 millions 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 limited liability 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, limited liability
companies, or other similar entities”; and “malign 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, intelligence, and law
enforcement efforts to counter money laundering, the financing of
terrorism, and other illicit activity; and
(E) bring the United States into compliance with international antimoney laundering and countering the financing of terrorism standards.
Id. § 6402(5).

4

To accomplish 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, limited liability company, or other similar entity that is
created by the filing 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, public 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 “applicants.” 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 “applicant” 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 applicant’s “legal name, date of birth, residential or business
address, and driver’s license number or other ‘unique identifying number’” from a
nonexpired, government-issued identification document. Id. § 5336(a)(1), (b)(2)(A).

5

The CTA delegates authority to FinCEN to implement the statute.

Id.

§ 5336(b)(5). In September 2022, FinCEN published a final rule (“the Reporting
Rule”) establishing the CTA’s compliance requirements and deadlines. 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 deadline 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 applicant’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,

1

Since the merits panel of the Fifth Circuit re-instated the Top Cop injunction, FinCEN has noted
that the deadline 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. Application for Stay of the
Injunction at 39, Top Cop, 24A653.

6

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 criminalizes
(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.
B. 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
applicants for their respective entities.
No. 7-2 ¶¶ 10–11.

Docket No. 7-1 ¶¶ 11–12; Docket

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.
7

Plaintiffs filed this lawsuit challenging the constitutionality of the CTA and
the Reporting Rule.

They request that the Court preliminarily enjoin the

enforcement of the CTA against them and temporarily stay the Reporting Rule under
5 U.S.C. § 705 while this litigation is pending. Docket No. 7 at 6.
II.
“[A] preliminary 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 preliminary injunctions and stays pending review
under 5 U.S.C. § 705. Compare Jordan v. Fisher, 823 F.3d 805, 809 (5th Cir. 2016)
(analyzing preliminary 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 preliminary relief, Plaintiffs must
establish:
(1) a substantial likelihood 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 public 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
preliminary relief they seek.

8

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 relies
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 FEDERALIST NO. 45, at 292–93 (James Madison) (Clinton
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 liberties.’”
(1991)).

Id. (quoting Gregory v. Ashcroft, 501 U.S. 452, 458

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 accomplishment of objects not
intrusted to the government,” it becomes “the painful duty of this tribunal” to enjoin
9

the law’s application 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 responsibility
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.
Sebelius, 567 U.S. 519, 559 (2012))).
As explained below, the Court concludes that Plaintiffs are likely to succeed on
the merits of their claim.2
1. 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 limited reach.” Lopez, 514 U.S.
at 590 (Thomas, J., concurring). “At the time the original Constitution was ratified,
‘commerce’ consisted of selling, 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)
2

Plaintiffs bring both a facial and as-applied challenge here. Docket No. 14 at 18–19. When a
plaintiff argues that a law violates his constitutional rights both facially and as-applied, “courts
generally decide the as-applied 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
policies as violating the First Amendment rights of plaintiff and other similarly-situated professors).
Conversely, when a litigant 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) (Scalia, 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 constitutionality
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 likely to succeed on that challenge,
as explained herein, the Court need not address Plaintiffs’ as-applied challenge. See Lopez, 514 U.S.
at 551 (addressing facial challenge only).

10

(“‘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 ENGLISH 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 “instrumentalities of interstate commerce, or

11

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) (Scalia, J., concurring) (noting that “unlike the channels,
instrumentalities, 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 instrumentalities 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 list includes, but is not limited to,
“highways, railroads, air routes, navigable rivers, fiber-optic cables and the like.”

12

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 Elliot, 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).
Instrumentalities 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. Ballinger, 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 instrumentalities 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
instrumentality 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 instrumentality 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–

13

59). If it were—if a private company were considered a channel or instrumentality 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 ‘instrumentality.’” Id. (citing Lopez, 514 U.S. at 558–59).
The Department’s argument to the contrary is unavailing. The Department
contends that the CTA combats “the misuse of the instrumentalities and channels of
commerce.” Docket No. 13 at 13. And because “[e]ntities constituting CTA reporting
companies utilize the channels of interstate commerce,” the CTA may regulate them.
Id. at 20. The Department cites American Power & Light 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 & Light 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 Public Utility Holding Act
of 1935, a statute “directed solely to public utility holding company systems that use
the channels of interstate commerce.” Am. Power & Light 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 applied only to
entities that used the channels of interstate commerce. Am. Power & Light Co., 329
U.S. at 97–98; N. Am. Co., 327 U.S. at 698 (noting that “Congress has effectively”
limited the statute’s reach “to those holding companies that are in fact in the stream
of interstate activity”).

14

The CTA, in contrast, includes no such limitation.

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 instrumentalities 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 failing to provide the requested information to FinCEN.
Id. § 5336(h)(3)(A).
“The Commerce Clause is not a general license to regulate an individual from
cradle to grave, simply because he will predictably engage in particular transactions.”
Sebelius, 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:

15

(1) the economic

nature of the regulated activity, (2) the presence of a jurisdictional element limiting
the statute’s application 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 link 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 light of our dual system of government”
and should not extend its reach to embrace activities that “would effectually
obliterate the distinction between what is national and what is local and create a
completely centralized government.” Lopez, 514 U.S. at 557; see also Sebelius, 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 police
power”).
1.

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.

16

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 line 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

17

regulates “filing 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.

Filing 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, filing 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-

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

18

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 Sebelius, 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
alive 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.” Sebelius, 567 U.S.
at 557.
Accordingly, this first consideration cuts against the CTA’s constitutionality as
a necessary and proper exercise of Congress’s commerce authority. See Morrison, 529
U.S. at 613.

brokers), (xx) (exempting entities that “operate[] exclusively to” assist nonprofits and political
organizations), (xxi) (exempting large businesses with a physical “operating presence” in the United
States).

19

2.

Jurisdictional element.

The CTA notably “has no express

jurisdictional element which might limit its reach to a discrete set of [activities] that
additionally have an explicit 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 constitutionality 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.
3.

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

20

findings alone are “not sufficient” to justify an unconstitutional act as compliant 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 “malign 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 tackling
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 malign 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

21

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 constitutionality. See Morrison, 529 U.S. at 614.
4.

Link between activity and commerce. Finally, Morrison instructs

courts to consider the link 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 link 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

22

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 Sebelius, 567 U.S. at 558)).
The Department’s position, moreover, lacks a limiting 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 obliterate 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 police power that would

23

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.
2. 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. Sebelius, 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 links to an enumerated power to be within the scope of federal authority,
the analysis depends not on the number of links 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).

24

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 ENGLISH LANGUAGE 422 (6th ed. 1785)); see also id. (noting that the Federalists

and Antifederalists alike “distinguished ‘commerce’ from manufacturing and
agriculture” (citing THE FEDERALIST 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 Williams 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,

25

33 F.4th at 843–44 (noting that, “absent binding precedent,” the “Constitution’s
original meaning is law” and declining 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 uncomplicated. The CTA does not regulate foreign trade or
commerce itself. Nor does it regulate the channels or instrumentalities 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 Line, 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
Line, “in that comparison the Founders surely did not have the current interstatecommerce 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 likely 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.

26

“Congress’s foreign affairs powers are not express in Article I . . . , other than
the clauses stating that Congress may ‘regulate commerce with foreign nations,’
‘Establish an uniform Rule of Naturalization,’ ‘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 political branches’ decisions on foreign policy. Oetjen v.
Cent. Leather Co., 246 U.S. 297, 302 (1918). Well-meaning “deference in matters of
policy cannot, however, become abdication in matters of law.” Sebelius, 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 illicit 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 limited by its enumerated powers in Article I. United States v. Curtiss-

27

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 Sebelius, 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 policy,” the Necessary and Proper Clause does
not give Congress unlimited 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 likely 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

28

extensive”). But the CTA likely 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 ability 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 Sebelius, 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 Sebelius, 567 U.S.
at 549 (“Legislative novelty is not necessarily fatal . . . . But sometimes the most
telling 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;

29

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
limitations” or else “congressional powers [can] become completely unbounded by
linking 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 Livingston (Apr.
30, 1800), reprinted in 31 THE PAPERS OF THOMAS JEFFERSON 547 (Oberg ed. 2004))).
Accordingly, the Court finds that the CTA is likely not a necessary and proper
exercise of Congress’s taxing power.
B. Risk of Irreparable Harm
Having established that Plaintiffs are likely to succeed on the merits, the Court
next determines whether they have shown a substantial risk of irreparable injury if
a preliminary 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.
Compelling 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
30

bell [of irreparable harm] has been rung.”). And, as noted above, Plaintiffs have
demonstrated that the CTA is likely unconstitutional.
Additionally, incurring unrecoverable costs of compliance with federal law
constitutes irreparable harm. Wages & White Lion 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 unlikely 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. Compliance 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 relief, 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 preliminary injunction and
stay here.
C. Balance of the Equities and the Public Interest
The third and fourth factors require the Court to weigh the harms and public
interest in granting or denying Plaintiffs’ preliminary injunction request. Because
these “factors merge when the Government is the opposing party,” the Court
considers them together. Nken, 556 U.S. at 435.

31

The injuries likely to occur absent a preliminary injunction and stay easily
outweigh any harm in granting Plaintiffs’ request. Without relief, “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 public has any
interest in enforcing a regulation that violates federal law.” (citation omitted)).
Nor would a preliminary injunction or stay disserve the public interest. Public
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 public 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
public interest ‘always is served when public officials act within the bounds of the law
and respect the rights of the citizens they serve.’” (citation omitted)).
In short, “the government/public-interest analysis collapses with the merits”
analysis because the Court has concluded that the CTA is likely 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 “public

32

interest arguments” are “derivative of . . . merits arguments and depend in large part
on the vitality of the latter”). It follows that the Department and the public 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 preliminary
injunction and stay here.
III.
For the reasons stated above, the Court finds that Plaintiffs’ motion for
preliminary relief should be granted: they have demonstrated that the CTA and its
implementing rule are likely unconstitutional, that they face a substantial risk of
irreparable harm absent an injunction, and that the balance of equities and public
interest support preliminary relief. Therefore, Plaintiffs’ motion is GRANTED.
The Supreme Court has instructed that “injunctive relief should be no more
burdensome to the defendant than necessary to provide complete relief to the
plaintiffs.” Madsen v. Women’s Health Ctr., Inc., 512 U.S. 753, 765 (1994) (quoting
Califano 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 preliminarily enjoin the Department from enforcing the CTA against them. Docket
No. 14 at 20. Given that the CTA is likely unconstitutional, granting Plaintiffs’
request would “be no more burdensome to the defendant than necessary to provide
complete relief to the plaintiffs.”

Califano, 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.
33

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 preliminary or ultimate
relief under the APA needs to be limited’ 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 preliminary relief under Section 705 aligns with the scope of
ultimate relief 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 application 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).

34

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

___________________________________
JEREMY D. KERNODLE
UNITED STATES DISTRICT JUDGE

35