The federal Corporate Transparency Act (CTA) applies to most community associations and has certain federal filing requirements that start as to existing HOAs and condos on January 1, 2025. For more details, see our prior blog posts (What Is the “Corporate Transparency Act” and Why It Matters to Your Association and Directors, Update on The Corporate Transparency Act: Tips for Managers and Board Members, Be Aware of Corporate Transparency Act (CTA) Scams!) or these videos by my law partner Steve Black: Manager’s Update on Corporate Transparency Act or Board of Directors Update on the Corporate Transparency Act.
However, yesterday, December 3, Judge Amos L. Mazzant III of the U.S. District Court for the Eastern District of Texas issued a preliminary nationwide injunction against the CTA after a lawsuit filed by Texas Top Cop Shop Inc., other businesses, and the Libertarian Party of Mississippi. The case is Texas Top Cop Shop, Inc. v. Garland, E.D. Tex., No. 4:24-cv-00478. Plaintiffs in the case argued that the CTA exceeds Congress’s authority under the Commerce Clause, as it mandates disclosure of beneficial ownership for all corporate entities, regardless of commercial activity. The Court agreed with those challenging the CTA and ruled that compelling disclosures for law enforcement purposes violates constitutional limits. Judge Mazzant also noted that regulating corporate operations does not grant Congress sweeping authority over all aspects of business activity.
As to its scope, the decision reads:
The Court determines that the injunction should apply nationwide. Both the CTA and the Reporting Rule apply nationwide, to “approximately 32.6 million existing reporting companies.” NFIB’s membership extends across the country. And, as the Government states, the Court cannot provide Plaintiffs with meaningful relief without, in effect, enjoining the CTA and Reporting Rule nationwide. The extent of the constitutional violation Plaintiffs have shown is best served through a nationwide injunction. Given the extent of the violation, the injunction should apply nationwide. [citations removed]
Judge Mazzant’s injunction applies nationwide, halting enforcement of the beneficial ownership reporting requirements across the entire United States. This nationwide scope means that all entities subject to the CTA are affected by this ruling, not just those within the Eastern District of Texas. The injunction will remain in effect unless overturned by a higher court or modified in a subsequent proceeding.
The case will certainly be appealed and further action is likely. However, if you wish to read about the ruling, it can be found on multiple news sites, including Bloomberg. The full case can be read at Texas Top Cop Shop, Inc. v. Garland.
FYI, the Community Associations Institute has since provided this view of the decision: Corporate Transparency Act Blocked Nationwide by Texas Federal Judge.
What Does This Mean for My Community?
We do not yet know whether the injunction will be upheld or if an appellate court will determine that the injunction is not applicable nationwide or is premature.
If you have already filed, congratulations! You have ensured compliance with the law while it was in effect. If you have not yet filed, the most cautious approach is to proceed with filing under the CTA until a final judgment or further developments occur in this case or other related challenges to the CTA.
For those choosing not to file based on the injunction, it is important to understand the potential risks. The injunction could be lifted, and the current compliance deadline of December 31 could be reinstated. Staying informed and proactive is key as this situation evolves. As this or similar cases develop, we’ll update the information on our blogs.