CTA Update: Fifth Circuit to Hear Federal Government’s Appeal

In a prior Client Alert, we informed you that the U.S. District Court for the Eastern District of Texas issued an order granting a nationwide preliminary injunction blocking enforcement of the Corporate Transparency Act (CTA). That order, entered in the case captioned Texas Top Cop Shop, Inc., et al. v. Garland, et al., remains in full force and effect. Entities that are subject to the CTA (i.e., reporting companies) are not currently required to file BOI Reports.

We emphasize “currently” because a preliminary injunction, by its nature, is not permanent. Moreover, it is not immune from appeal. As noted in our prior Client Alert, we fully expected the district court’s preliminary injunction to be appealed to a higher court.  That happened earlier this week.

On December 13, 2024, the federal government filed an “Emergency Motion for Stay Pending Appeal” with the U.S. Court of Appeals for the Fifth Circuit. In its motion, the government asked the Fifth Circuit to stay (i.e., pause) the district court’s preliminary injunction while the broader case is decided. In the alternative, the government proposed that the district court’s injunction be limited to the plaintiffs in that particular case. Both requests seek to invalidate the protections currently afforded to the vast majority of reporting companies.

Notably, the government asked the Fifth Circuit to decide the appeal on an emergency basis “to ensure that regulated entities can be made aware of their obligations to comply before January 1, 2025” – the day on which BOI Reports were originally scheduled to be due. This reveals the government’s desire to stick to the January 1, 2025 deadline set forth in the CTA.

In response, the Fifth Circuit ordered the parties to submit all briefs on the government’s Emergency Motion by Thursday, December 19, 2024. The Court’s expedited timeline indicates that the judges assigned to the case would like to resolve this appeal as quickly as possible – almost certainly before the end of the year.

The Fifth Circuit has given no indication of how it intends to rule, so the outcome of the government’s appeal remains to be seen. That said, we should have an answer in the coming days.  If the Emergency Motion is denied, the district court’s preliminary injunction will remain in full force and effect. If, on the other hand, the Emergency Motion is granted in whole or in part, any number of things could happen, including reinstatement of the CTA’s January 1, 2025 deadline.  We simply will not know until the Fifth Circuit renders its much-anticipated decision.

As promised, we will continue to monitor this case and provide updates as they become available. Please do not hesitate to contact our office with any questions.

This article was written by Kevin McGrath, a partner in HRMM&L’s Business Law Department. You can reach Kevin at 215.661.0400 or email him at KMcGrath@HRMML.com.