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Federal District Court Rules CTA Unconstitutional

National Small Bus. United v. Yellen, No. 5:22-cv-1448-LCB (N.D. Ala. Mar. 1, 2024)

On Friday, March 1, 2024, in National Small Bus. United v. Yellen, Judge Liles C. Burke of the United States District Court for the Northern District of Alabama ruled via memorandum opinion that the Corporate Transparency Act (CTA), enacted in 2021, is unconstitutional because Congress lacks the authority to require companies to disclose personal stakeholder information to the Financial Crimes Enforcement Network (FinCEN), the criminal enforcement arm of the US Department of the Treasury. The National Small Business Association (NSBA), an Ohio nonprofit organization representing more than 65,000 businesses from all 50 states, and Issac Winkles, an NSBA member and owner of two small businesses, brought suit against the US Department of the Treasury and Treasury Secretary Janet Yellen, alleging that the mandatory disclosure requirements imposed by the CTA exceeded Congress’s authority under Article I of the US Constitution and violated the First, Fourth, Fifth, Ninth, and Tenth Amendments. 

The court determined that the plaintiffs were entitled to summary judgment as a matter of law because the CTA could not be justified as an exercise of Congress’s enumerated powers, rejecting the argument that Congress had the power to enact the CTA under its foreign affairs powers, Commerce Clause authority, or as a necessary and proper exercise of its taxing power. It declined to address whether the CTA violates the First, Fourth, and Fifth Amendments. The court granted the plaintiffs’ motion for summary judgment and request for relief and entered a final declaratory judgment that the CTA is unconstitutional because it exceeds the limits imposed by the US Constitution on Congress’s power, permanently enjoining the defendants and any other agency or employee acting on behalf of the United States from enforcing the CTA against the plaintiffs. 

Takeaway: At this time, the CTA cannot be enforced against the particular plaintiffs in this particular case, but the decision (which will likely be appealed) could ultimately have far-reaching consequences. Business owners should monitor the changing regulatory landscape as this case—and any others—travel through the appellate courts.