On June 27, 2024, a complaint was filed in the federal district court for the District of Oregon challenging the constitutionality of the Corporate Transparency Act (CTA), both facially and as applied.
The plaintiffs (seven small business owners) contend that the CTA (1) exceeds Congress’ authority under Article I of the United States Constitution, (2) compels speech and interferes with associational rights in violation of the First Amendment, (3) constitutes an unlawful search and seizure in violation of the Fourth Amendment, (4) violates the Fifth Amendment’s privilege against coerced self-incrimination because it requires individuals to report activity that is illegal under federal law but permitted by Oregon law, (5) is unconstitutionally vague in violation of the Due Process Clause of the Fifth Amendment, (6) imposes excessive fines and cruel and unusual punishment in violation of the Eighth Amendment, (7) infringes upon privacy rights protected by the Ninth Amendment, and (8) interferes with the rights of States in violation of the Tenth Amendment.
10 reasons why the motion was denied
The plaintiffs moved for a preliminary injunction. On September 20, 2024 the court in Firestone v. Yellen, Docket No. 3:24-cv-01034 (D. Ore.), denied the motion, finding that the plaintiffs failed to show: (1) a likelihood of success on the merits; (2) a likelihood of irreparable injury; and (3) that the balance of hardships tips sharply in their favor.
Below are some highlights from the court’s decision in denying the motion for a preliminary injunction:
1. Regarding the plaintiffs’ claim that the CTA exceeds Congress’ authority under Article I of the United States Constitution:
- Plaintiffs failed to show a likelihood of success on the merits on this claim. The CTA is authorized by the Commerce Clause, which gives Congress authority to effectuate prohibitions on financial crimes, regulate enterprises subject to its power under the Commerce Clause, and has broad authority to regulate interstate commerce and foreign commerce. The court stated that the CTA is directed at commercial entities that have a substantial effect on interstate and foreign commerce and also noted that money laundering is a quintessential economic activity.
- The CTA is also authorized by the Necessary and Proper Clause, as Congress had a rational basis for concluding the reporting requirements of the CTA were necessary and proper to effectuate Congress’ powers under the Commerce Clause and its powers over national security and foreign affairs and to lay and collect taxes.
2. Regarding the plaintiffs’ claim the CTA compels speech and interferes with associational rights in violation of the First Amendment:
- Plaintiffs failed to show a likelihood of success on the merits on this claim. The CTA does not require plaintiffs to publicly convey any particular message, thus, the compelled speech doctrine is not implicated. And even if it were implicated, plaintiffs’ challenge still would likely fail because Congress has determined that the reporting of the information required under the CTA is essential to the maintenance of effective government and orderly society, and courts must afford Congress’ evaluation substantial deference.
- Plaintiffs offered no evidence that someone would hesitate to become an owner of a company because the fact of their ownership would become known to the federal government or because the government may later use that information for a limited set of legitimate purposes. Plaintiffs’ speculative and conclusory assertions that reporting beneficial ownership or control information will deter persons from exercising their rights of free speech and association and dissuade others from joining or assuming leadership positions are insufficient.
3. Regarding the plaintiffs’ claim the CTA constitutes an unlawful search and seizure in violation of the Fourth Amendment:
- Plaintiffs failed to show a likelihood of success on the merits on this claim. The CTA falls within the category of reasonable reporting requirements that courts have long understood as constitutional. The CTA directs the disclosure of information that Congress explicitly identified as highly useful to combatting serious crimes. The CTA serves government interests of the highest order. In addition, the CTA does not disturb any interest the Fourth Amendment protects. Further, any asserted privacy interests are sufficiently protected by the statutory safeguards provided in the CTA.
4. Regarding the plaintiffs’ claim the CTA violates the Fifth Amendment’s privilege against coerced self-incrimination because it requires individuals to report activity that is illegal under federal law but permitted by Oregon law:
- Plaintiffs failed to show a likelihood of success on the merits on this claim. The Fifth Amendment privilege is only properly invoked in the face of a real and appreciable danger of self-incrimination. But the Plaintiffs do not identify a legal proceeding that poses an actual risk of self-incrimination nor do they show injury sufficient to confer standing.
- Plaintiffs do not have standing to obtain relief on behalf of any non-party, hypothetical individual and cannot properly assert anecdotal concerns about other persons who might not comply with the CTA.
5. Regarding the plaintiffs’ claim the CTA is unconstitutionally vague in violation of the Due Process Clause of the Fifth Amendment:
- Plaintiffs failed to show a likelihood of success on the merits on this claim. The Plaintiffs failed to show that a reasonable person would not know what is prohibited by the CTA. In addition, Plaintiffs allege that they are subject to the CTA’s reporting requirements, and that the CTA violates their rights. These allegations are inconsistent with the Plaintiffs’ argument that the CTA is so vague they don’t understand what’s prohibited.
6. Regarding the plaintiffs’ claim the CTA imposes excessive fines and cruel and unusual punishment in violation of the Eighth Amendment:
- Plaintiffs failed to show a likelihood of success on the merits on this claim. As a threshold matter, Plaintiffs’ claims are unripe and unsuitable for facial challenge because none of the Plaintiffs have been fined or prosecuted for violating the CTA, nor have Plaintiffs established a credible threat of such action sufficient to warrant a preliminary injunction. Regardless, the CTA’s penalties are not excessive because they are not “grossly disproportional” to the gravity of the violation.
7. Regarding the plaintiffs’ claim the CTA infringes upon privacy rights protected by the Ninth Amendment:
- Plaintiffs failed to show a likelihood of success on the merits on this claim. The Ninth Amendment does not confer substantive rights beyond those conferred by the governing law.
8. Regarding the plaintiffs’ claim the CTA interferes with the rights of States in violation of the Tenth Amendment:
- Plaintiffs failed to show a likelihood of success on the merits on this claim. If Congress acts under one of its enumerated powers, there can be no violation of the Tenth Amendment.
9. To meet their burden for a preliminary injunction, Plaintiffs also had to demonstrate that irreparable injury is likely in the absence of an injunction. Plaintiffs, however, offered no evidence, only speculation, which is insufficient.
10. To support a motion for preliminary injunction, a plaintiff must also establish that the balance of equities tips in its favor, and that an injunction is in the public interest. Plaintiffs provided no evidence describing any hardships that they likely will suffer if the Court denies their motion for preliminary injunction. Further, if the Court were to enjoin enforcement of the CTA it would interfere with Congress’ judgment, supported by extensive factual findings, about how best to combat money laundering, the financing of terrorism, tax fraud, and other serious crimes that affect the national economy or national security. These considerations all weigh against granting a preliminary injunction.
The outcome here means the plaintiffs in the case are still required to comply with the CTA pending the full litigation of their claims.
The Oregon lawsuit is one of eight lawsuits currently pending in federal district courts challenging the Corporate Transparency Act. In addition, in March, a federal district court in Alabama found the CTA unconstitutional, enjoining enforcement as to the plaintiffs in the case. That decision is currently being appealed to the U.S. Court of Appeals for the 11th Circuit.
