EDITOR’S NOTE: URGENT BREAKING NEWS

BY: DANIEL C. HEATON, ESQ. OF NORDBERG | DENICHILO, LLP

After completion of final editing for the present Issue and right before intended publication, we received breaking news regarding a critical development impacting the need for compliance with the beneficial ownership reporting requirements of the Corporate Transparency Act (CTA), which is the subject of the article to follow.

On December 3, 2024, the U.S. District Court for the Eastern District of Texas issued a nationwide preliminary injunction in the case of Texas Top Cop Shop, Inc. v. Garland (E.D. Tex., No. 4:24-cv-00478, 12/3/24). Judge Amos L. Mazzant found that “[t]he CTA is likely unconstitutional as outside of Congress’s power…. Neither [the CTA or the reporting requirements] may be enforced, and reporting companies need not comply with the CTA’s January 1, 2025, BOI reporting deadline pending further order of the Court.”

The Court’s full Opinion and Order can be found here: cta-v-garland-district-court-opinion-preliminary-injunction.pdf

The scope of Judge Mazzant’s injunctive order is much broader than the ruling that was issued earlier in the year by the Alabama District Court in the National Small Business United v. Yellen case (N.D. Ala., No. 5:22-cv-01448, 3/1/24). That ruling only provided relief to the plaintiffs in that case. By contrast, Judge Mazzant determined that a nationwide injunction and stay of the compliance deadline was appropriate, which means that it also applies to all community associations in California

This was confirmed by the U.S. Department of Treasury’s FinCEN in a post on its Beneficial Ownership Information (BOI) website: “In light of a recent federal court order, reporting companies are not currently required to file beneficial ownership information with FinCEN and are not subject to liability if they fail to do so while the order remains in force. However, reporting companies may continue to voluntarily submit beneficial ownership information reports.”

On December 5, 2024, the Department of Justice filed a formal notice of appeal to the Fifth Circuit, challenging the preliminary injunction and seeking a stay of its application. This means that although FinCEN is currently unable to enforce the CTA or impose any penalties for non-compliance while the injunction remains in effect, the Fifth Circuit could potentially revise the scope of the injunction or stay it entirely while the appeal is pending, thereby permitting FinCEN to resume enforcement.

With the status of the CTA seemingly changing from day to day, and the original January 1, 2025 compliance deadline now only a few weeks away, everyone should keep a close eye on how this case progresses so that they can be fully aware of the state of their obligations regarding the CTA.

Daniel C. Heaton, Esq. is a Senior Associates at Nordberg | DeNichilo, LLP, representing community associations throughout California as corporate and litigation counsel. Daniel is a member of the Chapter’s Legislative Support Committee. He can be reached at daniel@ndhoalaw.com.