We left off with the controversy swirling around FINCEN’s Beneficial Ownership Information (BOI) reporting requirements in my article, Unusual Fifth Circuit Self-Reversal Sows Confusion For BOI Reporting (Dec. 29, 2024). We now rejoin that controversy still in progress, but now before the U.S. Supreme Court. In the last two weeks, the following critical documents have been filed, being the U.S. Application For Stay (Dec. 31, 2024), the Plaintiff’s Opposition To Stay (Jan. 10, 2025) and finally the U.S. Reply Re Stay (Jan. 13, 2025). Additionally, about a dozen amicus curiae (“friend of the court”) briefs have also been filed by a number of diverse groups, which briefs are all available from the link here.
To understand what the Supreme Court might do, we must first consider what exactly is before that court.
FINCEN, as an agency within the Treasury Department, was required to implement the BOI reporting requirements by the Corporate Transparency Act which was enacted by Congress. Here is the first important point: Acts of Congress are presumed to be constitutional by the federal courts. In this sense, the presumption means that an Act of Congress should be treated as if it were constitutional until some court makes a specific and final determination that Congress somehow exceeded its constitutional authority.
The second important point is that a federal court should generally refrain from generally enjoining (stopping) on a nationwide basis the enforcement of an Act of Congress until the court has determined with finality that Congress did in fact exceed its constitutional authority. When a federal court has entered such an order that stops the enforcement of an Act of Congress throughout the United States, but before the courts have ruled with finally that Congress has exceeded its constitutional authority, this is known as a nationwide preliminary injunction. These forms of injunction have been highly disfavored by the U.S. Supreme Court, which in fact has warned the lower federal courts about entering such injunctions.
There are many reasons for the foregoing court policies. Among these is that Acts of Congress should not be interfered with by the courts until the issues have been fully and finally determined by the courts, all the way through appeals. Another is that ― exactly as happened here ― folks who don’t like a new statute should not be allowed to gum up the enforcement of the new statute at the last second.
What has happened here is that the U.S. District Court has run against the grain of what federal courts are supposed to do in several important ways:
(1) The District Court did not respect the presumption that Acts of Congress are constitutional until proven otherwise;
(2) The District Court made no more than an initial determination that the CTA was unconstitutional, which was thus without the deeper consideration of the constitutional issues involved; and
(3) The District Court entered a nationwide preliminary injunction in the exact sort of case where the U.S. Supreme Court has previously said that such injunctions should not be entered.
On top of these factors is that the primary challenge to the CTA is on Commerce Clause grounds. Under section 8 of Article 1 of the U.S. Constitution empowers Congress to, among other things, regulate commerce with and among the states. In enacting the CTA, Congress sought to address concerns relating to the use of certain entities (those required to report under the FINCEN BOI reporting rules) to commit money laundering, financial fraud, terrorism financing, drug trafficking, etc., and which are things which have traditionally held to occur within interstate commerce. The U.S. Supreme Court has traditionally interpreted the powers of Congress under the Commerce Clause very broadly. The upshot here is that at the end of the day, the CTA is likely to be held to be a valid exercise of Congress’ powers under the Commerce Clause, barring an extremely dramatic change in direction by the U.S. Supreme Court.
As mentioned in my previous article, the nationwide preliminary injunction was appealed to the U.S. Fifth Circuit Court of Appeals. The Fifth Circuit’s motions panel (a small group of appellate judges who hear motions before the cases are assigned to a panel for decision) took a look at these factors and reversed the decision of the District Court. However, once the case had been assigned to the panel of appellate judges who would hear the merits of the appeal (known as the merits panel or sometimes decision panel), that new panel decided to leave the nationwide preliminary injunction in place. The U.S. appealed this last decision on an emergency basis to the U.S. Supreme Court and now presumably it will render some decision shortly.
It is also noteworthy that in addition to the one U.S. District Court that entered the preliminary injunction, three other U.S. District Courts have denied issuing the very same injunction (two on the grounds that the CTA is likely constitutional and one on lack of irreparable harm required for an injunction). One other court entered an injunction against the CTA, but did so only as to the specific plaintiffs in that case and not nationwide generally.
What might the U.S. Supreme Court do? Discarding some of the wilder possibilities, here is what is most likely and why:
Grant the Application and dissolve the nationwide preliminary injunction. This is the most likely outcome and I give it a 50% chance. Of all the U.S. courts, the U.S. Supreme Court is the one whose decisions have the most effect since its decisions are nationwide and final. Because of this, the U.S. Supreme Court wields its judicial powers very sparingly, to the point where it tries not to make any decision at all if it can help it. When the Supreme Court does make a decision, it is rarely sweeping (there are exceptions to this of course) but instead its decisions are generally as narrow as possible in the hope that there will not be some great upheaval. Because of this, the Supreme Court prefers to not make decisions about anything until the lower courts and, more importantly, the circuit courts have fully fleshed out the issues and rationales to be examined. Thus, by dissolving the nationwide preliminary injunction, the Supreme Court would simply restore things to how they would have been prior to that injunction being entered in the first place. Note that there would still be constitutional challenges to the CTA, but these challenges would be heard after BOI reporting had already been made for 2024 (and most new companies for 2025).
In the event that this happens, I presume without knowing that FINCEN will make an announcement and extend the 2024 BOI reporting period for something like 30 days from the date of the Supreme Court’s ruling. Since this is the most likely outcome, everybody who is required to make a BOI reporting should be prepared to do so rather quickly should the Supreme Court dissolve the nationwide injunction.
Deny the Application and uphold the nationwide preliminary injunction. This is less likely than the injunction being dissolved, but perhaps not as much as one might guess. I give it a 40% chance. The rationale for the Supreme Court here would be something like that the nationwide preliminary injunction has, for better or worse, set the new status quo which is that BOI reporting is not required and the Supreme Court would not upset that applecart pending the various litigation in several courts about the constitutionality of the CTA making its way up to the Supreme Court in the typical way.
A factor that might be considered here is that the goals of the CTA to be met through the BOI reporting are not exactly imminent. The CTA itself was considered in some form or another for years before it was finally enacted by Congress, and then it took a couple of years for FINCEN to create the implementation process. Under this view, what is another year of FINCEN waiting for this information?
The reason that the upholding of the nationwide preliminary injunction is less likely than it being dissolved goes to the underlying basis of the CTA, being the Commerce Clause. Essentially, a majority of justices on the Supreme Court would have to decide that the CTA exceeded Congress’s powers under the Commerce Clause for the upholding of the nationwide preliminary injunction to materialize. That would represent a significant sea change in how the Supreme Court has traditionally viewed the Commerce Clause, and such sea changes are inherently unlikely to occur (but they do sometimes occur as with 2022 with the Dobbs decision relating to abortion rights). Another factor is that, even if a majority of justices determined that Congress’ powers under the Commerce Clause were too broad, whether this would be the appropriate case for the Supreme Court to scale back those powers. If the Supreme Court does uphold the nationwide preliminary injunction, then the tea leaves will read that the Supreme Court is indeed preparing to scale back Congress’ Commerce Clause powers.
Rule on the constitutionality of the CTA as to the Commerce Clause on the merits. This is unlikely for the aforementioned reason that the Supreme Court greatly prefers that cases percolate their way up through the U.S. circuit courts before they land on the Supreme Court’s doorstep. It is, however, still possible if a majority of justices determine that the CTA does or does not exceed Congress’ Commerce Clause powers and want to put an end to the litigation. That the Supreme Court resolves the case on the merits at this time is probably 10% (or less).
There are numerous other possible outcomes, such as that the Supreme Court could dissolve the nationwide preliminary injunction but leave it in place for the parties to that case, but these are these other outcomes are either ancillary to these main possibilities or they are such low-odds as to not merit discussion.
Considering the nature of this emergency application, it is likely that the Supreme Court will issue some ruling pretty quickly so such speculation that we make should not have to last long.