FinCEN Seeks Immediate Stay of Nationwide CTA Injunction

Key Takeaways

• On Dec. 3, 2024, a federal district court in Texas issued a preliminary injunction that applied nationwide, temporarily halting the implementation of the Corporate Transparency Act (CTA).
• On Dec. 11, 2024, the U.S. government filed a motion requesting an immediate stay of that preliminary injunction, indicating it would promptly seek relief from the Fifth Circuit.
• The Financial Crimes Enforcement Network (FinCEN) previously confirmed that reporting companies had no obligation to comply with the CTA "for as long as [the injunction] remains in effect." Therefore, if the stay is granted, the Jan. 1, 2025 deadline would technically be back on, unless it is extended by the appellate court order or FinCEN. However, agencies usually provide a grace period in such situations.

On Dec. 11, 2024, the U.S. government filed a motion requesting an immediate stay of the preliminary nationwide injunction issued last week by a federal district court in Texas that temporarily halted the implementation of the CTA.

The government argued it will be "irreparably harmed" absent an immediate stay because, among other reasons, (i) the injunction disrupts compliance at "a critical juncture in implementation" where the number of filings was increasing exponentially as the year-end initial filing deadline neared, and (ii) the injunction "created-and will continue to engender-widespread confusion among the public."

The move comes as a bit of a surprise given the timing. A party seeking this relief would typically try to file its motion as soon as possible after the district court's ruling (i.e., on the same day or within just a few days after). Here, the government waited eight days to file its request. In its statement on the ruling, published on Dec. 6, 2024, FinCEN confirmed the government's appeal but gave no indication that it would be seeking an immediate stay of the decision. Given the widespread reporting of the nationwide injunction over the past week, an immediate stay at this stage would seem to risk only compounding the current public confusion.

The motion also stated that the government would seek relief from the Fifth Circuit if the district court did not issue a ruling within one or two days after its motion.

On Dec. 12, 2024, the district court issued an order declining to rule on the government's motion within that requested timeline. The court reasoned that it must give the plaintiffs a reasonable opportunity to respond to the motion and ordered the plaintiffs to submit their response by noon CT on Monday, Dec. 16, 2024. In addition, the court noted that the government's motion appeared to seek emergency relief but that it failed to meet several of the procedural requirements of an "emergency motion."

Next Steps

1. The district court will likely deny the government's motion to stay the injunction early next week, perhaps by late Monday or Tuesday.
   • As mentioned above, the plaintiffs' response is due on Monday, Dec. 16, 2024.
   • After that, the district court may make a quick decision. In its order today, the court acknowledged that it understands the time constraints relating to this case.
   • The district court is unlikely to grant the stay. The government's arguments in favor of the stay are the same ones this court already rejected in granting the preliminary injunction.
2. The government indicated that it intends to file a similar motion with the Fifth Circuit today (Dec. 13, 2024).
   • As mentioned above, in its motion, the government stated it would seek relief directly from the Fifth Circuit by Dec. 13, 2024, if the district court did not grant a stay by then.
   • The government will presumably seek expedited briefing on its motion.
3. Once a motion is in front of the Fifth Circuit, there is no clear timetable for a decision.
   • In its district court motion, the government noted that it is seeking relief quickly "in order to allow the motion to be fully briefed in time for the Fifth Circuit to resolve it," suggesting that it will seek a ruling by the Fifth Circuit in advance of the January 1 deadline.
4. If the stay is granted, the Jan. 1 deadline would technically be back on, unless it is extended by the appellate court order or FinCEN. However, agencies usually provide a grace period in such situations.
   • Most likely, the court would leave any grace period up to FinCEN rather than mandate it through an order.
   • In similar situations, agencies have almost always provided for some kind of grace period to avoid confusion and to allow for the orderly implementation of the law.
   • However, FinCEN has yet to give any indication - either in its motion to stay the injunction or in its public statement on the ruling - of any plan to delay the compliance deadline (or at least to issue guidance confirming that it would exercise discretion to not seek enforcement against any "late" filings made through a certain date after the original deadline).
5. If the Fifth Circuit denies the stay, the government would either continue with the original appeal or seek relief from the Supreme Court.

Recommendations

The government seeking an immediate stay of the request without providing any assurance that the deadline would be equitably tolled creates at least some risk that the injunction could be lifted with little to no grace period. Accordingly, we would generally recommend that reporting companies at least be prepared to file quickly in the event that happens. Reporting companies may also voluntarily file at any time if that is their preference.

We will continue to provide updates regarding any further developments as they arise.