- posted: May 02, 2024
Appeal Filed by NATIONAL SMALL BUSINESS UNITED, ET AL v. U.S.
DEPARTMENT OF THE TREASURY, ET AL, 11th Cir., March 11, 2024
2024 WL 899372
Only the Westlaw citation is currently available.
United States District Court, N.D.
Alabama, Northeastern Division.
NATIONAL SMALL BUSINESS
UNITED, d/b/a the National Small
Business Association, et al., Plaintiffs,
v.
Janet YELLEN, in her official capacity as
Secretary of the Treasury, et al., Defendants.
Case No. 5:22-cv-1448-LCB
Signed March 1, 2024
Attorneys and Law Firms
John C. Neiman, Jr., Maynard Nexsen, PC, Birmingham, AL, Kenyen Brown, Pro Hac Vice, Hughes Hubbard & Reed LLP, Washington, DC, Terence Healy, Pro Hac Vice, Thomas Lee, Pro Hac Vice, Hughes Hubbard & Reed LLP, New York, NY, for Plaintiffs. Stuart J. Robinson, U.S. Department of Justice, Civil Division, Federal Programs Branch, San Francisco, CA, Taylor Pitz, Department of Justice, Washington, DC, for Defendants. James F. Barger, Jr., Frohsin & Barger LLC Frohsin Barger & Walthall, St. Simons Island, GA, Kristen Paige Miller, Pro Hac Vice, Will Bardwell, Pro Hac Vice, Democracy Forward Foundation, Washington, DC, J. Elliott Walthall, Frohsin, Barger & Walthall, Brevard, NC, for Amici FACT Coalition,
Transparency International U.S., Main Street Alliance.
MEMORANDUM OPINION
LILES C. BURKE, UNITED STATES DISTRICT JUDGE
The late Justice Antonin Scalia once remarked that federal judges should have a rubber stamp that says Stupid But Constitutional. See Jennifer Senior, In Conversation: Antonin Scalia, New York Magazine, Oct. 4, 2013. The Constitution, in other words, does not allow judges to strike down a law merely because it is burdensome, foolish, or offensive. Yet the inverse is also true—the wisdom of a policy is no guarantee of its constitutionality. Indeed, even in the pursuit of sensible and praiseworthy ends, Congress sometimes enacts smart laws that violate the Constitution. This case, which concerns the constitutionality of the Corporate Transparency Act, illustrates that principle.
When Congress passed the 2021 National Defense Authorization Act, it included a bill called the Corporate Transparency Act (“CTA”). Although the CTA made up just over 21 pages of the NDAA's nearly 1,500-page total, the law packs a significant regulatory punch, requiring most entities incorporated under State law to disclose personal stakeholder information to the Treasury Department's criminal enforcement arm.
By requiring these disclosures, Congress aimed to prevent financial crimes like money laundering and tax evasion, which are often committed through shell corporations. Broadly defined, a shell corporation is a legal entity with no (or minimal) employees, customers, business, or assets. Although shell corporations serve many legitimate purposes, it's also possible to disguise the identity of interested individuals and the flow of money by layering shell companies on top of each other, “such that each time an investigator obtains ownership records for a domestic or foreign entity, the newly identified entity is yet another corporate entity, necessitating a repeat of the same process[.]” Pub. L. 116-283 § 6402(4).
Yet corporate formation includes far more than for-profit enterprise. Each year, the States grant formal status to millions of entities that can and do serve “any lawful purpose,” including benefit corporations, non-profits, holding companies, political organizations, and everything in between.
With that in mind, this case presents a deceptively simple question: Does the Constitution give Congress the power to regulate those millions of entities and their stakeholders the moment they obtain a formal corporate status from a State? The Government thinks so. While it acknowledges that Congress “can exercise only the powers granted to it,” the
Government says that the CTA is within Congress’ broad powers to regulate commerce, oversee foreign affairs and national security, and impose taxes and related regulations.
The Government's arguments are not supported by precedent. Because the CTA exceeds the Constitution's limits on the legislative branch and lacks a sufficient nexus to any enumerated power to be a necessary or proper means of achieving Congress’ policy goals, the Plaintiffs are entitled to judgment as a matter of law. As a result, the Court GRANTS
the Plaintiffs’ motion for summary judgment and DENIES the Government's motion to dismiss and alternative cross-motion for summary judgment.
