Tag: preliminary injunction

Federal District Court Issues Nationwide Preliminary Injunction Barring Enforcement of Corporate Transparency Act

In Texas Top Cop Shop, Inc., et al. v. Garland, et al., a federal district court judge issued a nationwide preliminary injunction barring enforcement of the Corporate Transparency Act (“CTA”), finding that the CTA likely exceeds Congress’s powers. Therefore, at present, a reporting company is not obligated to comply with the CTA and the government is enjoined from enforcing the CTA’s reporting requirements. As expected, on December 5, 2024, the government entered a notice of appeal of the preliminary injunction and may still seek a stay of the preliminary injunction pending the appeal. If a stay is granted by the Court of Appeals, the reporting obligations would once again be in effect. The Court of Appeals could also decide to keep the preliminary injunction in place while an appeal is pending.

At this time, companies are not required to file Beneficial Ownership Information (“BOI”) reports, although they are free to do so should they choose. Indeed, the Financial Crimes Enforcement Network (“FinCEN”) issued guidance after the entry of the notice of appeal, stating as much: “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.” (available at https://www.fincen.gov/boi.)

At present, it is unknown how long companies would be given to file if the preliminary injunction is stayed, modified or the law is ultimately upheld. However, FinCEN’s statement suggests that a reasonable extension of time for filing can be expected, though that is not a certainty. Of course, if the CTA is ultimately struck down, no filing would be required.

© 2024 Blank Rome LLP
For more on the CTA, visit the NLR Corporate Business Organizations section

BREAKING: Federal Court Enjoins Government from Enforcing Corporate Transparency Act

On December 3, 2024, the U.S. District Court for the Eastern District of Texas granted a nationwide preliminary injunction that enjoins the federal government from enforcing the Corporate Transparency Act (the CTA).

The CTA, which went into effect January 1, 2024, requires “reporting companies” in the United States to disclose information about their beneficial owners — the individuals who ultimately own or control a company — to the Treasury Department’s Financial Crimes Enforcement Network (FinCEN).

A group of six plaintiffs filed a lawsuit in May 2024 claiming that Congress exceeded its authority under the Constitution in passing the CTA. In a 79-page order issued by United States District Judge Amos L. Mazzant, the Court found that the plaintiffs were likely to succeed on the merits of their claims and, although the plaintiffs sought a preliminary injunction on behalf of only themselves and their members, the Court issued a nationwide injunction instead.

The Court’s order states that neither the CTA nor the implementing rules adopted by FinCEN may be enforced and that reporting companies need not comply with the CTA’s upcoming January 1, 2025 deadline for filing beneficial ownership reports.

The Court’s order is a preliminary injunction only and not a final decision. The Court’s order temporarily pauses enforcement of the CTA on a nationwide basis, but enforcement could resume if the Court’s order is overturned on appeal or the Government ultimately prevails on the merits.

© 2024 Foley & Lardner LLP
For more on the CTA, visit the NLR Corporate Business Organizations section

Down to the Wire for Employers and FTC Noncompete Ban

Compliance Deadline Approaches

Employers are running out of time to comply with the FTC’s purported regulatory ban on non-competition agreements. The ban – announced on April 23, 2024 – is scheduled to take effect on September 4. 2024.

By that date, the regulation requires that employers notify all employees subject to noncompetes that the agreements will no longer be enforced. The only exceptions are existing agreements with “senior executives” who made at least $151,164 in the preceding year; these agreements are grandfathered. See our earlier alerts from April 23, May 14, and July 8 for further discussion on developments relating to the ban.

So Far, No Nationwide Injunction Against FTC’s Ban

As previously reported, a federal court in Dallas issued a preliminary injunction against the regulation on July 3, 2024. The injunction, however, only affects the parties to the lawsuit and the district in which the lawsuit was brought. When she issued that preliminary injunction, Judge Ada Brown committed to rendering a final decision on the plaintiffs’ request for a permanent injunction by August 30,2024.

However, she specifically declined to give her preliminary injunction nationwide effect. In its motion in support of a permanent injunction, the U.S. Chamber of Commerce and other parties are arguing that the court is required to vacate the rule, with nationwide effect, because it was adopted in violation of the Administrative Procedure Act. We cannot predict whether she will do so.

Meanwhile, since the July ruling in Texas, two other federal courts have issued rulings on requests to enjoin the ban, one in Philadelphia in favor of the FTC by denying an injunction, and the other in central Florida in favor of the employer by granting one. As with the Texas case, the Florida injunction is not nationwide. Moreover, that judge has not yet issued an opinion, so we do not yet know his rationale for the injunction.

Now What?

Where does this leave employers? In the absence of a ruling invalidating the FTC ban nationwide, there is nothing to prevent the FTC from enforcing its ban beginning September 4 anywhere outside of Dallas and mid-Florida. As far as we know, only the Northern District of Texas is able to order such a ban when it issues its final decision on or before August 30.

Even though, based on her initial ruling, it is quite likely Judge Brown will enjoin the regulation permanently, it is unclear whether she will take the additional step of giving her injunction nationwide effect.

To comply with the regulation, employers should prepare to act by September 4. We recommend creating a list of all current and former “workers” (defined as any service providers regardless of classification) subject to noncompete agreements and a written communication that meets the regulation’s notice requirements.

Unless a new order appears enjoining enforcement of the ban nationwide before September 4, employers will need to send out that communication in order to be in compliance. The requirements for sending the notice include identifying the “person who entered into the noncompete clause with the worker by name” (we don’t know if this means the individual or the entity) and hand delivering or mailing the notice to the worker’s last known mailing address, or to the last known email address or mobile phone number (by text). The full text of the rule, including a model communication from the FTC, can be found at pages 3850-06 of the May 7, 2024, Federal Register.

©2024 Pierce Atwood LLP. All rights reserved.
For more on the Noncompete Ban, visit the NLR Antitrust Trade Regulation section.