Date Filed: September 13, 2024
Original Court: U.S. District Court for the Eastern District of Texas
Case Status: Preliminary Injunction Granted
Samantha Smith owns a house down the street from her primary home in Austin, TX. To provide for her family, she decided to put the property up for rent and formed a limited liability company (LLC) under Texas law to manage the property. Her LLC holds property solely within Texas and does not engage in any interstate transactions. Yet under a new law the federal government is requiring Smith and property owners like her nationwide to report sensitive personal information to a federal law enforcement database.
In 2021, Congress passed a massive 1,400 page bill that primarily set forth funding priorities for the military. Tucked inside its many provisions is the Corporate Transparency Act. This law requires every corporation, LLC, and any other entity formed under state law to report sensitive personal information about its owners to the federal government.
Since the founding, states have had the power to charter and regulate corporations. In fact, the Framers rejected a proposal at the constitutional convention to allow Congress to charter corporations for general purposes. For the first time in our history, Congress is requiring state-created entities make a report to a federal law enforcement database that will hold this private personal information indefinitely. This database can then be queried by federal, state, local, and even foreign law enforcement agencies. Failure to report or update this information can lead to two years in federal prison. But Congress can only require these reports if it is acting under one of its enumerated powers.
The federal government claims it can regulate these entities because they substantially affect interstate commerce. In this litigation, CAF attorneys argue that regulating corporate formation and intrastate entities is neither necessary to, nor proper for, regulating interstate commerce. In doing so, we will reign in the interstate commerce clause to ensure it does not become a license for the federal government to regulate anything it wishes.
Case Documents:
Motion for Preliminary Injunction