The state of Texas has two more wins in court, in a sweeping small business federal regulatory action that a federal judge ruled is unconstitutional and a federal agency rule related to parental rights and children’s medical care.
In the first, a federal district court judge issued a nationwide injunction Tuesday to block reporting requirements mandated by Congress in the Corporate Transparency Act he says is “likely unconstitutional.” Congress passed the law in 2021, later overriding a veto by former President Donald Trump.
After Trump’s veto was overridden, Texas Top Shop, Inc., et al., sued U.S. Attorney General Merrick Garland. Texas Attorney General Ken Paxton filed an amicus brief in support of Texas businesses.
The law required entities incorporated under state law to disclose the personal information of their stakeholders, including current address, identification documents, and other sensitive information, to the Department of the Treasury’s Financial Crimes Enforcement Network.
A representative of the SCORE Foundation with the U.S. Small Business Administration sent an email to small business owners obtained by The Center Square, which states, “A new reporting rule went into effect on January 1, 2024, requiring the online filing of Beneficial Owner Information (BOI) with the Financial Crimes Enforcement Network. Penalties for non-compliance are $500 per day and up to 2 years in prison.”
“Who does this affect? Single member LLC’s; multi-member LLC’s; S corporations, and C Corporations. When do I have to file? New businesses in 2024 – within 90 days of formation; New businesses in 2025 or later – within 30 days of formation; Existing businesses – By December 31, 2024; Ownership & address changes have to be reported within 30 days of occurrence. Find out more at https://www.fincen.gov/boi.”
Paxton’s office notes that penalties for noncompliance could result in fines of up to $500,000 and 10 years in jail.
“However, the Constitution does not give Congress the power to unilaterally regulate the approximately 32.6 million organizations that have been granted formal corporate status by the States,” Paxton said.
“The so-called ‘Corporate Transparency Act’ was an unconstitutional attempt by the federal government to undermine States’ authority and crush small businesses under regulations, fines, and threats,” he said.
Judge Amos Mazzant agreed. Citing arguments made in several cases, he said, “‘Great nations, like great men, should keep their word.’ Ours is a written Constitution. The promises it makes to the People and the States alike are not hidden. The Court must enforce them. ‘The powers of the legislature are defined, and limited: and … those limits may not be mistaken, or forgotten, the [C]onstitution is written.’ While the Court defers to Congress on matters of policy, interpretation of the Constitution is an area where Congress enjoys no authority.”
The CTA was “unprecedented,” Mazzant said, marking “a drastic two-fold departure from history. First, it represents a federal attempt to monitor companies created under state law – a matter our federalist system has left almost exclusively to the several States. Second, the CTA ends a feature of corporate formation as designed by various States – anonymity.”
The law was likely unconstitutional “as outside of Congress’s power,” he said. “Because the Reporting Rule implements the CTA, it is likely unconstitutional for the same reasons.”
The ruling “is a major victory for American entrepreneurs that the nationwide injunction will prevent this law from taking effect,” Paxton said.
Texas won another court battle last week against the U.S. Department of Health and Human Services after it announced it wouldn’t enforce a rule requiring entities receiving Title X funding to dispense contraceptives to minors without parental consent.
Paxton sued in July arguing the rule violates Texas law. Both the district court he filed suit in and the Fifth Circuit Court of Appeals previously ruled the Title X program “must comply with Texas laws that require parental consent before dispensing prescription contraceptives to minors, and that the Biden Administration cannot use the Title X statute to ‘preempt’ those parental-consent laws,” Texas’ brief argued.
The rule prohibited Title X projects from notifying parents or guardians that the minor under their care was receiving prescription contraceptives or other “family planning services.” If they didn’t comply, they risked losing federal funding. Texas law requires that parents must consent to their child’s medical care.
With weeks left in the Biden administration, HHS conceded it will not “enforce the challenged regulation in Texas,” effectively vacating it. In response, Paxton filed a notice of dismissal with the court stating that “defendants have represented that HHS is not enforcing the challenged agency rule in Texas.” Texas considered the notification binding.
The dismissal without prejudice “ensures that Texas health entities will not be forced to violate state law under threat of losing Title X funding,” Paxton said. “The Biden-Harris administration threatened to withhold taxpayer money to coerce healthcare providers into violating state law and providing contraceptives to children without any parental oversight. We won a complete and total victory, forcing the outgoing administration to abandon its illegal agenda.”
