03/18/2024
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF ALABAMA
NORTHEASTERN DIVISION
NATIONAL SMALL BUSINESS )
UNITED, d/b/a the NATIONAL )
SMALL BUSINESS )
ASSOCIATION, et al., )
)
Plaintiffs, )
)
v. ) Case No. 5:22-cv-1448-LCB
)
JANET YELLEN, in her official )
capacity as Secretary of the )
Treasury, et al., )
)
Defendants. )
MEMORANDUM OPINION
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.
FILED
2024 Mar-01 PM 04:47
U.S. DISTRICT COURT
N.D. OF ALABAMA
Case 5:22-cv-01448-LCB Document 51 Filed 03/01/24 Page 1 of 53
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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.
Case 5:22-cv-01448-LCB Document 51 Filed 03/01/24 Page 2 of 53
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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.
