In Texas Top Cop Shop, Inc. v. Garland, the Eastern District of Texas issued a forceful opinion striking at the heart of federal overreach. At issue was the Corporate Transparency Act (CTA), a sweeping statute mandating that millions of corporations and limited liability companies disclose their beneficial ownership information to the federal Financial Crimes Enforcement Network (FinCEN). The decision grants preliminary relief, halting enforcement of the CTA and sparing small businesses—and by extension, landlords and other real estate operators who rely on LLC structures—from onerous compliance obligations.
Let us be clear: this is not merely a case about regulation. It is a case about power—the power to coerce private actors into perpetual disclosure, all under the guise of combating criminal activity. Judge Mazzant’s opinion, grounded in textual fidelity and constitutional restraint, represents a bulwark against a metastasizing administrative state.
The Statute and Its Overreach
Passed as part of the National Defense Authorization Act for Fiscal Year 2021, the CTA purports to combat illicit financial activities by requiring reporting companies to disclose detailed ownership information. On its face, the aim is laudable—no one disputes the need to thwart money laundering and terrorism financing. However, as Judge Mazzant keenly observed, good intentions do not immunize bad laws from constitutional scrutiny.
The CTA’s demands are extensive. Any corporation or LLC created under state law is compelled to report its beneficial owners—defined broadly as individuals exercising substantial control or owning at least 25% of the entity. Failure to comply triggers draconian penalties, including fines of up to $500 per day and potential imprisonment. Landlords who utilize LLCs to structure their real estate holdings were no exception, facing a compliance nightmare with a steep price for failure.
The Preliminary Injunction
The court’s ruling does what the law could not: it protects the Constitution from legislative excess. The preliminary injunction halts the CTA’s enforcement nationwide, relieving businesses—at least temporarily—from the CTA’s burdens. Key aspects of the injunction include:
Exemption from Reporting Requirements: Small businesses, including LLCs and closely-held corporations, are no longer compelled to disclose ownership data to FinCEN. This relief applies nationwide.
Shield Against Penalties: The decision removes the imminent threat of civil fines and criminal penalties, providing much-needed security to business owners.
Economic Relief: The CTA’s compliance costs were projected to reach $22.7 billion in the first year. By enjoining the law, the court has spared businesses these significant financial burdens.
Privacy Protection: The injunction preserves the confidentiality of ownership information, preventing its disclosure to federal authorities pending further litigation.
Judge Mazzant rightly emphasized that the Constitution does not cede to Congress a “roving license” to legislate beyond its enumerated powers. The CTA, he held, represents precisely the kind of federal intrusion the Founders feared—a law untethered from any legitimate grant of authority.
A Blow Against Federal Overreach
The government argued that the CTA fell within Congress’s power to regulate interstate commerce. The court disagreed, invoking Chief Justice Marshall’s foundational principle: the power to regulate commerce presupposes an activity to regulate. Here, the CTA regulates not an activity but a status—the mere existence of corporate entities. Judge Mazzant’s reasoning is a masterclass in constitutional restraint:
“If the power to regulate something includes the power to create it, many provisions in the Constitution would be superfluous.”
Indeed, allowing Congress to compel disclosure merely because a business exists would obliterate any meaningful limitation on federal authority. Such logic transforms Congress’s enumerated powers into an unlimited mandate to micromanage private enterprise.
Moreover, the court recognized that the CTA undermines federalism by intruding on a domain traditionally reserved to the states: the regulation of corporations. As Judge Mazzant aptly noted, “no principle of corporation law and practice is more firmly established than a state’s authority to regulate domestic corporations.” The CTA’s attempt to federalize this area cannot stand.
Practical Implications for Landlords
Landlords holding real estate through LLCs should take special note of this decision. The CTA’s reporting requirements, had they gone into effect, would have imposed significant administrative burdens, including:
Compliance Costs: Preparing and filing beneficial ownership reports requires time, legal expertise, and additional resources. For landlords managing multiple properties through separate LLCs, the costs multiply exponentially.
Privacy Concerns: Many landlords use LLCs to shield their personal information from public view. The CTA would have forced them to disclose sensitive details, undermining one of the core benefits of the LLC structure.
Risk of Penalties: The CTA’s harsh penalties for non-compliance—both financial and criminal—placed landlords at considerable risk.
By enjoining the CTA, the court has spared landlords these immediate burdens. However, this relief is temporary. Landlords should monitor the case closely as it progresses through the courts.
The Bigger Picture
The decision in Texas Top Cop Shop is not merely a reprieve for small businesses; it is a principled stand against the erosion of constitutional limits. As landlords, business owners, and Americans, we should welcome this judicial reminder that Congress is not omnipotent. Judge Mazzant’s opinion preserves the delicate balance of federalism, ensuring that states remain the primary regulators of business entities within their borders.
Takeaway
For landlords who hold properties through corporations and LLCs, this decision is a decisive victory. It halts an intrusive federal mandate, safeguards privacy, and reaffirms the Constitution’s limits on congressional power. Yet the fight is far from over. Landlords should take advantage of this reprieve to review their corporate structures, consult legal counsel, and prepare for the possibility of future reporting obligations.
As this case progresses, let us remember: the Constitution is not a relic but a restraint—a bulwark against overreach and a promise that liberty will endure.
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