Rembaum’s Association Roundup

The Corporate Transparency Act Found Unconstitutional

By Jeffrey A. Rembaum, Esq. / Published April 2024

In the case titled The National Small Business United, d/b/a the National Small Business Association, et al v. Janet Yellen, in her official capacity as Secretary of the Treasury, et al., Case No. 5:22-cv-1448-LCB, United States, District Court, Northern District of Alabama, Northeastern Division entered on March 1, 2024, the court found the CTA to be unconstitutional.

     By way of background, in 2021 Congress passed the 1500-page National Defense Authorization Act (the NDAA) and included within it the 21-page Corporate Transparency Act (the CTA). In brief the CTA would have required just about every entity registered with the secretary of state in each state, which includes community associations, to provide certain information about its “beneficial owners.” In the case of a community association, board members and officers would need to provide the name, date of birth, current address, and an identification number from a driver’s license, state ID card, or passport and a copy of such document. The purpose of the CTA was to prevent financial crimes, money laundering, tax evasion, and even the funding of terrorism. While there are limited exemptions, community associations were not included in these exemptions, notwithstanding lobbying efforts of the Community Associations Institute lobbyists. Failure to comply with the CTA can lead to expensive civil financial penalties and significant time in federal prison.

     In finding the CTA unconstitutional, the Northern District of the Northeastern Division Alabama appellate court noted that “Congress sometimes enacts smart laws that violate the [United States] Constitution…this court’s job is to consider whether the CTA follows the [United States] Constitution, not whether it is good policy.” The wise court asks, “Does Congress have authority under the Commerce Clause [of the United States Constitution] to regulate non-commercial, intrastate activity when certain entities, which have availed themselves of the state’s incorporation laws, use channels of commerce, and their anonymous operations substantially affect interstate and foreign commerce? The Supreme Court’s Commerce Clause decisions all point to the same conclusion: “No.”

     The written opinion in this case makes for great reading most especially for those interested in Constitutional law analysis. At the end of the day, the drafters of the CTA and the lawyers for the Secretary of the Treasury defending the CTA failed to take into account that the CTA does not regulate economic or commercial activity on its face, which is generally required if one wants to  rely on the Commerce Clause of the United States Constitution to justify the constitutionality of certain laws. The court even gently points out how the CTA could have been made constitutional through better drafting, rather than “inartful drafting” and even points out, relying on a prior Supreme Court case, “that it is beyond this Court’s province to rescue Congress from its drafting errors, and to provide for what we might think is the preferred result.” Lamie v. U.S. Tr., 540 U.S. 526 (2004).

     While this is just the beginning of the CTA appellate fight, and no doubt the government will appeal to the United States Court of Appeals for the Eleventh Circuit, which will most likely lead to the loser of that challenge appealing to the United States Supreme Court, at least for now the CTA’s registration requirements due by December 31, 2024, appear to be dead on arrival. However, the court only went so far as to declare the CTA unconsitutional against the plantiffs in the lawsuit. Whether the court’s opinion will have a broader application to all coporate entities remains to be seen. With this in mind please be sure to check with your association’s attorney as to whether your association is still required to comply with the CTA by December 31, 2024. At the moment the chances are that is so required. 

Jeffrey Rembaum

Partner, Kaye Bender Rembaum

     Attorney Jeffrey Rembaum has considerable experience representing countless community associations that include condominium, homeowner, commercial, and cooperative associations throughout Florida. He is a board-certified specialist in condominium and planned development law and is a Florida Supreme Court circuit civil mediator. Every year since 2012 Mr. Rembaum has been inducted into the Florida Super Lawyers. He was twice awarded as a member of Florida Trend’s Legal Elite. Kaye Bender Rembaum P.L. is devoted to the representation of community and commercial associations throughout Florida with offices in Palm Beach, Broward, Hillsborough, and Orange Counties (and Miami-Dade by appointment). For more information, visit kbrlegal.com.