Michigan Housing Cooperatives’ Federal Action Results in CTA Enforcement Abeyance for Plaintiffs and Texas Federal Court Subsequently Issues Nationwide Preliminary Injunction Enjoining CTA Compliance and Enforcement for All
Wayne County, MI — The Midwest Association of Housing Cooperatives and ten of its Michigan member housing cooperatives, represented by the Randall A. Pentiuk and April E. Knoch from the law firm of Pentiuk, Couvreur & Kobiljak, P.C. of Wyandotte, Michigan, filed suit against the U.S. Department of Treasury and FinCen on the basis that the Corporate Transparency Act (“CTA”) is unconstitutional and a Congressional overreach by the Federal Government. See Midwest Association of Housing Cooperatives, et al., v. Yellen, et al., No. 4:24-cv-12949 (E.D. Mich. 2024).
“One of the important facets of this case lies in the fact that housing cooperatives do not engage in interstate commerce as a function of their operations, and neither do their economic activities in the aggregate “substantially affect” interstate commerce. Their sole purpose is to provide affordable housing to their cooperator members. If the Corporate Transparency Act is applied to housing cooperatives, then this law is in fact a Congressional overreach that is a chilling deterrent on volunteer cooperator members trying to serve their communities, while subjecting them to extreme penalties and a big blow to affordable housing.” said Knoch.
A dozen similar suits have been filed, including one in the Western District of Michigan and all remain pending. A challenge brought in the Northern District of Alabama resulted in Judge Liles C. Burke enjoining the CTA as applied to the plaintiffs in that action. There, the court addressed and found wanting all three of the government’s asserted sources of constitutional authority: the foreign affairs powers, the Commerce Clause authority, and as a necessary and proper exercise of Congress’ taxing power. See National Small Business United v. Yellen, 2024 U.S. Dist. LEXIS 36205 (Mar. 1, 2024). The government has appealed that injunction to the Eleventh Circuit.
On November 26, 2024, Judge Shalina D. Kumar of the Michigan Eastern District, issued an order holding Plaintiff’s Motion for Emergency Declaratory Relief, or Alternatively, Preliminary Injunctive Relief, ECF No. 17, in abeyance pending the outcome of the Eleventh Circuit Court appeal, “provided that the government refrain from arresting, jailing, imprisoning, or imposing civil penalties against plaintiffs or individuals affiliated with plaintiffs for any violation of the challenged statute during the period of abeyance.” This order however is only effective only for the Plaintiffs in the suit.
Meanwhile, a nationwide preliminary injunctive order issued by Judge Amos Mazzant on December 3, 2024 in the Eastern District of Texas (ECF No. 24), that applies to all reporting companies, including all housing cooperatives nationwide. Similar to Plaintiffs in the MAHC suit, the Plaintiffs in Texas Top Cop Shop, Inc., et. al., v. Garland, et. al., argued that the CTA is unconstitutional and outside of Congress’s power under the Commerce Clause. The Plaintiffs also made challenges under the First and Fourth Amendments however the Court having determined that Plaintiff’s carried their burden, at least as to the CTA being outside of Congress’s power, did not address the First and Fourth Amendment issues. In so ruling, “[t]he Court has determined that the CTA and Reporting Rule are likely unconstitutional for purposes of a preliminary injunction. It has not made an affirmative finding that the CTA and Reporting Rule are contrary to law or that they amount to a violation of the Constitution.” Texas Top Cop Shop, Inc., et. al., v. Garland, et. al., No. 4:24-cv-00478, at 79 (E. D. Texas 2024).
When making the determination on the scope of the preliminary injunction the Court stated “[t]he Government responded that if the Court were to enjoin the CTA and Reporting Rule, the scope of which included NFIB’s members, then the Court would, in practical effect, enter a nationwide injunction. The Court agrees with the Government’s point. A nationwide injunction is appropriate in this case…. Therefore, the CTA, 31 U.S.C. § 5336 is hereby enjoined. Enforcement of the Reporting Rule, 31 C.F.R. 1010.380 is also hereby enjoined, and the compliance deadline is stayed under § 705 of the APA. Neither may be enforced, and reporting companies need not comply with the CTA’s January 1, 2025, BOI reporting deadline pending further order of the Court” Id. at 75, 79.
Some of the Plaintiffs in the Michigan suit took the opportunity to voice their support. Jerome Rayford, MAHC’s Board President, and President of Fountain Court Consumer Housing Cooperative stated that “Housing cooperatives are the last defense to affordable housing for not only persons of limited means but persons of diverse ethnic backgrounds. If our members are forced to provide personal identifying information to the federal government, including a picture ID, simply because they chose a housing cooperative as their form of home ownership, they will not want to live in cooperatives.” Fountain Court provides affordable housing to 351 Michigan families in Detroit, Michigan.
Wendell Moore, who has served his Cooperative for an impressive 30 years and is currently President of Bloomfield Hills Townhouses Cooperative echoed a similar sentiment by stating “[n]early 95% of our residents are African American and are very skeptical of the federal government and their continued intervention in our communities given their history with people of color in America. Many of my fellow directors would resign from the Board of Directors and discontinue their services if they are required to comply with the reporting requirements under the CTA.” Bloomfield provides affordable housing for 283 Michigan families in Pontiac, Michigan, of which many of those cooperator residents are first responders and service the health needs of local residents.
Blaine Honeycutt, Board President of Georgetown Place Cooperative said “Getting people to volunteer their time to serve on the Cooperative Board is difficult enough given these are unpaid positions that required time and effort in running the cooperative business. Adding the filing requirement to force Directors to provide personal information to the federal government would put a damper on this volunteer service to this community and we will end up with unfilled Director positions that would cause a decline in our community and the service to our fellow residents.” Honeycutt has also served his community for an impressive 33 years. Georgetown provides affordable housing for 199 Michigan families in Taylor, Michigan.
It is anticipated that the Government will file an appeal to the Fifth Circuit but until such time as the Texas Court’s Order is overruled or amended, CTA compliance is stayed for all reporting companies, including all housing cooperatives, nationwide.
This important issue has had the full attention of the National Association of Housing Cooperatives (NAHC) which has been encouraging its membership to seek a legislative solution to the CTA by either a complete repeal, or at least a one year delay. The NAHC Government Relations Committee and its legislative advocate, Judy Sullivan will continue to pursue the legislative approach in order to put this unnecessary burden to rest once and for all.
