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No. 24-10736
════════════════════════════════════════
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
──────────────────────────────
NATIONAL SMALL BUSINESS UNITED D.B.A. NATIONAL SMALL
BUSINESS ASSOCIATION and ISAAC WINKLES,
Plaintiffs-Appellees,
v.
U.S. DEPARTMENT OF THE TREASURY, et al.,
Defendants-Appellants.
──────────────────────────────
On Appeal from the United States District Court
for the Northern District of Alabama (No. 5:22-cv-1448-LCB)
════════════════════════════════════════
BRIEF OF AMICI CURIAE STATES OF WEST VIRGNIA,
KANSAS, SOUTH CAROLINA, AND 19 OTHER STATES
IN SUPPORT OF APPELLEES AND AFFIRMANCE
════════════════════════════════════════
PATRICK MORRISEY LINDSAY S. SEE
Attorney General Solicitor General

OFFICE OF THE WEST MICHAEL R. WILLIAMS

VIRGINIA ATTORNEY Principal Deputy
GENERAL Solicitor General
1900 Kanawha Blvd., East Counsel of Record
Building 1, Room E-26
Charleston, WV 25305 GRANT A. NEWMAN
Phone: (304) 558-2021 Assistant Solicitor General
michael.r.williams@wvago.gov

Counsel for Amicus Curiae State of West Virginia

[additional counsel listed at end]
 USCA11 Case: 24-10736 Document: 57 Date Filed: 05/20/2024 Page: 2 of 43
NSBA v. Yellen, 24-10736

CERTIFICATE OF INTERESTED PERSONS

Pursuant to Federal Rule of Appellate Procedure 26.1 and Eleventh

Circuit Rules 26.1-1 and 26.1-2, the undersigned counsel certifies that in

addition to the parties listed in the parties’ briefs, the following listed persons

may have an interest in the outcome of this case:

Bailey, Andrew, Missouri Attorney General

Bird, Brenna, Iowa Attorney General

Cameron, Daniel, Kentucky Attorney General

Carr, Christopher M., Georgia Attorney General
Commonwealth of Kentucky

Commonwealth of Virginia
Cook, Robert D., Counsel for Amicus Curiae, State of South Carolina
Fitch, Lynn, Mississippi Attorney General

Griffin, Tim, Arkansas Attorney General

Hilgers, Michael T., Nebraska Attorney General
Labrador, Raúl R., Idaho Attorney General

Hill, Bridget, Wyoming Attorney General

Hydrick, Thomas T., Counsel for Amicus Curiae, State of South Carolina
Jackley, Marty, South Dakota Attorney General

Kambli, Abhishek S., Counsel for Amicus Curiae, State of Kansas

Kobach, Kris W., Kansas Attorney General
Knudsen, Austin, Montana Attorney General

C-1 of 3
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NSBA v. Yellen, 24-10736

Marshall, Steve, Alabama Attorney General

Miyares, Jason, Virginia Attorney General

Moody, Ashley, Florida Attorney General

Morrisey, Patrick, West Virginia Attorney General
Murrill, Liz, Louisiana Attorney General

Newman, Grant A., Counsel for Amicus Curiae, State of West Virginia
Paxton, Ken, Texas Attorney General
Powell, Anthony J., Counsel for Amicus Curiae, State of Kansas

See, Lindsay S., Counsel for Amicus Curiae, State of West Virginia
Skrmetti, Jonathan, Tennessee Attorney General and Reporter
Smith Jr., J. Emory, Counsel for Amicus Curiae, State of South Carolina

Spate, Joseph D., Counsel for Amicus Curiae, State of South Carolina
State of Alabama
State of Arkansas

State of Florida
State of Georgia
State of Idaho

State of Iowa
State of Kansas
State of Louisiana

State of Mississippi
State of Missouri
State of Montana

C-2 of 3
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NSBA v. Yellen, 24-10736

State of Nebraska
State of Ohio

State of South Carolina

State of South Dakota
State of Tennessee

State of Texas
State of Utah
State of West Virginia

State of Wyoming
Reyes, Sean, Utah Attorney General
Williams, Michael R., Counsel for Amicus Curiae, State of West Virginia

Wilson, Alan, South Carolina Attorney General

Yost, Dave, Ohio Attorney General
/s/ Michael R. Williams
Michael R. Williams

C-3 of 3
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TABLE OF CONTENTS

Introduction and Interests of Amici Curiae ........................................................1

Statement of the Issues...........................................................................................2

Summary of the Argument .....................................................................................3

Argument ..................................................................................................................4

I. The CTA Regulates Purely Local Concerns That The Constitution

Leaves To The States ......................................................................................4

A. Federalism drives the analysis when Congress intrudes into

corporate regulation ...............................................................................5

B. Federalism confirms that the Commerce Clause cannot justify

the CTA ..................................................................................................14

II. The CTA Harms The States And Their Residents ....................................22

A. The CTA’s costs are massive ...............................................................23

B. The CTA’s toll hurts the States’ economies .......................................28

Conclusion ...............................................................................................................32

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TABLE OF AUTHORITIES

Page(s)

Cases
Alden v. Maine,
527 U.S. 706 (1999).............................................................................................. 6
Bond v. United States,
572 U.S. 844 (2014)............................................................................ 9, 10, 12, 17
Brzonkala v. Va. Polytechnic Inst. & State Univ.,
169 F.3d 820 (4th Cir. 1999) ............................................................................. 17
CTS Corp. v. Dynamics Corp. of Am.,
481 U.S. 69 (1987).................................................................................. 2, 6, 8, 11
Freedman v. magicJack Vocaltec Ltd.,
963 F.3d 1125 (11th Cir. 2020) ........................................................................... 6
Gonzales v. Raich,
545 U.S. 1 (2005).................................................................. 21, 22, 23, 24, 25, 26
Gregory v. Ashcroft,
501 U.S. 452 (1991).......................................................................................... 8, 9
Jones v. United States,
529 U.S. 848 (2000)............................................................................................ 17
Kamen v. Kemper Fin. Servs., Inc.,
500 U.S. 90 (1991)................................................................................................ 6
NLRB v. Jones & Laughlin Steel Corp.,
301 U.S. 1 (1937)................................................................................................ 15
Springboards to Educ., Inc. v. McAllen Indep. Sch. Dist.,
62 F.4th 174 (5th Cir. 2023) ............................................................................... 5
Trs. of Dartmouth Coll. v. Woodward,
17 U.S. (4 Wheat.) 518 (1819) ............................................................................ 6
U.S. Forest Serv. v. Cowpasture River Pres. Ass’n,
590 U.S. 604 (2020).............................................................................................. 9
United States v. Ballinger,
395 F.3d 1218 (11th Cir. 2005) ......................................................................... 18

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United States v. Bass,

404 U.S. 336 (1971).............................................................................................. 9
United States v. Lopez,
514 U.S. 549 (1995)........................................................ 15, 16, 18, 19, 20, 21, 22
United States v. Morrison,
529 U.S. 598 (2000).................................................................... 15, 16, 17, 19, 20
West Virgina v. EPA,
597 U.S. 697 (2022)............................................................................................ 14
Wickard v. Filburn,
317 U.S. 111 (1942)............................................................................................ 20
Will v. Mich. Dep’t of State Police,
491 U.S. 58 (1989)................................................................................................ 9

Constitutional Provision
U.S. CONST. art. 1, § 8, cl. 3 ................................................................................... 19

Statutes
15 Pa. Cons. Stat. § 403 ......................................................................................... 19
31 U.S.C. § 5336 ......................................................................... 1, 11, 18, 26, 27, 28
31 U.S.C. § 5336 ........................................................................................... 1, 11, 18
Canada Business Corporations Act, R.S.C. 1985, c. C-44 ................................... 8
Pub. L. No. 116-283, § 6402................................................................................... 11

Regulation
87 Fed. Reg. 59,498 (Sept. 30, 2022) ...................................... 23, 24, 25, 26, 27, 29

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Other Authorities
DUSTIN CHAMBERS, ET AL.,
HOW DO FEDERAL REGULATIONS AFFECT CONSUMER
PRICES? AN ANALYSIS OF THE REGRESSIVE EFFECTS OF
REGULATION (2019) .......................................................................................... 30
Carl W. Mills,
Breach of Fiduciary Duty as Securities Fraud: Sec v.
Chancellor Corp.,
10 FORDHAM J. CORP. & FIN. L. 439 (2005) ................................................. 7, 8
Christine Fletcher,
Navigating the Corporate Transparency Act: Estate Plan
Implications, FORBES (Mar. 4, 2024, 3:49 PM) ............................................ 30
Erin C. Blondel,
The Structure of Criminal Federalism,
98 NOTRE DAME L. REV. 1037 (2023) ............................................................. 11
Federal Rule of Appellate Procedure 29 .............................................................. 2
Jeffrey J. Polich,
Judicial Review and the Small Business Regulatory
Enforcement Fairness Act,
41 WM. & MARY L. REV. 1425 (2000) .............................................................. 29
Jens Dammann & Matthias Schündeln,
The Incorporation Choices of Privately Held Corporations,
27 J.L. ECON. & ORG. 79 (2011) ......................................................................... 7
Kevin L. Shepherd,
Compliance with the New Reporting Regulations Under the
Corporate Transparency Act,
40 PRAC. REAL EST. LAW. 3 (Jan. 2024) ......................................................... 10
Matthew B. Edwards, D. Parker Baker III,
The Basic Ins and Outs of the Corporate Transparency Act,
35 S.C. LAWYER 24 (Sept. 2023) ...................................................................... 26
Reid Kress Weisbord & Stewart E. Sterk,
The Commodification of Public Land Records,
97 NOTRE DAME L. REV. 507 (2022) ............................................................... 13

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Richard J. Pierce, Jr.,

The Combination of Chevron and Political Polarity Has
Awful Effects,
70 DUKE L.J. ONLINE 91 (2021) ...................................................................... 30
Sandra Feldman,
Nonprofit Organization Considerations for FinCEN
Beneficial Ownership Information Reporting Requirements,
WOLTERS KLUWER (Feb. 27, 2024)................................................................. 30
Lisa C. Thompson,
Thou Shalt Report: CYA from the CTA,
ARIZ. ATTORNEY (Dec. 2023) ........................................................................... 12
William E.H. Quick,
The Corporate Transparency Act: A New Federal Reporting
Obligation That Impacts Almost Everyone,
79 J. MO. B. 270 (2023) ...................................................................................... 10

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INTRODUCTION AND INTERESTS OF AMICI CURIAE

The federal government thinks federalism is a non-issue when it comes

to the Corporate Transparency Act, 31 U.S.C. § 5336. It insists there’s

“nothing to see here” because the statute “leaves untouched the States’

authority to determine which entities can be incorporated and the means by

which they are incorporated.” Appellants’ Br. 32. And it contends the States

have nothing to say here because the comments “Secretaries of State and

other State entities” submitted did “not claim that the CTA amends existing

State incorporation requirements.” Br. in Support of Defs.’ Mot. to Dismiss,

or, in the Alternative, Cross-Motion for Sum. Judgment, and Opp. to Pls.’ Mot.

for Sum. Judgment, Dkt. No. 24-1, at 54 (N.D. Ala. Mar. 29, 2023).

But federalism concerns are something to see here, and the States do

have something to say. The district court got it right when it recognized that

the CTA takes an unprecedented swipe at the quintessentially state-controlled

area of corporate law. And the costs from that unlawful play are staggering

for the States and the people who live and work there.

The amici States of West Virginia, Kansas, South Carolina, Alabama,

Arkansas, Florida, Georgia, Idaho, Iowa, Kentucky, Louisiana, Mississippi,

Missouri, Montana, Nebraska, Ohio, South Dakota, Tennessee, Texas, Utah,

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Virginia, and Wyoming take seriously our longstanding and primary role in

regulating corporations—that is, “entities whose very existence and attributes

are a product of state law.” CTS Corp. v. Dynamics Corp. of Am., 481 U.S. 69,

89 (1987). We are also concerned with Congress overstepping into our

traditional zones of authority when it abuses its enumerated Commerce

Clause power. And we are sensitive to the ways burdensome legislation (and

its implementing regulations) hurt our residents and small businesses. The

CTA implicates all three of these concerns. Appellees have already explained

the law’s many problems. In this brief filed under Federal Rule of Appellate

Procedure 29(a)(2), the States further explain how the CTA disrupts the

balance of federalism—on which our constitutional system depends—and

burdens too many real Americans along the way.

STATEMENT OF THE ISSUES

Did Congress have constitutional authority to enact the CTA, which

requires many corporations (and even some non-commercial entities) to report

information about their beneficial owners before they engage in commerce,

interstate or otherwise?

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SUMMARY OF THE ARGUMENT

I.A. The States’ authority to regulate the domestic corporations that do

business within their borders is about as traditional as state powers come.

Corporations are creatures of state law. And the States have kept primary

watch over corporate affairs throughout the Nation’s history. Courts are

rightly skeptical of laws that displace traditional state powers like these, and

the district court was right to put the CTA in that unlawful category. In

purpose and effect, the CTA displaces the States when it comes to the

requirements that do—and do not—attach to an entity’s incorporation

decisions.

I.B. The federal government’s claim to Commerce Clause authority

shows the CTA’s federalism distaste for what it is. Modern Commerce Clause

jurisprudence insists that federalism-based themes infuse the analysis. The

Supreme Court holds the line when Congress tries to stretch its commerce

power into something approaching the general police power that only the

States hold. Congress did just that in the CTA because the law regulates non-

commercial conduct that does not substantially affect the interstate economy.

II. As a practical matter, the CTA will harm the States and their

residents—too much. Even the federal agency that enforces the CTA, the

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Financial Crimes Enforcement Network, or FinCEN, doesn’t say otherwise.

FinCEN admits that in just the first two years after its implementing rule

goes into effect, American small businesses will be forced to spend over 150

million hours and nearly $30 billion trying to comply with the CTA’s reporting

requirements. And those estimates are likely far too low. The States will also

face significant costs complying with their own requirements under the law in

educating the regulated public and offering up sensitive data to FinCEN. All

of this comes at the expense of our economies and the people who make them

run.

ARGUMENT

I. The CTA Regulates Purely Local Concerns That The Constitution

Leaves To The States.

Some statutes wrongly blur the line between state and federal powers

even though they stop short of direct preemption. The CTA is one of them.

So letting federalism and state sovereignty concerns permeate the analysis

only confirms the district court’s black-letter law holdings. This Court should

affirm.

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A. Federalism drives the analysis when Congress intrudes into

corporate regulation.

1. Though “the Federalists and Anti-Federalists” rarely agreed

completely on anything, they all insisted that “corporations were not

sovereigns.” Springboards to Educ., Inc. v. McAllen Indep. Sch. Dist., 62

F.4th 174, 191 (5th Cir. 2023) (Oldham, J., concurring) (emphasis added).

Instead, the Founding “embraced the English conception of corporations”—

meaning corporations “could only be created with the consent of the

sovereign.” Id. (citing 1 WILLIAM BLACKSTONE, COMMENTARIES *460). The

Federalists would have pushed further by enshrining into law the idea that the

States themselves were “akin to corporations,” with “mere ‘corporate rights.’”

Id. (quoting 1 M. FARRAND, RECORDS OF THE FEDERAL CONVENTION OF 1787,

at 323, 328 (1907)). But “[t]he Anti-Federalists responded strongly and

persuasively” and “proved triumphant” when the “Federalists eventually

conceded that States were not corporations and hence would retain sovereign

immunity.” Id. at 191-92.

From that debate flowed one of our country’s most lasting norms: the

Constitution may grant “broad power to Congress,” but “our federalism

requires that Congress treat the States in a manner consistent with their

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status as residuary sovereigns and joint participants in the governance of the

Nation.” Alden v. Maine, 527 U.S. 706, 748 (1999) (emphasis added).

A key way the States exercise that sovereign status is in regulating those

same corporations the Federalists once likened them to. “A corporation is an

artificial being, invisible, intangible, and existing only in contemplation of law.”

Trs. of Dartmouth Coll. v. Woodward, 17 U.S. (4 Wheat.) 518, 636, 4 L. Ed. 629

(1819). That means (much like federal agencies created and limited by

statute) a corporation “possesses only those properties which the charter of

its creation confers upon it, either expressly, or as incidental to its very

existence.” Id. And it’s state law that does the creating. E.g., Kamen v.

Kemper Fin. Servs., Inc., 500 U.S. 90, 99 (1991) (“state law” “is the font of

corporate directors’ powers” (quoting Burks v. Lasker, 441 U.S. 471, 478

(1979))). So as the Supreme Court has long recognized, when States pass

“corporate governance” laws, they are regulating “entities whose very

existence and attributes are a product of state law.” CTS Corp., 481 U.S. at

89. Or as this Court recently put it: “state-law standards create the boundaries

within which a corporation must operate both internally and externally.”

Freedman v. magicJack Vocaltec Ltd., 963 F.3d 1125, 1132-33 (11th Cir. 2020)

(cleaned up).

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Part and parcel with federalism principles and the States’ traditional

powers is that the States get to be “laboratories for experimentation with

various regulatory regimes.” Carl W. Mills, Breach of Fiduciary Duty as

Securities Fraud: Sec v. Chancellor Corp., 10 FORDHAM J. CORP. & FIN. L.

439, 447 (2005). In other words, federalism expects different States to make

different choices when it comes to corporate law. Corporations, in turn, “can

shop around for attractive corporate domiciles” by comparing those different

“legal regimes.” Id.; see also Jens Dammann & Matthias Schündeln, The

Incorporation Choices of Privately Held Corporations, 27 J.L. ECON. & ORG.

79, 79 (2011) (corporations “choose the corporate law applicable to their

internal affairs by incorporating in the state of their choice”). And the States

can benefit (or not) from the consequences of their decisions. See Mills, supra,

at 447 (describing benefits that flow to the States when corporations set up

shop, including “franchise taxes,” “fee revenues,” and “patronage”).

Whether this sort of competition creates a “race to the bottom,” a “race

to the top,” or something in between is a matter of “heated debate.” Mills,

supra, at 448. But that doesn’t change the load-bearing reality that the States

get to choose their own course. Nor the fact that our constitutional system

believes that the States’ ability to adopt “alternative solutions to the many

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difficult regulatory problems that arise in corporate law” is valuable—and

“cannot be adequately replaced by a uniform federal standard.” Id. at 498

(quoting STEPHEN M. BAINBRIDGE, THE CREEPING FEDERALIZATION OF

CORPORATE LAW, REGULATION, 26, 27-28 (Apr. 1, 2003)). Although other

nations provide the ability to incorporate federally, for instance, see, e.g.,

Canada Business Corporations Act, R.S.C. 1985, c. C-44, we never have. It

remains just as true now as at the Founding that incorporation specifically is

a state function. E.g., Mills, supra, at 445 (explaining how States “set the rules

for incorporation,” have “the ability to create corporations” in the first place,

and keep “primary responsibility for regulating internal corporate affairs”).

In short, “[n]o principle of corporation law and practice” has been “more

firmly established than a State’s authority to regulate domestic corporations.”

CTS Corp., 481 U.S. at 89.

2. Courts are rightly skeptical when a statute jumps into an area of

traditional state authority like that. They do not presume Congress meant to

go there—Congress’s ability to “legislate in areas traditionally regulated by

the States” is an “extraordinary power in a federalist system,” so courts “must

assume Congress does not exercise [that power] lightly.” Gregory v. Ashcroft,

501 U.S. 452, 460 (1991). Courts instead adopt non-federalism-erasing

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constructions unless Congress deployed “unmistakably,” Will v. Mich. Dep’t

of State Police, 491 U.S. 58, 65 (1989) (cleaned up), or “exceedingly” clear

language “to place [its] intent beyond dispute,” U.S. Forest Serv. v.

Cowpasture River Pres. Ass’n, 590 U.S. 604, 621-22 (2020). Short of that,

statutes “will not be deemed to have significantly changed” the constitutional

“balance” favoring the States’ traditional zones of authority. United States v.

Bass, 404 U.S. 336, 349 & n.16 (1971) (collecting cases).

That analysis admittedly carries less of a punch where Congress made

its intent to intrude into the States’ realm clear (though the Tenth Amendment

can also have something to say about cases like that). But the “background

principle[s]” federalism brings to the table, including skepticism about

whether and how far Congress can mess with “traditional state authority,”

Bond v. United States, 572 U.S. 844, 858 (2014), shouldn’t fade entirely. They

are “grounded in the very structure of the Constitution,” after all, and

“protect[] the liberty of the individual from arbitrary power.” Id. at 862-63

(cleaned up); see also, e.g., Gregory, 501 U.S. at 458 (“In the tension between

federal and state power lies the promise of liberty.”). Precepts that vital might

well (as some have said) lead courts to “reason[] backwards” by giving a

statute’s “disruptive effect on the federal-state balance” primary weight.

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Bond, 572 U.S. at 870 (Scalia, J., concurring) (cleaned up) (rejecting majority’s

approach but explaining he would also limit Congress’s legislative power

under strict view of Necessary and Proper Clause). And if that can be true

where the Supreme Court had never “held that a statute implementing a valid

treaty exceeds Congress’s enumerated powers,” id. at 855 (majority op.), it

stands to reason federalism norms should inform how much slack courts afford

the federal government where (as here) it relies on powers with which

Congress has had more mixed success.

3. So the CTA’s constitutionality brings with it this baggage. And the

CTA raises all the federalism red flags.

“At its core, the CTA” reflects Congress’s choice to “embrace a

reporting regime where the federal government, not the states, would collect,

hold, and share beneficial ownership information.” Kevin L. Shepherd,

Compliance with the New Reporting Regulations Under the Corporate

Transparency Act, 40 PRAC. REAL EST. LAW. 3, 6 (Jan. 2024). And it shifts to

the federal level “oversight to the regulation of business entities and their

operations” which “traditionally has resided with U.S. states.” William E.H.

Quick, The Corporate Transparency Act: A New Federal Reporting

Obligation That Impacts Almost Everyone, 79 J. MO. B. 270, 273 (2023). True,

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it doesn’t touch directly on state incorporation laws or require States to do the

federal government’s work for it. But by intent and scope, it still overtakes

too much state-law ground.

Start with its purposes. The “sense of Congress” was that it needed to

“set a clear, Federal standard for incorporation practices.” Pub. L. No. 116-

283, § 6402(5)(A) (appended as a statutory note to 31 U.S.C. § 5336). Given

that the first rule of “corporation law and practice” is that the States—not

Congress—“regulate domestic corporations,” CTS Corp., 481 U.S. at 89, the

CTA starts on shaky ground.

Its remaining purposes aren’t much better—especially “enabl[ing] …

law enforcement efforts to counter money laundering” and “bring[ing] the

United States into compliance with international anti-money laundering”

standards. Pub. L. No. 116-283, § 6402(5)(D)-(E); see also Appellants’ Br. 3

(CTA closed purported “gap in the government’s ability to detect and

prosecute financial crime”). Money laundering and related crimes are serious.

But when it comes to law enforcement, it’s the States who have “near-complete

autonomy, historical primacy, and enormous institutional advantages.” Erin

C. Blondel, The Structure of Criminal Federalism, 98 NOTRE DAME L. REV.

1037, 1099 (2023). So the default in criminal matters is for the “federal system”

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to “provid[e] a thin, roving backup to the states’ broad defensive line.” Id. at

1099. Congress needs to rely on more before flipping that default and

“convert[ing] an astonishing amount of traditionally local criminal conduct into

a matter for federal enforcement.” Bond, 572 U.S. at 863 (cleaned up).

Particularly so when the ripple effects of “[s]ubtracting the states from an

area” of traditional enforcement often “push federal enforcement to build up

the capacity to take on more primary responsibilities, which increases the

overall federal footprint.” Blondel, supra, at 1098.

The statute’s scope underscores the problem. “Despite the limited

number of bad actors who form the target of the CTA, the law casts a very

wide net”—so wide that “[m]uch of the business community swept into” it “will

be unwitting and innocent bycatch.” Quick, supra, at 271; see also Lisa C.

Thompson, Thou Shalt Report: CYA from the CTA, ARIZ. ATTORNEY 28 (Dec.

2023) (explaining that virtually everyone in the country “will know” someone

associated with millions of existing and future entities who “will be subject to

[the CTA’s] reporting requirements”). The financial and administrative

burdens for these many entities are huge. See infra Part II. The law’s

“reporting obligations” also “touch on the sensitive issue of personal

anonymity historically enjoyed by U.S. beneficial owners.” Quick, supra, at

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273. And they create new risks of “serious civil and criminal penalties,”

including thousands in fines and penalties and up to 2 years in prison, for the

thousands of reporting companies doing legal business in the States.

Appx.178.

All this shows the CTA as an example of “overly punitive” federal

lawmaking that strips law-abiding corporations of the ability to “check

excessive regulation by opting out of federal regulation and selecting a

different jurisdiction for incorporation.” Mills, supra, at 498. When left to the

States as the constitutional structure expects, comparing State-by-State

financial crime rates can test how needed measures like this might be. Not so

with federally imposed uniformity. And the States and their residents must

bear these burdens for a statute whose “effectiveness may be undercut”

because it relies on “money launderers who, by definition, are already willing

lawbreakers,” to “comply voluntarily” with the CTA’s reporting mandate.

Reid Kress Weisbord & Stewart E. Sterk, The Commodification of Public

Land Records, 97 NOTRE DAME L. REV. 507, 557-58 (2022).

So the CTA lands not with the elegance of a tailored and tested

enforcement mechanism, but with the blunt force of federal overreach. And

the district court was right to treat the federal government’s claimed bases of

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authority with skepticism because of it. Cutting away the States’ space for

“social and economic experiments” in their zones of traditional authority gets

the Constitution’s fondness for “more local and more accountable”

government backward. West Virgina v. EPA, 597 U.S. 697, 739 (2022)

(Gorsuch & Alito, JJ., concurring) (cleaned up). In a constitutional case like

this, the federal-state asymmetry a statute leaves behind matters.

B. Federalism confirms that the Commerce Clause cannot justify

the CTA.

The district court was right on every score in striking the CTA down, as

Appellees explain. That’s especially true when it comes to the federal

government’s Commerce Clause theory. Holding the line on Congress’s

enumerated power to regulate interstate commerce matters precisely because

erasing it also erases the States’ constitutional power to regulate the truly

local. Here, the CTA’s attempt to usurp the States’ role by regulating entities

at the time they incorporate and before they engage in commerce of any

stripe—intra- or interstate—is wrong. The Court should affirm because

allowing Congress to regulate incorporation in this manner would blur the

distinction between what is local and what is national in a way the Constitution

and its federalism framework discussed above does not allow.

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1. Start from the beginning. Article 1, section 8, clause 3 of the

Constitution grants Congress power “[t]o regulate Commerce with foreign

Nations, and among the several [S]tates, and with the Indian Tribes.” Courts

“invalidate a congressional enactment only upon a plain showing that

Congress has exceeded [the Commerce Clause’s] bounds.” United States v.

Morrison, 529 U.S. 598, 607 (2000). But Congress’s power here is not limitless,

and courts evaluate purported exercises “in the light of our dual system of

government.” NLRB v. Jones & Laughlin Steel Corp., 301 U.S. 1, 37 (1937).

Congress may not extend its power “so as to embrace effects upon interstate

commerce so indirect” as to “effectually obliterate the distinction between

what is national and what is local.” Id. The “completely centralized

government” a rule like that would allow, id., leaves no room for the States.

Next take two of the seminal cases in modern Commerce Clause

jurisprudence: United States v. Lopez, 514 U.S. 549 (1995) and Morrison, 529

U.S. 598. Recognizing that the Commerce Clause’s distinction between

national and local power could have been seen as on a path to obliteration in

the prior decades, both cases insist that limit still matters. And though the

Court focused on several factors that doomed the laws at issue, both cases also

highlight federalism-protecting themes that required the Court’s results.

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Existing precedent had come dangerously close to converting “congressional

authority under the Commerce Clause to a general police power of the sort

retained by the States.” Lopez, 514 U.S. at 567 (emphasis added). So the Court

put an end to the federal government’s reliance on tenuous causal chains that

tried to dress up local issues as affecting interstate commerce. In Morrison,

for instance, the Court could “think of no better example of the police power,

which the Founders denied the National Government and reposed in the

States,” than the type of criminal law Congress had enacted. 529 U.S. at 618.

Adopting the federal government’s approach would have let Congress reach

most “any crime,” id. at 615, as well as legislate in other quintessential state

zones like “family law and direct regulation of education,” Lopez, 514 U.S. at

565.

That result would have been flatly at odds with the Framers’ intent—

their “insight” was “that freedom was enhanced by the creation of two

governments, not one.” Lopez, 514 at 576 (Kennedy, J., concurring).

Preserving the States’ sovereignty protects that design, and that freedom.

Concluding otherwise, in the Court’s view, would have been “remarkable”

because it would “undermine[] th[e] central principle of our constitutional

system” that “the people’s rights would be secured by the division of power”

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between the federal government and the States. Morrison, 529 U.S. at 616 n.7

(collecting cases).

Even before Morrison, lower courts had started to notice the Supreme

Court’s “considered judgments” that “incrementally, but jealously, enforced

the structural limits on congressional power that inhere in Our Federalism.”

Brzonkala v. Va. Polytechnic Inst. & State Univ., 169 F.3d 820, 826 (4th Cir.

1999), aff’d sub nom. Morrison, 529 U.S. 598. And the pattern continued. Just

one other example: in Jones v. United States, 529 U.S. 848 (2000), the Court

refused to extend the federal arson statute to “an owner-occupied private

residence” in large part because “arson is a paradigmatic common-law state

crime” and the Court was loathe to “significantly change the federal-state

balance” in that way. Bond, 572 U.S. at 859 (cleaned up). The common

denominator at work in all these cases is that “power bestowed and power

withheld under the Constitution” is a “foundational principle[]” of

federalism—even when allowing the federal government more power may

seem “expedient.” Brzonkala, 169 F.3d at 826. In short, the Commerce

Clause’s boundary line is “not solely a matter of legislative grace,” but a

constitutional imperative. Morrison, 529 U.S. at 616.

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2. Given all that, the district court was right to reject the CTA on

Commerce Clause grounds. It should be easy enough first to reject the federal

government’s idea that corporate incorporation is a “channel[]” or

“instrumentalit[y] of interstate commerce.” Lopez, 514 U.S. at 558.

“Channels” mean “the interstate transportation routes through which persons

and goods move,” while “instrumentalities” refers to “the people and things

themselves moving in commerce, including automobiles, airplanes, boats, and

shipments of goods.” United States v. Ballinger, 395 F.3d 1218, 1225-26 (11th

Cir. 2005) (cleaned up). The CTA deals with reporting requirements for

beneficial owner information when an entity incorporates, see generally 31

U.S.C. § 5336—things that neither move themselves nor create a route for

others.

The CTA doesn’t “substantially affect” interstate commerce, either.

Lopez, 514 U.S. at 559. Again, we’re dealing with incorporation, the act of

forming a legal corporation under state law. It is a preliminary step before

commercial action; at the point of incorporation, a company is not engaging in

any commerce at all. In fact, it’s not a certainty that an incorporated entity

will ever engage in commerce. State statutes envision non-business activities

as valid for incorporated entities, for example, like “[m]aintaining, defending,

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mediating, arbitrating, or settling” actions or engaging in “activit[ies]

concerning its internal affairs.” 15 Pa. Cons. Stat. § 403(a)(1)-(2). Even those

who incorporate with the intent of engaging in commerce can later decide not

to do business for various reasons. So without more, the act of incorporation

and any reporting obligations that come with it cannot be said to be commerce.

Arguing that the act of incorporation substantially affects interstate

commerce instead requires Rube Goldberg-style analysis similar to what the

Court rejected in Lopez and Morrison. In Lopez, the federal government

unsuccessfully argued that possessing a firearm in a local school zone

substantially affected interstate commerce because that possession might

result in violent crime that could affect the national economy through

increased insurance costs and by reducing Americans’ willingness to travel to

areas they deem unsafe. 514 U.S. at 563-64. Likewise, Morrison rejected the

argument that gender-motivated violence substantially affects interstate

commerce based on congressional findings that it could deter potential victims

from interstate travel, which could reduce transactions with businesses and

places involved in interstate commerce. 529 U.S. at 615-17. The same

principles apply here because the Commerce Clause rationale turns on what

could happen after incorporation—again, no one is engaging in economic

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activity at the early stage the CTA targets. But Congress needs more than

“inference[s]” before trying to exert “a general police power of the sort

retained by the States.” Lopez, 514 U.S. at 567.

Indeed, the CTA even lacks a jurisdictional element—a textual

requirement for case-by-case determinations that incorporation activity

substantially affects interstate commerce. As in Lopez and Morrison, “no

express jurisdictional element which might limit [the statutes’] reach to a

discrete” conduct that has “an explicit connection with or effect on interstate

commerce” confirms the constitutional defect. Morrison, 529 U.S. at 611-12

(quoting Lopez, 514 U.S. at 562). Nor is it enough that much of what a

corporation may do after incorporation affects interstate commerce. Congress

can regulate areas of traditional state responsibility, like some parts of

corporate conduct, so long as those areas also “substantially affect interstate

commerce.” Lopez, 514 U.S. at 566. But courts still look at the particular

assertion of authority at issue—“though broad,” Congress’s power in these

overlapping contexts “does not include the authority to regulate each and

every aspect” of the historically state-law matter. Id.

Finally, the CTA looks nothing like the statutes the Court has upheld

under Congress’s commerce power. Even Wickard v. Filburn, 317 U.S. 111

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(1942)—“perhaps the most far reaching example of Commerce Clause

authority over intrastate activity”—“involved economic activity.” Lopez, 514

U.S. at 560 (emphasis added). Incorporation is a purely legal activity, not a

good or service or otherwise traditionally understood as commerce. And

Gonzales v. Raich, 545 U.S. 1, 22 (2005), where the Court held that Congress

had authority to regulate local cultivation and possession of marijuana, doesn’t

help the federal government, either. Unlike this case, no one in Raich disputed

that the Controlled Substances Act “was well within Congress’ commerce

power.” 545 U.S. at 15. Only “individual applications of a concededly valid

statutory scheme” were at stake. Id. at 23. Also unlike here, Raich involved

“a lengthy and detailed statute creating a comprehensive framework for

regulating the production, distribution, and possession” of the whole host of

illegal substances. Id. at 24. So exempting the local application would have

“undercut” that comprehensive and indisputably interstate commercial

regime. Id. at 18. No broader, comprehensive regulatory scheme exists to be

frustrated here. And it’s easy to see why not: Congress can’t regulate the

“total incidence” of corporate practices that might “pose[] a threat to a national

market,” id. at 17 (cleaned up), because that goal would quickly extend to all

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aspects of corporate law—which no one thinks is “well within Congress’

commerce power,” id. at 15.

Raich, then, is about starting with federal power and sweeping in local

applications needed for uniformity. It’s not about reaching into the States’

zone from the get-go. So even it supports the idea that federalism’s

background principles come home to roost in Commerce Clause cases.

Congress cannot claim a theory of power that makes it “difficult to perceive

any limitation,” “even in areas … where States historically have been

sovereign.” Lopez, 514 U.S. at 564. If the Court were to find this a close or

difficult case, then, federalism’s protections generally and the State-protecting

philosophy behind Commerce Clause jurisprudence specifically would say to

resolve it on the side of keeping historically state-law matters under state

control.

II. The CTA Harms The States And Their Residents.

Apart from its legal flaws, the CTA also significantly injures the States

and our residents and small businesses. From hefty compliance costs that

business owners shoulder directly to regulatory burdens that the States will

have to incur, the CTA’s effects will be felt far and wide. It creates more harms

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than it purports to solve—making the federalism intrusion even more

concrete.

A. The CTA’s costs are massive.

Complying with the CTA’s demands will cost billions of dollars and tens

of millions of personnel hours. First, consider the time demands for small

businesses across the country. FinCEN estimates the burden to file initial

reports will range between 90 minutes for reporting companies with a “simple

structure,” to 370 minutes for those with an “intermediate structure,” to 650

minutes for those whose structure is “complex.” 87 Fed. Reg. 59,498, 59,573

(Sept. 30, 2022). Those estimates translate to 118,572,335 hours nationwide

filing reports in the CTA’s first year—followed by another 18,204,421 hours in

its second. Id. at 59,581.

Bad enough as those admitted numbers are on their own, they’re likely

underestimates. For example, the time FinCEN allots for a reporting

company with a “simple structure” presumes that a single employee will

handle the task and will spend a mere 90 minutes to read and “understand”

the statutory and regulatory requirements and definitions; “[i]dentify, collect,

and review information about beneficial owners and company applicants”; and

“fill out and file [the] report.” Id. at 59,573. Expecting all that to happen well

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before lunch on a single day is unrealistic—especially when a botched rush job

could have severe consequences. (More on that below.)

Indeed, when it came to its rule implementing the CTA, FinCEN had

many public comments explaining how its “estimated time burden … for filing

initial reports was unrealistically low given the complexity of the

requirements.” 87 Fed. Reg. at 59,553. As the U.S. Chamber of Commerce

explained, for instance, “FinCEN should not underestimate the significant

burden that will be caused by simply trying to understand beneficial

ownership requirements. Disclosure of beneficial ownership is an entirely

new federal requirement, from an agency that most businesses are unfamiliar

with.” Comment of U.S. Chamber of Commerce, Dkt. No. FINCEN-2021-

0005, at 3 (May 7, 2021), bit.ly/3V0PThm (emphases added). Another

commenter explained, reasonably enough, “that the 20[-]minute allotment to

read the form and understand the requirement from the initial report time

estimate should be increased to no fewer than 4.5 hours per report.” 87 Fed.

Reg. at 59,553. Still another explained how FinCEN’s estimates “are off by at

least 400 percent and quite likely several times that.” Id. at 59,554.

FinCEN’s already-faulty initial numbers don’t even include the time

needed to apply for and update FinCEN identifiers—the “unique identifying

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number[s] that FinCEN will issue to individuals or reporting companies upon

request, subject to certain conditions.” 87 Fed. Reg. at 59,507. Here, FinCEN

estimates an additional time burden of 110,553 hours in year one and 21,091

hours in year two. Id. at 59,581. Then add to that the time to update initial

filings after circumstances like name and address changes, identification

number expirations, beneficial owners who pass away, or “management

decision[s] resulting in a change in beneficial owner.” Id. at 59,574.

Companies must file updates within 30 calendar days of each of these

triggering circumstances, id. at 59,592, requiring (again, under FinCEN’s own

and questionably low estimates) yet another 7,657,096 hours in year one, id. at

59,581. And unlike the other burdens, this one goes up in future years:

FinCEN estimates 16,826,105 hours will be needed the second year. Id.

Second, the financial toll of all this is severe. FinCEN estimates each

reporting company will incur between $85.14 and $2,614.87 to file an initial

report. 87 Fed. Reg. at 59,559. “If all 32,556,929 existing reporting companies

have to incur [that expense] in the same single year, the aggregate cost … is

approximately $21.7 billion for Year 1” and $3.3 billion after. Id. at 59,559,

59,581. FinCEN thinks updating reports will cost another $3.3 billion the first

two years. Id. at 59,581. Put another way, complying with the CTA will impose

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“undoubtedly significant costs of approximately $22.8 billion in the first year

and $5.6 billion each year thereafter.” Id. at 59,582 (emphases added).

Here too, FinCEN’s figures are incomplete. They include employee

wages (based on the too-low hour estimates discussed above) and costs to

engage professionals like attorneys and CPAs—but only for “intermediate

structure” and “complex structure” reporting companies. 87 Fed. Reg. at

59,573. The idea that no “simple structure” companies will need help

navigating the CTA and completing their filings is irresponsible. After all,

“any person”—not just the company itself—who fails to report “complete or

updated beneficial ownership information” faces civil penalties of $500 per day,

up to $10,000 in fines, and 2 years in federal prison. 31 U.S.C. § 5336(h)(1),

(h)(3)(a). As the district court put it, “tens of millions of Americans must either

disclose their personal information to FinCEN” “or risk years of prison time

and thousands of dollars in civil and criminal fines.” Appx.179. To mitigate

that risk, most reporting companies will likely seek legal counsel and perhaps

other expert help for “navigating their FinCEN reporting responsibilities

while safeguarding against potential risks and fraudulent practices.” Matthew

B. Edwards, D. Parker Baker III, The Basic Ins and Outs of the Corporate

Transparency Act, 35 S.C. LAWYER 24, 29 (Sept. 2023); see also, e.g., id.

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(explaining that companies that “may temporarily fall below the threshold of

either receipts or employees” will need particular “[v]igilance” to avoid

liability).

And the financial costs don’t end even there. The time to apply for and

update FinCEN identifiers will carry associated wage costs—FinCEN is

willing to admit at least another $6.2 million for that in the first year and

around $950,000 afterward. 87 Fed. Reg. at 59,577. Commenters also pointed

out that FinCEN missed the “cost of securing data” for reports, “including

images of identification documents, as well as the harms should such

information not be kept secure.” Id. FinCEN acknowledged these

“potentially significant costs to businesses for securing the data and in

increased identity theft risk to individuals in the event of a data breach.” Id.

But curiously, it neglected any “estimates for these costs.” Id.

Third, the States will incur direct costs on top of what their residents

and businesses will suffer. The CTA requires relevant state and tribal

agencies (as determined by the Secretary of the Treasury) to “cooperate with

and provide information” FinCEN requests to create and maintain a database

of sensitive personal information. 31 U.S.C. § 5336(d)(2). It also requires

States to notify filers about their reporting obligations; give them copies of the

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Treasurer’s reporting company form; and update forms, websites, and

physical premises with CTA reporting information. Id. § 5336(e)(2)(A). This

all takes time and money, too—resources state governments will be required

to divert from other enforcement and regulatory priorities.

True, subsection 5336(j) authorizes an appropriation that FinCEN can

funnel to the States to help cover compliance costs. 31 U.S.C. § 5336(j). But

that relief is only potential, and incomplete. The CTA merely “authorize[s]”

Congress to appropriate funds to FinCEN; it doesn’t guarantee Congress will

come through. Id. Any funds will dry up after three fiscal years. Id. FinCEN

will also control any money—if it is dissatisfied with a State’s protocols, for

instance, it could withhold reimbursement. It could also determine that the

States’ receipts are not “reasonable” costs “necessary to carry out” the CTA.

Id. In short, the States remain on the hook for the time and money the CTA

requires, not just their resident businesses.

B. The CTA’s toll hurts the States’ economies.

This forced re-direction of small company labor and state resources will

strain the States’ economic development. It all takes a direct hit on small

businesses’ productivity, for starters. Businesses that employ 20 or fewer

employees—that is, those subject to the CTA, 31 U.S.C. § 5336(a)(11)(A) and

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(B)(xxi)—rely heavily on each individual employee, so disrupting their

workflow matters. Companies will inevitably pass on the costs of tying up

significant percentages of their workforces to comply with the CTA’s onerous

reporting requirements in the form of higher prices for their products and

services. FinCEN doesn’t say otherwise. Instead, it pleads ignorance, saying

it “does not have accurate estimates that are reasonably feasible regarding the

effect of the rule on productivity, economic growth, full employment, creation

of productive jobs, and international competitiveness of U.S. goods and

services.” 87 Fed. Reg. at 59,579.

Let’s add a few of the numbers FinCEN was not interested in

confronting. Some estimate that federal regulations cost the U.S. economy

over $1.9 trillion a year. CLYDE WAYNE CREWS, JR., COMPETITIVE ENTER.

INST., TEN THOUSAND COMMANDMENTS: AN ANNUAL SNAPSHOT OF THE

FEDERAL REGULATORY STATE 6, 33 (2022). Small businesses like those the

CTA and FinCEN’s implementing rule target already bear a heavy share of

that staggering figure—63% of the total cost by one estimate. See Jeffrey J.

Polich, Judicial Review and the Small Business Regulatory Enforcement

Fairness Act, 41 WM. & MARY L. REV. 1425, 1432 (2000). Costs like these often

scare away investors by the prospect of “reduce[d] or eliminate[d] … returns”

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from “[r]adical and vacillating changes in [the] law.” Richard J. Pierce, Jr.,

The Combination of Chevron and Political Polarity Has Awful Effects, 70

DUKE L.J. ONLINE 91, 92, 99 (2021). And consumers face nearly 1% price

increases for every 10% rise in overall federal regulation. DUSTIN CHAMBERS,

ET AL., HOW DO FEDERAL REGULATIONS AFFECT CONSUMER PRICES? AN

ANALYSIS OF THE REGRESSIVE EFFECTS OF REGULATION 29 (2019),

https://bit.ly/4bH7q3s.

Consider, too, that the CTA’s burdens are not limited to for-profit,

commercial entities. Just like their for-profit corporate cousins, any

“nonprofit that meets the definition of a reporting company” and that doesn’t

qualify for one of the statutory exemptions “will have to file” with FinCEN.

Sandra Feldman, Nonprofit Organization Considerations for FinCEN

Beneficial Ownership Information Reporting Requirements, WOLTERS

KLUWER (Feb. 27, 2024), bit.ly/3WE9eWM. And some estates and trusts will

be required to comply as well. See Christine Fletcher, Navigating the

Corporate Transparency Act: Estate Plan Implications, FORBES (Mar. 4,

2024, 3:49 PM), bit.ly/44JSfEj. Even everyday Americans and organizations

that do not have commercial ends, then, will feel the statute’s sting.

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So the CTA’s requirements are no mere inconvenience. Apart from

being illegal, they hurt the States and the people that do business in and

otherwise add value to our States in real and lasting ways. The district court

was right to invalidate it. This Court should affirm.

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CONCLUSION

This Court should affirm the district court’s ruling.

Respectfully submitted,
KRIS W. KOBACH PATRICK MORRISEY
ATTORNEY GENERAL ATTORNEY GENERAL
Anthony J. Powell
Solicitor General /s/ Michael R. Williams
Abhishek S. Kambli Lindsay S. See
Deputy Attorney General Solicitor General
Michael R. Williams
Office of the Kansas Attorney General Principal Deputy Solicitor General
120 SW 10th Avenue, 2nd Floor Counsel of Record
Topeka, Kansas 66612 Grant A. Newman
Telephone: (785) 296-2215 Assistant Solicitor General
Fax: (785) 296-3131
abhishek.kambli@ag.ks.gov Office of the Attorney General
Counsel for State of Kansas of West Virginia
State Capitol Complex
ALAN WILSON Building 1, Room E-26
ATTORNEY GENERAL Charleston, WV 25301
Robert D. Cook (304) 558-2021
Solicitor General michael.r.williams@wvago.gov
J. Emory Smith, Jr. Counsel for State of West Virginia
Deputy Solicitor General
Thomas T. Hydrick
Assistant Deputy Solicitor General
Joseph D. Spate
Assistant Deputy Solicitor General
State of South Carolina
Office of the Attorney General
1000 Assembly St.
Columbia, SC 29201
(803) 734-4127
thomashydrick@scag.gov
Counsel for State of South Carolina

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ADDITIONAL COUNSEL
STEVE MARSHALL ANDREW BAILEY
Attorney General Attorney General
State of Alabama State of Missouri
TIM GRIFFIN AUSTIN KNUDSEN
Attorney General Attorney General
State of Arkansas State of Montana
ASHLEY MOODY MICHAEL T. HILGERS
Attorney General Attorney General
State of Florida State of Nebraska
CHRISTOPHER M. CARR DAVE YOST
Attorney General Attorney General
State of Georgia State of Ohio
RAÚL R. LABRADOR MARTY J. JACKLEY
Attorney General Attorney General
State of Idaho State of South Dakota
BRENNA BIRD JONATHAN SKRMETTI
Attorney General Attorney General and Reporter
State of Iowa State of Tennessee
DANIEL CAMERON KEN PAXTON
Attorney General Attorney General
Commonwealth of Kentucky State of Texas
LIZ MURRILL SEAN REYES
Attorney General Attorney General
State of Louisiana State of Utah
LYNN FITCH JASON MIYARES
Attorney General Attorney General
State of Mississippi Commonwealth of Virginia
BRIDGET HILL
Attorney General
State of Wyoming

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CERTIFICATE OF COMPLIANCE

Pursuant to Rule 32(g) of the Federal Rules of Appellate Procedure, this

brief contains 6,207 words, excluding the parts of the document exempted by

Rule 32(f), and complies with the typeface requirements of Rule 32(a)(5) and

the type-style requirements of Rule 32(a)(6), as required by Rule 27(d)(1)(E),

because it has been prepared in a proportionally spaced typeface using

Microsoft Word in 14-point CenturyExpd BT font.

/s/ Michael R. Williams

Michael R. Williams