Following the inauguration of President Trump in January 2025, the Office of Management and Budget issued a memorandum directing federal agencies to temporarily pause all activities related to the obligation or disbursement of federal financial assistance. Twenty-two states and the District of Columbia sued, alleging this directive violated the Administrative Procedure Act and the Constitution. The District Court granted a preliminary injunction, finding the freeze likely arbitrary and capricious and that the case was not moot despite the government's subsequent rescission of the memorandum. The government appealed, arguing the case was moot and the injunction exceeded the court's authority under the APA and the Tucker Act.
Chief Judge Barron, writing for the panel, first addressed the government's mootness claim. The court found that the District Court's factual finding that the OMB Memorandum's rescission was 'in name only' was not clearly erroneous. Evidence showed the freeze continued in practice, and the government failed to meet the 'formidable burden' of showing the wrongful behavior could not reasonably be expected to recur. Thus, the case remained live. On the merits of the Administrative Procedure Act claim, the court affirmed the District Court's conclusion that the states were likely to succeed. The court reasoned that the agency actions were arbitrary and capricious because the breadth and immediacy of the freeze reflected a failure to consider the 'important aspects of the problems,' specifically the reliance interests of states and recipients of obligated funds. The court noted that the OMB Memorandum's 'to the extent permissible by law' caveat was 'window dressing' given the 24-hour deadline and the agencies' consistent understanding that they must freeze first and ask questions later. Regarding the government's argument that the injunction ordered impermissible monetary payments, the court distinguished between prohibiting agency action and ordering specific performance of contracts. The court held that the Tucker Act requires contract claims for payment to be brought in the Court of Federal Claims. Consequently, the portion of the preliminary injunction that ordered agencies to 'release and transmit any disbursements' on awarded grants and executed contracts was vacated. However, the rest of the injunction, which prohibited the agencies from implementing the freeze, remained valid.
The preliminary injunction remains in force, prohibiting federal agencies from implementing categorical freezes on obligated funds based on the OMB Directive or related executive orders. However, states cannot rely on the injunction to force immediate disbursement of funds for awarded grants or executed contracts; those claims must be pursued in the Court of Federal Claims. The government must cease its manual review processes that effectively function as funding freezes. The decision leaves open the question of whether other types of 'executed financial obligations' distinct from grants are covered by the Tucker Act bar.
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