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 blocking the freeze and ordered agencies to release paused funds. The government appealed, arguing the case was moot after the OMB rescinded the memorandum and that the district court lacked jurisdiction to order monetary payments. Additionally, the government challenged the enforcement order against FEMA, which had implemented a manual review process that the states argued was a disguised continuation of the freeze.
The court first rejected the government's mootness argument, finding that the rescission of the OMB memorandum was in name only and that the substantive funding freeze continued based on evidence of agency actions and statements by the White House Press Secretary. On the merits, the court held that the states were likely to succeed on their claim that the categorical freeze was arbitrary and capricious. The court reasoned that the agencies failed to provide a reasoned explanation for the immediate and broad pause, specifically ignoring the significant reliance interests of the states and recipients of the funds. The court also found that the government failed to show the actions were committed to agency discretion by law. However, regarding the remedy, the court applied the Supreme Court's recent decision in Department of Education v. California. That precedent established that the APA's waiver of sovereign immunity does not extend to orders enforcing contractual obligations to pay money. Consequently, the court vacated the specific paragraph of the preliminary injunction that ordered the release of funds on awarded grants and executed contracts, as that relief was beyond the district court's jurisdiction under the Tucker Act. The court affirmed the remaining parts of the injunction, which merely prohibited the agencies from implementing the freeze. Regarding FEMA, the court affirmed the enforcement order, concluding that FEMA's manual review process was not an independent exercise of authority but an adoption of the enjoined funding freeze scheme.
Federal agencies are now prohibited from implementing a categorical freeze on federal financial assistance that ignores reliance interests, but they are not under a court order to immediately disburse funds that were paused under the freeze. The states must seek recovery of paused funds through the Court of Federal Claims under the Tucker Act rather than through the district court's APA order. The injunction remains in effect to prevent future freezes based on the OMB Directive or related executive orders, and FEMA must cease its manual review process if it is found to be a continuation of the freeze.
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