Categorical Funding Freezes Are Reviewable and Likely Arbitrary, but APA Courts Cannot Order Grant/Contract Payments (Tucker Act Limit)

Introduction

In State of New York v. Trump (1st Cir. Mar. 16, 2026), a coalition of states and the District of Columbia (collectively, the “States”) sued the President, the Office of Management and Budget (“OMB”), and numerous federal agencies and officials (the “Agency Defendants”) over an alleged, sweeping “freeze” of federal financial assistance implemented in the early days of the Trump Administration.

The dispute traces to OMB Memorandum M-25-13 (the “OMB Memorandum”), which directed agencies to identify and review federal financial assistance programs for consistency with several executive orders and, “in the interim,” to “temporarily pause” obligation/disbursement activities implicated by those orders. Although OMB later “rescinded” the OMB Memorandum, the States alleged that the funding freeze continued in practice, impairing state operations (healthcare, disaster relief, education, unemployment administration, childcare, and more).

The key issues on appeal were: (1) mootness after rescission (and the voluntary cessation doctrine), (2) whether the States’ claims were an impermissible “programmatic attack” under the APA or instead challenged reviewable discrete agency actions, (3) whether the freezes were likely arbitrary and capricious, (4) whether preliminary-injunction factors were satisfied, and (5) whether the district court exceeded remedial limits by ordering “payment of money” barred by sovereign immunity/Tucker Act principles as articulated in recent Supreme Court stay rulings.

Summary of the Opinion

The First Circuit (Barron, C.J.) largely upheld the district court’s preliminary injunction against the categorical funding freeze, concluding the States were likely to succeed on their APA “arbitrary and capricious” theory and that the case was not moot despite the OMB Memorandum’s rescission because the “OMB Directive” (the operative policy) plausibly “carried on.”

However, the court vacated the portion of the injunction that required the Agency Defendants to “release and transmit” disbursements on “awarded grants” and “executed contracts,” holding that—under Department of Education v. California and National Institutes of Health v. American Public Health Association—district courts lack APA jurisdiction to order specific performance of federal payment obligations sounding in grant/contract rights (a Tucker Act channeling/sovereign immunity limitation).

The court also affirmed in full the orders enforcing the preliminary injunction against FEMA, reasoning that the enforcement order did not itself command payment of money; it required FEMA to stop an enjoined “manual review” process and to comply with the injunction’s bar on implementing the categorical freeze.

Analysis

Precedents Cited

1) Mootness and voluntary cessation

  • Powell v. McCormack — Provided the baseline definition of mootness (“no longer ‘live’”) and the principle that if some issues become moot, remaining live issues preserve a case or controversy.
  • Bayley's Campground, Inc. v. Mills and ACLU of Mass. v. U.S. Conf. of Cath. Bishops — Articulated the “formidable burden” under voluntary cessation: it must be “absolutely clear” wrongful conduct will not recur.
  • FBI v. Fikre — Reinforced modern Supreme Court framing of voluntary cessation.
  • West Virginia v. EPA — Used for the allocation of burden: the party asserting mootness bears it.

The First Circuit treated the district court’s “rescission in name only” determination as a factual finding (reviewable for clear error) and emphasized the Government’s failure to challenge it meaningfully. This finding—grounded in the Press Secretary’s statement and post-rescission agency behavior— prevented mootness from attaching in the first place (i.e., the challenged “directive” never truly ceased).

2) Preliminary injunction framework

  • Winter v. Nat. Res. Def. Council, Inc. — Supplied the four-factor preliminary injunction test.
  • N.H. Indon. Cmty. Support v. Trump — Provided standard of appellate review: abuse of discretion; legal issues de novo; factual findings for clear error.

3) APA reviewability: “programmatic attack” and discrete agency action

  • Norton v. Southern Utah Wilderness Alliance — Rejected broad programmatic attacks not tied to discrete final agency action.
  • Lujan v. National Wildlife Federation — Recognized that an across-the-board final order or regulation applying a measure to all cases can be challenged, even if it affects many individual decisions.

The court used Lujan’s footnote to explain why a categorical, agency-wide freeze can still be “discrete” enough—especially when it functions as an across-the-board directive—rather than an unreviewable “program.”

4) APA reviewability: “committed to agency discretion by law”

  • Dep't of Com. v. New York and Abbott Lab'ys v. Gardner — Invoked the “basic presumption of judicial review.”
  • Dep't of Homeland Sec. v. Regents of the Univ. of Cal. — Limited § 701(a)(2) to “rare” decisions or those lacking meaningful standards.
  • Union of Concerned Scientists v. Wheeler and Lincoln v. Vigil — Addressed when statutes provide no meaningful standards (or decisions are traditionally discretionary), with Lincoln focused on allocation from lump-sum appropriations.
  • Milk Train, Inc. v. Veneman — Example where statute’s “in a manner determined appropriate” language rendered action unreviewable.
  • Train v. City of New York — Cited by analogy that statutory schemes may not grant discretion to withhold appropriated funds.

The First Circuit distinguished Lincoln and Milk Train as not supporting unreviewable discretion to impose a categorical, indefinite freeze on already-obligated funds without reasoned explanation and without accounting for reliance.

5) Arbitrary-and-capricious review and reliance interests

  • Ohio v. EPA, FCC v. Prometheus Radio Project, and Michigan v. EPA — Set the “reasonable and reasonably explained” and “rational connection” requirements.
  • Regents — Limited review to contemporaneous grounds and required consideration of reliance interests when changing course.
  • Encino Motorcars, LLC v. Navarro and Bowman Transp., Inc. v. Arkansas-Best Freight Sys., Inc. — Required a minimally discernible reasoning “path.”
  • FCC v. Fox Television Stations, Inc. — Agencies act arbitrarily by ignoring serious reliance interests.
  • Nat'l Council of Nonprofits v. Off. of Mgmt. & Budget — Persuasive district-court discussion that 24 hours is implausibly short for lawful, individualized review across massive grant portfolios.

6) Injunction specificity and separation-of-powers objections

  • Building & Construction Trades Department, AFL-CIO v. Allbaugh — The possibility of some unlawful applications does not justify enjoining a policy valid in many circumstances (distinguished on facts).
  • City & Cnty. of San Francisco v. Trump — Savings clauses must be read in context.
  • United States v. Stanchich — Quoted for not requiring judicial “naiveté.”
  • Fed. R. Civ. P. 65(d)(1)(C) and Axia Netmedia Corp. v. Mass. Tech. Park Corp. — Injunctions must describe restraints in “reasonable detail” to avoid contempt based on vagueness.

7) The Tucker Act / sovereign immunity remedial limit under the APA

  • Department of Education v. California — Supreme Court stay: APA’s limited waiver of sovereign immunity does not extend to orders enforcing contractual obligations to pay money; plaintiffs may seek withheld funds in an “appropriate forum.”
  • National Institutes of Health v. American Public Health Association — Supreme Court stay reaffirming that district courts lack APA jurisdiction to adjudicate claims “based on” grants or order relief enforcing payment obligations.
  • Great-West Life & Annuity Ins. Co. v. Knudson — Quoted for the “obligation to pay money” characterization.
  • Am. Pub. Health Ass'n v. Nat'l Insts. of Health — First Circuit’s own prior view that the claims did not depend on specific contract terms (yet still subject to the Supreme Court’s stay rationale).

8) Appellate jurisdiction over enforcement orders; hypothetical statutory jurisdiction

  • Hatten-Gonzales v. Hyde and Arlington Indus., Inc. v. Bridgeport Fittings, Inc. — General limits on immediate appeals from enforcement/contempt-related injunction interpretations.
  • Federated Mut. Ins. Co. v. Peterson's Oil Serv., Inc., Akebia Therapeutics, Inc. v. Azar — Permitted “hypothetical” statutory jurisdiction where merits favor the party challenging jurisdiction.

Legal Reasoning

1) What was being challenged: the “Directive,” not the “paper”

A central move in the opinion is definitional and practical: the court treated the object of review as the operative policy (“the OMB Directive” and the agencies’ alleged categorical freezes), not merely the rescinded memorandum that announced it. That allowed the court to (a) defeat mootness and (b) evaluate whether an across-the-board freeze is a discrete, reviewable agency action.

2) Mootness failed because cessation was not established as a factual matter

The panel held the voluntary cessation doctrine never even “came into play” unless the rescission actually ended the challenged conduct. Because the district court found—based on record evidence—that the “substantive effect” carried on, the Government could not show mootness. The Government’s failure to contest that factual finding was decisive.

3) The States’ APA claims were not an impermissible “programmatic attack”

The court rejected the characterization that challenging an “agency-wide categorical freeze” necessarily violates Norton. Under Lujan, an across-the-board final directive can still be a discrete action. The injunction targeted categorical freezes and the OMB Directive, not every downstream grant dispute as such.

4) Section 701(a)(2) did not shield the freezes as “committed to discretion”

The Government’s reliance on statutes affording agencies latitude in competitive awarding or program design did not establish that freezing obligated funds—categorically and immediately—was unreviewable. Lincoln v. Vigil concerned allocation from a lump-sum appropriation and did not authorize blanket non-disbursement of already obligated assistance without a reasoned explanation.

5) Likely arbitrary and capricious: immediacy, breadth, and ignored reliance interests

The panel affirmed that the States were likely to succeed under § 706(2)(A) because the record supported the conclusion that the directive operated as “freeze first, ask questions later,” and that the agencies failed to meaningfully consider a key aspect of the problem: severe reliance interests and disruptive consequences of halting obligated funding at scale.

Importantly, the court evaluated arbitrariness in light of how the directive functioned, not merely how a “to the extent permissible by law” clause might read in isolation. The 24-hour implementation timeline was treated as practical evidence undermining any claim that lawful, individualized assessment occurred before freezing.

6) Winter factors: irreparable harm and equities favored the States

On irreparable harm, the court distinguished the Supreme Court’s stay discussion in Department of Education v. California because the States alleged non-pecuniary harms and systemic disruptions (not merely recoverable money loss).

On public interest/balance of equities, the court rejected claims of vagueness and chilling effects. It read the injunction as limited to freezes “based on the OMB Directive,” and held the FEMA enforcement order rested on factual findings that FEMA’s “manual review process” was essentially implementing an enjoined executive-order-linked funding mandate.

7) The crucial remedial limitation: no district-court ordering of grant/contract payments under APA

The opinion’s major doctrinal constraint is remedial: even where an APA challenge to an across-the-board freeze is likely meritorious, a district court may not order “release and transmit” payments on “awarded grants” and “executed contracts,” because that resembles specific performance of an obligation to pay money—relief the Supreme Court has recently indicated falls outside APA sovereign immunity waiver and within Tucker Act channeling.

The court carefully separated (a) permissible forward-looking relief preventing use of unlawful guidance/freeze mechanisms from (b) impermissible relief compelling the Government to pay out under grant/contract instruments.

8) FEMA enforcement affirmed: compliance order ≠ payment order

FEMA’s Tucker Act objection failed because the enforcement order, as challenged, did not itself order money payments; it ordered cessation of an enjoined process and compliance with the injunction’s bar on implementing the categorical freeze.

Impact

  • Anti-evasion principle for rescissions: Agencies cannot moot challenges to an operative policy merely by rescinding a document if record evidence shows the policy’s “substantive effect” persists. This encourages courts to look at real-world implementation and discourages strategic “paper rescissions.”
  • APA viability against categorical funding freezes: A broad, agency-wide “pause” may still qualify as a discrete final action, not an unreviewable “programmatic attack,” especially when implemented as an across-the-board directive.
  • Reliance interests as a central APA constraint: When government abruptly changes funding practice at scale, reliance interests (including governmental reliance) can be the “important aspect of the problem” that drives arbitrary-and-capricious invalidation.
  • Sharper remedial boundaries post-Department of Education v. California / National Institutes of Health v. American Public Health Association: Even if an APA claim is strong, district courts in APA posture should expect heightened scrutiny if they order the Government to pay money under grants/contracts. Future litigants will likely plead more carefully for relief that halts unlawful freezes while pursuing money-entitlement remedies (if any) in Tucker Act channels.
  • Enforcement orders can survive Tucker Act arguments: Orders compelling agencies to stop using an unlawful freeze mechanism may remain enforceable even if payment-compulsion remedies are curtailed.

Complex Concepts Simplified

“Mootness”
A case is moot if there is no longer a real dispute the court can resolve. Here, rescinding the memo did not moot the case because the alleged funding-freeze policy continued in practice.
“Voluntary cessation”
If a defendant voluntarily stops challenged conduct, the case becomes moot only if it is “absolutely clear” the conduct will not recur. The First Circuit effectively held the conduct never truly stopped.
“Programmatic attack” vs. “discrete agency action”
The APA allows challenges to specific actions (e.g., a directive imposing a categorical freeze), not generalized complaints about how an agency runs an entire program in the abstract.
“Arbitrary and capricious”
An agency must reasonably explain its action and consider key consequences. Ignoring obvious reliance interests and catastrophic disruption risks can make the action unlawful.
“Reliance interests”
When people or governments have structured budgets and services around longstanding funding practices, an agency must consider those dependencies before abruptly changing course.
The “Tucker Act” and why it limits APA remedies
The Tucker Act channels many money claims based on contracts (and, per recent Supreme Court stay orders, grant-like payment obligations) to the Court of Federal Claims. District courts hearing APA cases may be able to set aside unlawful policies but may not be able to order the Government to pay money as specific performance of grant/contract obligations.
Rule 65 specificity
Injunctions must be clear enough that the enjoined party can tell what is forbidden. The First Circuit held the injunction’s limitations (tying prohibited conduct to the OMB Directive/executive-order-linked freeze) were sufficiently definite.

Conclusion

The First Circuit’s decision establishes a two-part rule of practical significance. First, categorical, agency-wide freezes of obligated federal assistance—especially those implemented immediately and without individualized consideration—are likely reviewable under the APA and vulnerable as “arbitrary and capricious” when agencies ignore obvious reliance interests and disruptive consequences. Second, even where such freezes are likely unlawful, district courts must respect a sharpened remedial boundary: under Department of Education v. California and National Institutes of Health v. American Public Health Association, APA courts generally cannot order specific performance requiring the federal government to pay out on “awarded grants” or “executed contracts,” a domain channeled by sovereign immunity and the Tucker Act.

The resulting framework meaningfully shapes future funding-freeze litigation: plaintiffs can seek to stop unlawful categorical freeze mechanisms, but attempts to compel grant/contract payments in district court will face substantial jurisdictional headwinds.