Rational Explanation Requirement for Termination of Federal Education Grants

Introduction

In State of California v. U.S. Department of Education, the First Circuit addressed whether the Department of Education lawfully terminated mid‐stream federal grants awarded under the Teacher Quality Partnership (TQP) and Supporting Effective Educator Development (SEED) programs. 109 grants had been competitively awarded to entities recruiting and training teachers for underserved communities. In early February 2025, the Department sent form letters to 104 grant recipients purporting to terminate their awards on five possible, disjunctive grounds—ranging from alleged violations of civil‐rights law to conflicts with “Department priorities” such as merit and fairness. Eight states sued, obtaining a temporary restraining order (TRO) to reinstate the grants. The Department appealed and sought a stay of the TRO. This commentary examines the court’s denial of that stay and the emerging legal principle: federal agencies must provide clear, reasoned explanations when terminating existing grants, subject to Administrative Procedure Act (APA) review.

Summary of the Judgment

The First Circuit denied the Department’s motion to stay the TRO. The court first held that the district court had jurisdiction under the APA—and was not relegated to the Court of Federal Claims—because the core dispute concerned the Department’s violation of federal statutes and regulations, not a simple breach of contract. Second, the court concluded the Department’s boilerplate termination letters, listing five alternative reasons for cancellation without specifying which applied to each program, fell short of the APA’s requirement that agency decisions be “reasonable and reasonably explained” (Motor Vehicle Manufacturers Ass’n v. State Farm). The agency had not produced an administrative record, accounted for reliance interests, or engaged in required notice‐and‐comment rulemaking to establish new “priorities.” Finally, balancing the equities under Nken v. Holder, the court found the Department had not shown irreparable harm that outweighed the States’ and recipients’ interests. Accordingly, the requested stay was denied.

Analysis

Precedents Cited

Sampson v. Murray (415 U.S. 61): Treats an adversary‐heard TRO as a preliminary injunction for reviewability.
United States v. Pedró-Vidal (991 F.3d 1): Allows courts to assume jurisdiction when refusal to do so would moot the appeal.
Megapulse, Inc. v. Lewis (672 F.2d 959): Distinguishes contract breach claims from APA challenges to agency action.
Normandy Apts., Ltd. v. HUD (554 F.3d 1290): Confirms that APA waiver of sovereign immunity applies when relief is non‐monetary injunction against agency action.
Calvary Chapel of Bangor v. Mills (984 F.3d 21): Addresses appellate reviewability of TROs.
Department of Commerce v. New York (588 U.S. 752): Defines the category of agency actions “committed to agency discretion” as unreviewable.
Lincoln v. Vigil (508 U.S. 182): Holds that discretionary funding decisions without statutory standards are unreviewable.
Policy & Research, LLC v. HHS (313 F. Supp. 3d 62): Finds reviewable agency termination power when bounded by regulations.
Chenery Corp. v. SEC (Chenery II) (332 U.S. 194): Requires agencies to provide contemporaneous, understandable explanations for their actions.
Motor Vehicle Manufacturers Ass’n v. State Farm (463 U.S. 29): Sets the arbitrary‐and‐capricious standard requiring rational connection between facts and agency choices.
Bowen v. Massachusetts (487 U.S. 879): Permits district‐court jurisdiction to enforce statutory mandates, even when payment is at issue.
FCC v. Fox Television Stations (556 U.S. 502): Requires agencies changing policy to supply “good reasons” and address reliance interests.
Overton Park (401 U.S. 402): Rejects post hoc rationalizations, limiting judicial review to the agency’s contemporaneous record.
Nken v. Holder (556 U.S. 418): Establishes the four‐factor test for stays pending appeal.
Regents of the University of California v. DHS (591 U.S. 1): Emphasizes consideration of reliance interests in administrative decisions.
League of Women Voters v. Newby (838 F.3d 1): Notes the public interest in agency compliance with statutory and procedural requirements.

Legal Reasoning

The court’s reasoning unfolds in three main steps:

Jurisdiction under the APA: The court held that the States’ challenge—seeking reinstatement of funds—was an APA argument, not a contract‐breach claim under the Tucker Act. Because the relief was injunctive rather than monetary damages, district‐court jurisdiction under 5 U.S.C. § 704 was appropriate (Bowen).
Reviewability of Termination Decisions: Although some funding decisions are “committed to agency discretion,” here regulations (2 C.F.R. § 200.340) and statutes defining TQP/SEED purposes provided meaningful standards. The Department could not terminate grants on a whim but only for cause specified by law or regulation (Pol’y & Research).
Arbitrary and Capricious Analysis: The APA demands clear, reasoned explanations. The Department’s boilerplate letters listing five alternative grounds without specifying which applied to each award failed this test (State Farm; Chenery II). The agency had not produced its administrative record, explained reliance interests, or performed notice‐and‐comment rulemaking to change “priorities” (Fox Television). Without a rational connection between evidence and decision, the terminations likely violate 5 U.S.C. § 706(2)(A).

Impact

This decision crystallizes that:

Federal agencies must ground grant‐termination decisions in statutory and regulatory standards and provide contemporaneous, specific explanations.
Boilerplate or disjunctive termination notices will not survive APA scrutiny if they leave recipients (and courts) guessing which grounds apply.
Agencies seeking to prioritize new policy goals (e.g., a shift away from DEI initiatives) must engage in notice‐and‐comment rulemaking before stripping existing awards.
States and program participants may enforce their reasonable reliance interests on ongoing federal programs in district court under the APA.

Complex Concepts Simplified

Administrative Procedure Act (APA): Federal law requiring agencies to follow fair procedures—like giving reasons and taking public comment—and allowing courts to review agency actions.
Arbitrary and Capricious: A legal standard under the APA; an agency must show a clear, rational link between its facts and its decision.
TRO vs. Stay Pending Appeal: A TRO is a short‐term order to preserve the status quo; a stay pending appeal suspends the TRO until the appeals court decides whether to let it stand.
Notice‐and‐Comment Rulemaking: A formal process where agencies publish proposed rules, accept public input, and then issue final rules; required when an agency changes binding policies.
Reliance Interests: Benefits or investments recipients have already made based on existing agency rules; courts often require agencies to consider these before making abrupt changes.

Conclusion

The First Circuit’s decision in State of California v. U.S. Department of Education enforces a foundational principle of administrative law: agencies cannot terminate existing grants on an undeclared whim. When an agency alters or withdraws funding mid‐stream, it must do so using the procedures and standards Congress and its own regulations prescribe, and it must articulate a coherent, specific rationale in the record. This safeguard protects recipients’ reliance interests and ensures transparency and accountability. Going forward, agencies will need to heed the APA’s demands for reasoned decision‐making and, when changing policy direction, adhere to notice‐and‐comment rulemaking before disrupting established programs.