/>iOne of the immediate priorities of the second Trump administration has been the termination of a slew of federal contracts and grants. This, predictably, has led to litigation, mostly filed in the U.S. District Courts, which as we have previously written, have authority to grant equitable relief. The government has been arguing that these cases belong in the U.S. Court of Federal Claims, where only monetary damages are available (and only upon meeting the high burden of establishing that the government acted in bad faith). On April 4, 2025, the Supreme Court issued an emergency stay of a District Court’s preliminary injunction in a case challenging grant terminations, with the five-justice majority suggesting that the termination case belonged in the Court of Federal Claims. But since then, two U.S. District Courts and the Ninth Circuit Court of Appeals have ruled—contrary to the Supreme Court’s emergency stay order—that there is indeed district court jurisdiction in cases challenging contract and grant terminations. As Judge Young of the District Court of Massachusetts stated, “…this Court, after careful reflection, finds itself in the somewhat awkward position of agreeing with the Supreme Court dissenters and considering itself bound by the still authoritative decision of the Court of Appeals of the First Circuit…” which ruled that the Tucker Act did not apply, and that the government’s actions were reviewable under the Administrative Procedures Act (“APA”).
Commonwealth of Massachusetts et al. v. Robert F. Kennedy, Jr. et al., Case No. 25-10814-WHY, U.S. District Court for the District of Massachusetts
On May 12, 2025, the U.S. District Court for the District of Massachusetts ruled that it—not the Court of Federal Claims—has subject matter jurisdiction over a lawsuit brought by a coalition of states challenging the withdrawal of funding opportunities and grant terminations by the National Institutes of Health based on perceived connections to diversity, equity, and inclusion and gender issues.
The District Court noted that the Court of Federal Claims was established, and the Tucker Act was enacted, to allow contractors and grantees to pursue monetary claims against the United States. But not every claim against the government is cognizable under the Tucker Act, even if the remedy may involve the payment of money. The Court noted that “whether a claim is contractual in nature under the Tucker Act [and therefore belongs in the Court of Federal Claims] is based on a determination of the essence of the action,” which requires a court to examine the source of the rights underlying the claim and the type of relief sought or appropriate to redress the claim. Applying this “essence” test, the District Court found that the States are primarily challenging the allegedly unlawful policies and actions of public officials, not the terms of their terminated grants, and the relief sought—directing the expenditures of already-appropriated funds—is mainly injunctive, not compensatory.
The District Court extensively quoted Justice Jackson’s dissent in the Supreme Court’s order to explain why District Court review of terminations under an APA standard is appropriate, including that the government’s “robotic rollout of its new mass grant-termination policy means that grant recipients and reviewing courts are compelled to guess at the theory underlying the agency’s action. Moreover, the agency’s abruptness leaves one wondering whether any reasoned decision making has occurred with respect to these terminations at all. These are precisely the kinds of concerns that the APA’s bar on arbitrary-and-capricious agency decision making was meant to address.”
Community Legal Services in Palo Alto et al. v. HHS et al., Case No. 3:25-cv-02847-AMO
On May 14, 2025, the Ninth Circuit ruled that the district court has jurisdiction to hear challenges to agency actions terminating funding for legal representation of unaccompanied children, despite the government’s argument that such cases should be brought exclusively in the Court of Federal Claims under the Tucker Act. The plaintiffs in this case specifically alleged that the government violated the Trafficking Victims Protection Reauthorization Act (“TVPRA”) by withholding all congressionally authorized funding for direct legal representation of unaccompanied migrant children, thereby failing to “ensure, to the greatest extent practicable,” that unaccompanied children receive legal counsel as mandated by 8 U.S.C. § 1232(c)(5). The majority emphasized that the claims were rooted in statutory and regulatory violations, not contract disputes, noting, “To the greatest extent practicable does not mean to no extent at all.” The court further explained that the Tucker Act did not bar the plaintiffs’ APA claims, particularly since the plaintiffs, as the subcontractors on the program, have no direct contract with the government and thus could not sue under the Tucker Act. In dissent, Judge Callahan went further than arguing that the claims belonged in the Court of Federal Claims, and insisted that the plaintiffs’ claims are unreviewable, because the decision to terminate funding was “committed to agency discretion by law under 5 U.S.C. § 701(a)(2).” As Judge Callahan wrote, “Even if the district court had jurisdiction under the Administrative Procedure Act, the decision to terminate funding—or the decision of who to fund—is committed to agency discretion by law.” Notwithstanding the dissent, this decision underscores the judiciary’s increasing willingness to review agency actions that implicate statutory mandates, even when the government invokes arguments of unreviewability or exclusive jurisdiction elsewhere.
State of Colorado et al. v. HHS et al., Case No. 1:25-cv-00121-MSM-LDA
On May 16, 2025, the U.S. District Court for the District of Rhode Island reached the same conclusion, ruling that it has subject matter jurisdiction under the APA over a lawsuit brought by a coalition of States challenging the termination of public health grants by the Department of Health and Human Services (“HHS”). The Court rejected HHS’s argument that the States’ claims were contractual and fell under the exclusive jurisdiction of the Court of Federal Claims pursuant to the Tucker Act.
Applying the “essence” test, Judge Mary S. McElroy ruled that the District Court has jurisdiction because the essence of the case is not contractual, but rather centers on alleged violations of federal statutes, regulations, and constitutional principles. The judge distinguished between claims that arise from contract disputes—which would typically fall under the exclusive jurisdiction of the Court of Federal Claims via the Tucker Act—and claims seeking prospective, equitable relief for unlawful agency action under the APA. She emphasized that the States’ claims do not arise in any contract, but rather arise under the APA—particularly that statute’s provisions forbidding arbitrary and capricious action, action contrary to law, and action in excess of statutory authority and the Constitution’s Spending Clause and underlying separation of powers principles. The court found that the gravamen of the States’ allegations “does not turn on terms of a contract between the parties; it turns largely on federal statutes and regulations put in place by Congress and HHS.”
Judge McElroy further explained that the States are seeking relief that is prospective and equitable—namely, an injunction to halt the allegedly unlawful termination of federal funding—rather than money damages for breach of contract. She cited Supreme Court precedent, particularly Bowen v. Massachusetts, to support the distinction between actions for money damages (which fall under the Tucker Act) and actions for specific relief (which are reviewable under the APA in district court). The judge wrote, “Merely because their requested equitable relief would result in the disbursement of money is not a sufficient reason to characterize the relief as money damages.” She concluded that the case concerns the process and legality of HHS’s actions, not the enforcement of contractual obligations, and that district courts are the proper forum for reviewing such claims. This reasoning was reinforced by her observation that “the source of the States’ rights is based on federal law rather than on contract,” and that the States “have asked this Court to review and interpret the governing federal statute and regulations.” Thus, the District Court retained jurisdiction to adjudicate the States’ claims for injunctive and declaratory relief under the APA and the Constitution.
Conclusion
These recent decisions provide important guidance for parties seeking to challenge broad federal funding directives and contract and grant terminations, clarifying the circumstances under which such claims may proceed in district court rather than the Court of Federal Claims. As the Government continues to contest subject matter jurisdiction in ongoing litigation, further guidance from the Circuit Courts or the Supreme Court is likely. We will continue to monitor these developments and provide updates as the legal landscape evolves.
