The State of Impoundment Litigation Now

David Super

     The past few weeks have gone a long way toward framing the key questions that will decide whether the Trump Administration’s massive impoundment effort succeeds where President Nixon’s failed.  This post surveys what we have learned.

     At the outset, we must divide impoundments into three distinct sets.  First, the Administration has stopped payment on billions of dollars that were already obligated through numerous programs.  This has occurred primarily through the purported cancellation of grants and contracts.  Some of these have involved efforts the Administration dislikes, such as combating climate change; others appear to have been eliminated more or less randomly when they caught the eye of an ignorant twenty-something empowered by Elon Musk’s Department of Government Efficiency (DOGE). 

     The second and largest set of impoundments involve refusals to obligate and spend money Congress has appropriated for a wide range of programs.  Here again, sometimes the impoundments’ motivation is clear; often, it appears utterly capricious.  An Administration that targets the Enola Gay for promoting gender identities is capable of anything. 

     Finally, the smallest set of impoundments are those for which the Administration partially followed the procedures in the Impoundment Control Act to seek Congress’s permission.  After unlawfully impounding the funds for many months – in violation of the Act’s requirement that the President notify Congress at the time he determines that he does not want to spend moneys – he finally followed the Act’s procedures in June, sending up a rescission request that congressional Republicans largely rubber-stamped. 

Impoundments by Cancelling Grants and Contracts

     Challenges to the Administration’s attempt to claw back funds already obligated have run aground on the Supreme Court’s insistence that many or most of them be filed in the Court of Federal Claims rather that U.S. District Court.  This insistence first surfaced in the Court’s unsigned order granting a stay of a district court’s injunction in Department of Education v. California.  As that order also justified the stay on the grounds that the state plaintiffs there could afford to replace the lost federal funds during the pendency of the litigation, the scope and rigidity of the Court’s position remained unclear. 

     Far more clarity came from National Institutes of Health v. APHA.  There a district court had ordered reinstatement of many grants the Administration had terminated because it asserted they related to diversity, equity and inclusion, the COVID-19 pandemic, or other topics the Administration does not want studied.  The Administration requested a stay from the Supreme Court.  The Chief Justice and the three more liberal justices favored denying a stay completely.  Justices Thomas, Alito, Gorsuch and Kavanaugh wanted to grant the stay completely.  The decisive vote belonged to Justice Barrett, whose brief concurrence constituted a de facto opinion of the Court.  She found that the district court did potentially have jurisdiction to invalidate the guidance documents on which the Administration relied in terminating the grants but not to reverse the terminations themselves.  She acknowledged that this could result in two-stage litigation, first in district court on the guidance and then in the Court of Federal Claims to retrieve the wrongfully withheld funds.  She left open some other questions about the district court’s jurisdiction. 

     Justice Barrett’s opinion was relied upon in last week’s district court decision rejecting the Administration’s attempt to defund Harvard.  The court found that plaintiffs’ challenge to the documents by which the Administrative sought to justify defunding did fall within its jurisdiction and struck them down.  The court held that it could not consider plaintiffs’ arguments that the actual defunding was arbitrary and capricious under section 706(2)(A) of the Administrative Procedure Act.  The court went on to hold, however, that it had jurisdiction over plaintiffs’ claims that the funding cut-off was “contrary to constitutional right, power, privilege, or immunity [and]; in excess of statutory jurisdiction, authority, or limitations, or short of statutory right” under different subparagraphs of the APA.  The court held that this allowed it to rule on plaintiffs’ claims that the Administration was violating their First Amendment rights and disregarding Title VI of the Civil Rights Act of 1964, noting that the Court of Federal Claims’ jurisdiction is limited to “money-mandating” provisions of law.  If this approach holds up on appeal, others may pursue it when seeking wrongfully withheld funds.    

     Another important attempted cancellation of obligated funds concerned the Greenhouse Gas Reduction Fund, a major initiative to finance green energy production in the Inflation Reduction Act.  To facilitate the public-private partnerships that the Act mandates, the Biden Administration deposited the funds for the winning grantees in an account at Citibank from which those funds could be drawn down to match private investments funding solar projects.  The Administration purported to cancel these contracts and demanded that Citibank return the funds.  Plaintiffs sued and won in district court, arguing that, as all they sought was to have the federal government leave their money at Citibank alone, they belonged in district court.  They noted that district court has clear authority to issue injunctions, rather than the Court of Federal Claims, which operates largely through money judgments.  This argument, and their challenge generally, prevailed in district court but was reversed by a divided panel of the District of Columbia Circuit containing two Trump appointed.  Plaintiffs surely will seek rehearing en banc.

     If the ultimate result is that challenges to unlawful refusals to pay obligated funds must be filed in the Court of Federal Claims, the Trump Administration will effectively prevail on this part of its impoundment campaign.  The Court of Federal Claims is designed to uphold contractors’ need for funds eventually, not to require that programs be operated according to law.  It can distribute a bit of money long after a program has been disbanded but it cannot preserve that program.  As the Administration cares about destroying programs rather than saving money, it will jump at this trade.

     Justice Barrett’s opinion in the NIH case also suggested that preliminary relief in funding cases would be problematic because of the federal government’s likely difficulty in obtaining reimbursement should it ultimately prevail in the cases.  Perhaps this would not apply to Harvard – whom the Administration has taken great pains to paint as so flush as to not need these funds – but it further suggests that numerous recipients of grants and contracts are likely to fold or to disband the funded activity before any funds are made available. 

Impoundments by Refusing to Spend

     Challenges to the Administration’s refusal to obligate appropriated funds have moved somewhat more slowly.  This may be because, unlike grant and contract cancellations, they have rarely been announced publicly.  Many prospective funding recipients of funds have clung to the hope that the Administration might ultimately take steps toward obligating the funds.  That long ago ceased to be a plausible hope, with Notices of Funding Opportunities not issued and advisory committees not convened just weeks before the end of the fiscal year.  In addition, the Administration’s vindictiveness has left many prospective grantees waiting and hoping that someone else would sue instead of them.  And those that have sued often focused on the rank arbitrariness of the Administration’s actions rather than the legality of impoundment per se.

     The case in this second group that has advanced the farthest concerns funding for USAID.  Two groups of plaintiffs filed a total of ten claims, including violation of the separation of powers, officials acting ultra vires by withholding funds Congress had directed to be spent, violations of the Impoundment Control Act, and violations of the statutes authorizing and appropriating funds for these programs.  After a confusing partial win in district court, plaintiffs lost in an even more perplexing decision of a panel in the D.C. Circuit.  The Court of Appeals held that plaintiffs’ constitutional and ultra vires claims could not proceed because of their similarity to statutory claims and that only the Comptroller General, not private parties, could sue to enforce the Impoundment Control Act.  The Court of Appeals panel also included a line that appeared to foreclose plaintiffs litigating under appropriations acts but stated no reason for such a holding.   

     Plaintiffs moved for rehearing by the full D.C. Circuit.  In response, the panel amended its opinion to make clear that it posed no bar to litigating violations of the appropriations acts.  The full court then denied rehearing en banc, with two judges stating that sending the case back down to the district court for a decision on the appropriations act claims would get a decision on the merits more quickly than rehearing the case and then likely having it appealed to the Supreme Court. 

     The Administration then tried to buttress its position by sending Congress what purported to be a request to rescind some of the funds at issue.  This is the strategy OMB Director Russell Vought has often described as a “pocket rescission”, with his claims being that merely submitting the request entitles the Administration under the Impoundment Control Act to withhold the funds for 45 days.  The trick Director Vought envisions is that, if the Administration submits the request in the last month-and-a-half of a fiscal year, the funds will expire before those 45 days run out.  One key problem with this theory is that nothing in the ICA actually says that the President may withhold funds proposed for rescission – while the ICA does say that it does not authorize violations of any other acts.  Selling an utterly anti-textual statutory theory to a Supreme Court where “we are all textualists” will be no small task – all the more so because the Court has previously held that giving the President authority to disregard appropriations laws is unconstitutional even with statutory authorization.  The supposed precedents Director Vought cites for “pocket rescissions” do not bear close examination. 

     On remand, the district court considered plaintiffs’ claims under the appropriations acts expeditiously and ordered the Administration to resume spending in those accounts.  The Administration moved for a stay, citing its purported “pocket rescission”.  The Chief Justice granted an administrative stay until the Court could consider the Administration’s motion.  Some news reports erroneously read into his stay a suggestion that Congress could resolve this question by acting on the Administration’s rescission request.  In fact, even if one or both chambers of Congress were to vote that request down, nothing in the ICA does – or, under INS v. Chadha, could – change the status of the funds. 

     With many of the impounded funds scheduled to lapse on September 30, those seeking to compete for them urgently need to file suit:  doing so before the funds expire allows the courts to extend those funds availability with their equitable powers.  The recent, court-ordered release of OMB actions restricting the obligation of appropriations suggests that the extent of impoundments may be greater than had been realized.

Impoundments that Led to Rescissions

     In addition to impoundments that the President has implemented entirely on his own, he also asked Congress to rescind funds from a limited subset of accounts that he had been impounding.  Among the funds he asked Congress to rescind were funds for the Greenhouse Gas Reduction Fund, almost all of which had been obligated under President Biden.  Rescissions long have been understood as affecting only unobligated balances.  The Congressional Budget Office’s estimate of the rescission bill conformed with this tradition by assuming that no obligated funds were rescinded, and the D.C. Circuit agreed. 

Conclusion

     When Donald Trump resumed office, many people believed that the Supreme Court’s unanimous rejection of unilateral presidential impoundments in Train v. New York, and its decisive rejection of even statutorily authorized impoundments in Clinton v. New York, would limit his ability to dismantle spending programs with which he disagreed.  The battle is still very much on-going, and the Supreme Court has yet to cast any doubts on either precedent.  The Court has, however, found ways of keeping many challenges to cancellation of grants and contracts from reaching courts with the power to continue those programs.  And confusion in the lower courts has critically slowed challenges to the Administration’s widespread refusals to honor appropriations acts, including one that President Trump himself signed. 

     This so-far unchecked power of impoundment could easily prevent a compromise to keep the federal government open past September 30.  That will be the subject of my next post.  

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