Appeals Court Maintains Block on Trump’s Spending Freeze Amidst SCOTUS Guidance

A federal appeals court has largely affirmed a set of lower court decisions that blocked the Trump administration from implementing a broad and unusual spending “freeze,” according to a ruling issued on Monday.

In its 58-page decision, the U.S. Court of Appeals for the 1st Circuit addressed “consolidated appeals” stemming from various orders by U.S. District Judge John J. McConnell, an appointee of Barack Obama, dating back to early 2025. These orders all originate from a singular case.

One significant order from March 2025 halted the spending freeze, instructing numerous federal agencies to maintain funding levels and fulfill “awarded grants, executed contracts, or other financial commitments.” In two April 2025 orders, the lower court reinforced the preliminary injunction against the Federal Emergency Management Agency (FEMA) and turned down the government’s request for reconsideration and a stay.

The appellate court has upheld both April orders and retained most of the March order, except for the part that mandated the release of specific funds to states.

At the outset of Trump’s second term, the Office of Management and Budget (OMB) released a controversial memo announcing a “temporary pause” on spending. This memo quickly became a point of embarrassment for the White House, prompting OMB to attempt to distance itself from its consequences.

The three-judge panel, however, did not see much merit in the government’s attempts to distance itself from the OMB memo.

“The States are challenging the OMB Directive, not the piece of paper that contained it,” Chief U.S. Circuit Judge David J. Barron, another Obama appointee, wrote in the unanimous opinion. “And the District Court expressly found that the rescission of the OMB Memorandum was ‘in name only’ because the ‘substantive effect of the directive [contained in the OMB Memorandum] carrie[d] on.’ Notably, the Government does not address (let alone challenge) that finding.”

Key to the court’s decision was the finding — originally made by McConnell — that the OMB directive continued to be enforced, in some instances, after the agency formally rescinded the memo.

“[T]he rescission did not give the States any relief from the OMB Directive,” Barron notes.

The panel also credits the lower court for “correctly” identifying “agency actions to freeze federal funds that began before” OMB even issued the controversial memo. In turn, the rescission of the OMB memo necessarily would have failed to touch those earlier spending freezes — and therefore would not have granted the states the relief they were entitled to receive on that front, the appellate court notes.

The underlying lawsuit, led by New York Attorney General Letitia James, alleged the spending freeze likely violated several tenets of the Administrative Procedure Act (APA), other federal laws that mandate the distribution of congressionally-appropriated funds, and key aspects of the U.S. Constitution.

McConnell, for his part, declined to address the constitutional claims but found in favor of the plaintiffs on their APA-based allegations, as well as a collection of statutory spending and funding laws.

The appellate court pared down its own analysis even further. On the merits, the panel only addressed the APA claims.

Over several pages in the ruling, Barron explains why the government, on appeal, failed to dislodge the determination that the OMB memo and spending freezes were “arbitrary and capricious.”

“[T]he Government needs to do one of two things,” the opinion reads. “It needs either to undermine the District Court’s finding that the Agency Defendants likely took the agency-wide actions to freeze financial assistance categorically and immediately or it needs to explain why the text of the OMB Memorandum shows that, in taking those actions, the Agency Defendants likely acted based on reasoned assessments.”

But neither of those things happened, the judges found. In the first case, the government’s arguments were unconvincing; in the second case, the government simply did not offer any argument whatsoever.

“[T]he Agency Defendants likely did institute the alleged agency-wide categorical freezes,” Barron notes. “[I]n taking those actions, the Agency Defendants failed to make reasoned assessments about the impacts of those actions and the scope of their legal authority.”

The ruling was not an unalloyed win for the states.

The panel, citing “the Supreme Court’s recent pronouncements,” found the lower court likely went too far in directing agencies to “release and transmit” funds from frozen grants and contracts.

Notably, the panel relies on an opinion issued by the nation’s high court several months after McConnell issued the orders in question.

The appeals court cites the following language to overrule the disbursement aspect of the lower court’s order, at length:

The Administrative Procedure Act’s “limited waiver of [sovereign] immunity” does not provide the District Court with jurisdiction to adjudicate claims “based on” the research-related grants or to order relief designed to enforce any “‘obligation to pay money’” pursuant to those grants.

“We therefore vacate the preliminary injunction to the extent that it requires the Agency Defendants to make ‘disbursements to the States on awarded grants’ and ‘executed contracts,’” the ruling reads.

In a statement, James welcomed the 1st Circuit’s opinion.

“This decision is a clear reminder that the president cannot treat congressionally-approved funding like a switch he can flip on and off,” the statement reads. “For more than a year, the Trump administration has repeatedly tried to freeze critical funding that states rely on to serve their communities, and once again the courts have rejected that unlawful power grab.”