Earlier this week, the U.S. Court of Appeals for the First Circuit ruled that the Trump Administration’s pause of federal grant funding in 2025 was “arbitrary and capricious.” Of particular note for federal grantees, the court signaled, as others before it this year, that grantee states, who see their funding terminated, should seek relief in the U.S. Court of Federal Claims (COFC)—even though COFC may not be able to remedy the harm to grantees. The First Circuit ruled, in New York et al. v. Donald Trump et al., that the District Court that heard the case originally did not have authority to order the Government to pay the states withheld funds.   

Why This Matters for Federal Grantees

Over the past year, multiple courts have ruled on the same question: When a federal agency terminates or suspends grant funding, which court has the power to fix this?

Two general patterns have emerged over the past year:

• The doors of a federal courthouse are open when a grantee challenges funding interruptions on account of a federal agency’s asserted policy or guidance; and 
• If a grantee seeks reinstatement of an award, it must file its case in COFC.

This trend follows the U.S. Supreme Court’s decision in National Institutes of Health v. American Public Health Association in August 2025. 

The Problem: COFC Cannot Ordinarily Reinstate Grants

COFC, generally, may award monetary damages to a party that demonstrates it has been harmed by a Government’s breach of contract, after the harm has already occurred. COFC cannot generally restore a terminated grant, force a federal agency to reinstate funding, or compel an agency to resume award-funded work. 

Despite this practical problem, federal courts are repeatedly directing grantees to COFC, even when it may be a futile exercise. Until this jurisdictional issue is resolved, grantees face substantial uncertainty in forging ahead with grant-related claims against Federal agencies.

The Feldesman Grants Team will continue monitoring litigation around grant terminations, funding freezes, and other disputes under federal awards. For questions about how these developments might affect your organization, please contact Phillip A. Escoriaza, Mindy B. Pava, or Edward T. Waters.