President Donald Trump speaks in the Cabinet Room of the White House, Friday, Oct. 17, 2025, in Washington (AP Photo/Alex Brandon).
A federal court of appeals largely upheld a series of lower court orders barring the Trump administration from enforcing a “sweeping and unprecedented categorical” spending “freeze” in a ruling Monday.
In a 58-page opinion, the U.S. Court of Appeals for the 1st Circuit refers to “consolidated appeals” of several different orders issued by U.S. District Judge John J. McConnell, a Barack Obama appointee, from early 2025, though the orders are all from the same case.
In one order from March 2025, the lower court extended a pause on the spending freeze – enjoining myriad federal agencies from slashing funds and directing them to pay out “awarded grants, executed contracts, or other executed financial obligations.” In two orders from April 2025, the lower court enforced the preliminary injunction against the Federal Emergency Management Agency (FEMA) and then denied a reconsideration and stay requested by the government.
Now, the appellate court has left both April orders untouched and kept most of the March order intact except for the judge”s directive that specific funds must be paid out to the states.
In the nascent days of the second Trump administration, the Office of Management and Budget (OMB) issued a notorious memo mandating a “temporary pause” on spending. In the weeks that followed, the memo became a source of embarrassment to the White House, and OMB attempted to publicly backtrack from the implications.
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Key to the court’s decision was the finding — originally made by McConnell — that the OMB directive continued to be enforced, in some instances, after the agency formally rescinded the memo.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.”
