Cities, nonprofits challenge Trump grant freeze at Fourth Circuit

(CN) — The Fourth Circuit became the latest arena in the battle over President Donald Trump’s authority to cancel billions of dollars in federal grant money.

The Department of Justice asked a panel to overturn a district court’s injunctions ordering the release of more than 30 environmental or agricultural grants awarded to various nonprofits and cities, including Baltimore, San Diego and Nashville.

The government argues the suit should be properly litigated in the U.S. Court of Federal Claims in light of the U.S. Supreme Court’s split decision in NIH v. American Public Health Association .

The grantees argued Thursday that the constitutional claims raised in the suit could not be properly decided by the 16-judge court that specializes in handling government contract disputes.

The lawsuit arises from a flurry of executive orders Trump issued after taking office that froze billions of dollars in grant funding while the administration determined if the money was being used to advance the president’s priorities, including “energy exploration and production.”

The orders created havoc for organizations and municipalities that rely on federal funding for community projects ranging from adult literacy to environmental cleanup, leading to lawsuits across the country challenging the executive orders.

Thirteen community groups and six cities sued administrative officials in March in South Carolina’s federal court, arguing the administration’s decision to arbitrarily freeze funds earmarked by Congress violated the Constitution’s separation of powers.

U.S. District Judge Richard Gergel sided with the grantees in May, finding the government agencies acted outside the scope of their legal authority by freezing or canceling the grants. The Barack Obama appointee ordered the agencies to immediately restore grant funding and denied a motion to stay the decision pending appeal.

The U.S. Supreme Court’s 5-4 ruling in NIH raised doubts about the validity of the judge’s decision, however. The court agreed to allow the National Institutes of Health to terminate $783 million in grants linked to DEI initiatives and said similar suits should be heard by the U.S. Court of Federal Claims.

Last month, a D.C. Circuit panel ruled that the Trump administration could claw back nearly $16 billion in green energy grants, overturning a federal judge’s injunction.

U.S. Appellate Attorney Sean Janda asked the panel Thursday to dismiss the grantees’ suit for lack of jurisdiction or, barring that, ask the lower court to reconsider the case in light of NIH .

Attorney Kym Hunter from the Southern Environmental Law Center in Chapel Hill, North Carolina, represented the grant recipients at the hearing. She argued the district court retained jurisdiction of the case because of the Constitutional separation of powers claims.

Hunter cited the Supreme Court’s decision in Youngstown Sheet & Tube Co. v. Sawyer , wherein the court ruled President Harry Truman could not unilaterally privatize the nation’s steel mills during the Korean War. Similarly, Trump acted unilaterally to freeze grants awarded by Congress.

U.S. Circuit Judge Allison Jones Rushing, a Trump appointee, noted that Congress requires the grants to be awarded to some recipient, but not to the specific parties in this suit. The grantees’ rights to the funds derive from a government contract, which falls in the jurisdiction of the U.S. Court of Federal Claims.

“Congress waived the government’s sovereign immunity for contract claims, but in a pretty limited fashion, right?” Rushing said. “They directed those claims to go to a certain court, and only certain remedies are available in that court.”

Hunter said the recipients had constitutional rights, too. If the administration eliminated a grant for a nonprofit based on race or religious affiliation, the nonprofit would have a constitutional reason to challenge the decision.

U.S. Circuit Judge Paul Niemeyer, a George H.W. Bush appointee, noted the grant recipients’ standing in this case relied on their government contracts. He questioned why they sought to argue a separation of powers claim.

“It seems to me that the ultimate claim you’re interested in having the court decide is the separation of powers and all the history involved here,” he said. “It’s almost academic.”

U.S. Circuit Judge Toby Heytens, a Joe Biden appointee, also served on the panel.

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