Labor & Employment Law Daily Wrap Up, PROCEDURE—D.D.C.: Coalition of nonprofit organizations granted TRO on OMB directive that would freeze federal financial assistance programs, (Feb 5, 2025)
Organizations Mentioned:America Public Health Association | Democracy Forward Foundation | Main Street Alliance | National Council of Nonprofits | SAGE | U.S. Department of Justice
By Ronald Miller, J.D.
OMB Memorandum M-25-13 was a directive that immediately produced legal consequences across the entire federal funding system.
The Office of Management and Budget, along with its Acting Director, were enjoined by a federal court in the District of Columbia from implementing, giving effect to, or reinstating under a different name the directives in OMB Memorandum M-25-13 with respect to the disbursement of federal funds under all open awards. Pointing out that the scope of the freeze is as great as $3 trillion and its effects are difficult to fully grasp, the court concluded that the balance of the equities and public interest heavily favored granting the plaintiffs’ request (National Council of Nonprofits v. Office of Management and Budget, No. 25-239 (LLA) (D.D.C. Feb. 3, 2025)).
Review of financial assistance programs. On January 27, 2025, the Acting Director OMB issued a memorandum, M-25-13, directing federal agencies to “complete a comprehensive analysis of all of their Federal financial assistance programs to identify programs, projects, and activities that may be implicated by any of the President’s executive orders.” The memorandum further stated that, “[i]n the interim, to the extent permissible under applicable law, Federal agencies must temporarily pause all activities related to [the] obligation or disbursement of all Federal financial assistance, and other relevant agency acti[vities] that may be implicated by the executive orders including, but not limited to, financial assistance for foreign aid, nongovernmental organizations, DEI, woke gender ideology, and the green new deal.”
The memorandum stated that “[t]he temporary pause [would] become effective on January 28, 2025 at 5:00 PM.” Shortly after noon on January 28, several coalitions of nonprofit organizations brought this action against OMB and the Acting Director arguing that OMB’s action violated the Administrative Procedure Act (APA). The plaintiffs alleged that the implicated federal grants and funding “are the lifeblood of operations and programs for many... nonprofits, and [that] even a short pause in funding... could deprive people and communities of their life-saving services.” They argue that the defendants’ action was arbitrary and capricious, violated the First Amendment of the United States Constitution, and exceeded OMB’s statutory authority.
Temporary restraining order. The plaintiffs sought a temporary restraining order (TRO) “barring the OMB and all of its officers, employees, and agents from taking any steps to implement, apply, or enforce Memo M-25-13.” The court issued an administrative stay prohibiting the defendants “from implementing OMB Memorandum M-25-13 with respect to the disbursement of Federal funds under all open awards” until 5:00 p.m. on February 3, 2025.
Motion to dismiss. On January 29, the day after the court entered its administrative stay, OMB issued a new memorandum (M-25-14) that purported to rescind M-25-13. Shortly after this “rescission” was issued, the White House Press Secretary announced from her official social media account that the new memorandum was “NOT a rescission of the federal funding freeze.” On January 30, the defendants filed their opposition to the plaintiffs’ TRO motion and concurrently moved to dismiss the complaint for lack of subject matter jurisdiction.
On the morning of February 3, 2025, the court held a hearing on the plaintiffs’ motion for a TRO. At the conclusion of the hearing, the court explained that it was inclined to grant a TRO and deny the defendants’ motion to dismiss.
Parallel litigation. In parallel litigation in the District of Rhode Island, 22 states and the District of Columbia filed a suit seeking a TRO to halt implementation of memorandum M-25-13. The court granted the states’ request and issued a TRO on January 31, 2025. The restraining order prohibited the OMB from “paus[ing], freez[ing], imped[ing], block[ing], cancel[ing], or terminat[ing] [their] compliance with awards and obligations to provide federal financial assistance to the [plaintiff] States.”
On the morning of February 3, the defendants filed a notice of compliance with the court’s TRO. In it, the defendants explained that they had provided written notice to all defendant agencies on January 31 to inform them of the TRO and instruct them to comply with its restrictions. The defendants also notified the court that they believed certain terms of the TRO “constitute[d] significant intrusions on the Executive Branch’s lawful authorities and the separation of powers.” That litigation remains ongoing.
Jurisdiction. In this case, the defendants raised two threshold jurisdictional arguments. First, they argued that the plaintiffs lacked standing because they have not adequately alleged injury in fact, causation, or redressability. Second, they claimed that the case is now moot because OMB rescinded memorandum M-25-13 after the plaintiffs filed suit. The court was unpersuaded on both counts.
Standing. As an initial matter, the defendants argued that the plaintiffs failed to satisfy all three elements of standing: (1) that they suffered an injury in fact, which is a concrete and particularized harm that is actual or imminent, rather than hypothetical, (2) a causal connection between the injury and the challenged conduct that is fairly traceable to the defendant’s actions, and (3) a non-speculative likelihood that the injury will be redressed by a decision in the plaintiff’s favor. The court disagreed.
When a plaintiff association tries to sue on behalf of its members, it must demonstrate that: “(a) its members would otherwise have standing to sue in their own right; (b) the interests it seeks to protect are germane to the organization’s purpose; and (c) neither the claim asserted nor the relief requested requires the participation of individual members in the lawsuit.” When facing a motion to dismiss, an association plaintiff “need only make a plausible allegation of facts establishing each element of standing.”
The court found incorrect the defendants’ claim that the plaintiffs have to identity a single member who would be injured. For their part, the plaintiffs alleged that even a temporary pause in funding to their members would destroy their ability to provide medical and low-income childcare services. On top of these economic injuries, plaintiffs’ members face First Amendment harms because the memorandum targets funds that relate to “DEI [and] woke gender ideology.” At this early stage, the plaintiffs claim that the defendants have singled out their funding programs based on their exercise of speech and association. Thus, the alleged injuries to the plaintiffs’ members are sufficiently concrete and imminent to satisfy the first element of standing.
Causation. Next, the defendants failed to break the causation chain between memorandum M-25-13 and the plaintiffs harms. At a high level, the defendants were correct that harms caused by third parties are generally not traceable to the defendant. However, memorandum M-25-13 states in no uncertain terms that “Federal agencies must temporarily pause all activities related to [the] obligation or disbursement of all Federal financial assistance.” Such a directive leaves no room for discretion. OMB can exert some influence on federal spending policy. In this early posture, and pending further factual development by the parties, the court relied on the plaintiffs’ post-rescission declarations to conclude that they have sufficiently alleged causation.
Redressability. The plaintiffs also argued that blocking the defendants from doing anything to implement the substance of memorandum M-25-13 would remedy their harms. There is at least some evidence that agencies are pausing disbursements because of memorandum M-25-13, observed the court. Prior to the issuance of memorandum M-25-13, the plaintiffs’ members reportedly never had problems drawing down funds or receiving financial assistance. That all changed beginning January 28, immediately after OMB issued memorandum M-25-13. Thus, the plaintiffs have adequately shown that a ruling in their favor will alleviate their alleged injuries.
Mootness. Although the defendants claimed that they have ended any allegedly unlawful activity by retracting memorandum M-25-13, they have not shown that they will refrain from “resum[ing] the challenged activity” in the future. Within hours of OMB’s rescission, the White House Press Secretary announced that the rescission was to have no tangible effect on “the federal funding freeze.” By rescinding the memorandum that announced the freeze, but “NOT... the federal funding freeze” itself, it appears that OMB sought to overcome a judicially imposed obstacle without actually ceasing the challenged conduct.
Further, the facts indicate that this case is anything but moot. The plaintiffs have presented evidence that fund recipients continue to be deprived of critical loans, grants, and other resources. Thus, the defendants cannot persuasively argue that the rescission of memorandum M-25-13 moots the case if the effects and directives of that memorandum continue to remain in full force.
Arbitrary and capricious actions. Here, the court determined that it needed to find that the plaintiffs were likely to succeed on the merits of only one of their three claims in order for this factor to weigh in favor of a TRO. Thus, the court focused on the plaintiffs’ assertion that the OMB’s actions were arbitrary and capricious.
Final agency action. The APA only permits judicial review of “final agency action,” 5 U.S.C. § 704, which is action that “mark[s] the consummation of the agency’s decisionmaking process” and determines “rights or obligations... from which legal consequences will flow.”
The court rejected the defendants’ assertion that the memorandum simply told agencies to conduct their own review of financial disbursements and thus “did not determine legal consequences.” The court pointed out that rather than give the agencies full control over what to freeze and what to leave undisturbed, the defendants mandated that all “Federal agencies must temporarily pause all activities related to [the] obligation or disbursement of all Federal financial assistance.” That was a directive that immediately produced legal consequences across the entire federal funding system.
The court noted that some of these organizations are still waiting for funds to be disbursed, and they have been forced to dismiss employees, cut essential programs, and pay workers out of their own pockets. Thus, the court found that the funding freeze threatens the lifeline that keeps countless organizations operational and the plaintiffs met their burden of showing irreparable harm.
Further, the court pointed out that the scope of the freeze was as great as $3 trillion, and its effects are difficult to fully grasp. Thus, the court concluded that the balance of the equities and public interest heavily favored granting the plaintiffs’ request.
The case is No. 25-239 (LLA).
Judge: Alikhan, L.
Attorneys: Kevin E. Friedl (Democracy Forward Foundation) for National Council of Nonprofits, American Public Health Association, Main Street Alliance, and SAGE. Daniel Stephen Garrett Schwei, U.S. Department of Justice, for Office of Management and Budget and Matthew Vaeth.
Companies: National Council of Nonprofits; America Public Health Association; Main Street Alliance; SAGE
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