Labor & Employment Law Daily Wrap Up, REMEDIES, DAMAGES—D.R.I.: Preliminary injunction issued against government’s IIJA and IRA funding freeze, (Apr 16, 2025)

By Todd Harrison, J.D.

“Agencies do not have unlimited authority to further a President’s agenda, nor do they have unfettered power to hamstring in perpetuity two statutes passed by Congress during the previous administration.”

A nationwide preliminary injunction was issued by a federal district court in Rhode Island after several nonprofits sued several federal agencies challenging an executive order freezing funding that had been appropriated through the Inflation Reduction Act of 2022 (IRA) and the Infrastructure Investment and Jobs Act (IIJA). The nonprofits successfully demonstrated standing and the doctrine of claim-splitting did not narrow their case. Further, the court determined that the agency actions at issue in this case were “final,” allowing for APA review, and the nonprofits had demonstrated a strong likelihood of success on two of their three APA claims. In addition, the court found that the broad powers asserted by the agencies in question were nowhere to be found in federal law (Woonasquatucket River Watershed Council v. USDA, No. 1:25-cv-00097-MSM-PAS (D.R.I. Apr. 15, 2025)).

This case largely concerns two laws passed by Congress and signed by President Biden, the IIJA and the IRA. Following their enactments, agencies began working with state and private organizations to execute the statutes’ goals.

Unleashing American Energy. Things changed on January 20, 2025, when President Trump issued an executive order entitled Unleashing American Energy. The order provided that all agencies were to immediately pause the disbursement of funds appropriated through the IIJA and the IRA.

Memorandum M-25-11 was issued the following day by the acting director of OMB and the Assistant to the President for Economic Policy and Director of the National Economic Council, explaining that the executive order “requires agencies to immediately pause disbursement of funds appropriated under” the IRA and the IIJA.

Funding freeze. After this, the agencies broadly paused funding, leading to confusion among organizations finding that their funding had suddenly gone missing without explanation. Subsequently, six nonprofits filed this suit against five government agencies, as well as the OMB and the NEC Director, seeking a preliminary injunction.

Standing. At the outset, the government argued that the nonprofits had failed to show any injuries attributable to the U.S. Department of Energy, OMB, or the NEC Director. The court did not agree.

Energy. With regard to the U.S. Department of Energy, the government argued that the alleged harm was to a “a subrecipient (not a direct grantee) of DOE funding,” so the entity “should contact the direct grantee to raise any concerns about any alleged improper pause of funding.”

At this stage, the nonprofits had adequately shown an injury-in-fact, said the court. An executive director of a nonprofit member of the National Council of Nonprofits (NCN) reported on March 11 that their IIJA funding had been frozen since January 30 and that they “have not received any communications about the cause of this freeze or if or when it will end.”

“For now, that is enough to show that an injury caused by Energy existed at the time the Nonprofits filed their Complaint,” said the court.

OMB. As for OMB, the government contended that the nonprofits had failed to identify any injury attributable specifically to OMB’s actions. However, the court found the nonprofits’ injuries were clearly traceable to OMB’s issuance of M-25-11 and its influence over the agency defendants in this case. The court found it telling that the agencies only decided to pause their already-awarded IRA and IIJA funding following the issuance of this memo.

The same traceability arguments were raised with regard to the NEC Director, and these arguments failed for the same reason.

Claim splitting. Next, the government argued that the doctrine of claim splitting should preclude this action because the NCN and its members are litigating a case in the U.S. District Court for the District of Columbia (D.D.C.) challenging the same alleged harms from the funding freeze. The court here was not persuaded.

The D.D.C. plaintiffs were challenging a different agency action: OMB Memo M-25-13. Here, the nonprofits were challenging another memo, M-25-11, along with the funding freezes arising from that memo.

“That some overlap occurs—mainly the complicated interplay between different OMB memos—is not enough,” said the court, noting that the cases were fundamentally different in their factual and legal analysis, even if some legal issues appeared in both cases. As such, the claim splitting doctrine was unavailing in this instance.

Agency actions. Before reaching the nonprofits’ likelihood of success on the merits, the court addressed several threshold issues arising under the APA, beginning with the government’s argument that the nonprofits had failed to identify any agency actions. Here, the court found that the nonprofits had made it clear that they were challenging the defendants’ ongoing holds on IIJA and IRA funding, noting that the First Circuit had recently recognized the concrete nature of similar challenges in New York v. Trump, No. 25-1236 (1st Cir. Mar. 26, 2025).

No backdoor challenge. Rejecting the government’s argument that the nonprofits’ claims were tantamount to a backdoor challenge to an executive order, the court explained that the nonprofits can challenge the implementation of an order without challenging the order itself.

Programmatic attack? As to the government’s claim that the nonprofits were engaged in an improper programmatic attack, the court found such an argument unconvincing for the same reasons as the government’s argument about the nonprofits’ alleged failure to identify any agency action.

Tucker Act. Addressing the government’s argument that the Tucker Act applied in this instance, thus taking the APA claims outside the scope of the court’s jurisdiction, the court first determined that the source of the nonprofits’ rights is a federal law, rather than a contract. As to the relief sought, the court found it to be largely equitable in nature as opposed to solely monetary relief. Accordingly, the nonprofits’ claims could not be properly brought under the Tucker Act in the Court of Federal Claims and the court here properly retained jurisdiction.

Final agency action. Turning to the question of whether there was a final agency action, the court answered that question in the affirmative, noting that the decisions to issue the guidance following the executive order and to pause all IIJA and IRA funding marked the “consummation” of each agency’s decision-making process.

Arbitrary and capricious. Moving onto the likelihood of success on the merits, the nonprofits first asserted that the funding freeze was unlawfully arbitrary and capricious. The court agreed, finding that the government had failed to provide a rational reason that the need to “safeguard valuable taxpayer resources” justified a sweeping pause of all already-awarded IIJA and IRA funds with such short notice.

Further, continued the court, the government could not just rest on the executive order as its justification. First, the nonprofits persuasively argued that the agencies’ actions were overbroad based on the executive order’s text and subsequent guidance. Second, an agency cannot avert the arbitrary and capricious analysis simply by deferring to the relevant executive order.

Having found no rational connection between the sweeping actions taken and the vague justifications proffered, the court held that the nonprofits have a strong likelihood of success on their arbitrary and capricious claims.

Exceeding statutory authority. Next, the nonprofits argued that the government’s funding freeze was in excess of its statutory authority. Here, the court observed that the power asserted by the agencies was not merely to pause individual, already-awarded funds for failure to comply with a grant agreement or because of a change in policy, but rather a much broader power to freeze any access to all already-awarded funds under two statutes indefinitely, based solely on the fact that the funds came from those two statutes. In doing so, the agencies “have summarily tied up a significant subset of the billions of dollars already awarded under those acts,” said the court, and it failed to see how they could claim such power.

Seeming to recognize that it lacked the power to pause all IIJA and IRA funding at once, the government argued at one point that determining “whether a pause on disbursement is lawful necessarily requires examining the underlying statutes governing a program, the appropriations measures providing funding for the program, and potentially the specific terms and conditions included in the grant agreement for that program.” From that premise, the government suggested that the court should “evaluate the specifics of each alleged withholding, which cannot be done in the abstract or in an across-the-board manner.”

On this point, the court explained that what the government is saying the court cannot do is exactly what the agencies did in this instance. “If the Court must evaluate the specifics of each withholding to determine its lawfulness, it follows naturally that the Agencies likely exceeded their statutory authority in freezing them in totality, without regard to that same analysis,” said the court. Because there was no clear statutory hook for such a broad assertion of power, the nonprofits were likely to succeed on the merits of this claim against the agency defendants.

Major questions. The “major questions” case against OMB and the NEC Director was even more straightforward, according to the court. The scope of power that OMB and the NEC Director seek to claim is “breathtaking,” and its ramifications are massive: an indefinite pause of all money awarded under two of the largest spending statutes that Congress has passed in recent memory. As such, the nonprofits were likely to succeed on the merits of their claim against the OMB and the NEC Director.

Irreparable injury. As to the question of irreparable injury, the court found the nonprofits had satisfied this requirement, setting forth several examples of obligated funding and the harm that withholding such funding had caused.

Equities, public interest. The balance of equities and the public interest also weighed heavily in favor of injunctive relief. “The Nonprofits were left adrift as they scrambled to make sense of the Government’s actions here,” said the court, noting that the funding freeze placed several critical projects in jeopardy. Further, the court noted that the government was not harmed where an order requires them to disburse funds that Congress has appropriated and that the agencies have already awarded.

Nationwide scope. Finally, as to the scope of the injunction, the court explained that after finding the government’s sweeping actions were likely unlawful, it could not see why similarly situated nonparties should remain subject to them. Accordingly, the nature of this case favored a nationwide injunction, concluded the court.

The case is No. 1:25-cv-00097-MSM-PAS.

Judge: McElroy, M.

Attorneys: Amato A. Deluca (DeLuca, Weizenbaum, Barry & Revens) for Woonasquatucket River Watershed Council. Daniel Schwei, U.S. Department of Justice, for Department of Agriculture.

Companies: Woonasquatucket River Watershed Council

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