Trump Points to Contract Law to Justify His Cost-Cutting Moves

The Trump administration is defending grant cuts, policy changes, and moves to dismantle some agencies by reframing them as deals the government has opted to abandon under an obscure federal statute.

Rather than continuing to battle challenges in federal district court, the Justice Department is arguing that efforts to undo some grant cuts belong in the US Court of Federal Claims. There, they can be decided under the Tucker Act as breach of contract claims—rather than as policy shifts that allegedly run afoul of the Constitution, the Administrative Procedure Act, or other federal laws.

The administration has invoked the 1887 law, which governs contract claims against the federal government, in cases challenging cuts to climate justice grants, humanities and arts projects, a rollback of federal agency pro-DEI programs, and slashed funding for counsel for unaccompanied immigrant children. If the litigation strategy proves successful, it would direct lawsuits to a court that lacks the authority to give challengers the relief they want: court orders broadly blocking those policy shifts.

Grant recipients can’t win “anything more than the cost of their efforts” if forced to pursue a remedy at the Claims Court, said Dismas Locaria of Venable LLP, who represents recipients and government contractors.

A circuit split has emerged on the question, though some district court judges have recently embraced a “two-track litigation” solution advanced by Supreme Court Justice Amy Coney Barrett that would send challenges to grant terminations to Claims Court while leaving legal questions on agency guidance and other actions to the district courts.

“The federal Court of Claims literally exists to take these federal contract claims,” a White House official told Bloomberg Law. “People are ignoring the statute and filing in district courts to get more favorable judges.”

The next big test will be the D.C. Circuit, which is set to hear consolidated appeals on the issue on Sept. 22 in cases involving US Agency for Global Media funding. The Ninth Circuit considered the issue earlier this month during oral arguments over US refugee resettlement policy and funding, and issued a decision Sept. 12.

The Ninth Circuit’s interim decision ordered reinstatement of cooperative agreements for resettlement services in order to satisfy requirements for support of admitted refugees. The court also said President Trump is likely to prevail on whether he can suspend admissions.

Policy Change or Broken Deal?

The Justice Department often invokes the Tucker Act in challenges to federal permits or related agency actions, including government takings cases, said Nancie G. Marzulla, founding partner of Marzulla Law LLC in Washington.

She described the statute as a “trap for the unwary,” with plaintiffs who aren’t careful in their choice of remedy likely to see their cases dismissed and transferred to the Claims Court.

“We used to call it the ‘Tucker Act shuffle’” Marzulla said. “It’s a powerful tool, but it’s not one I’m surprised to see used.”

Recently, the Justice Department has invoked the Tucker Act in response to a range of challenges to agency actions.

“Black-letter law establishes that the district court here lacked jurisdiction, because a claim based on a contract must be brought in the Court of Federal Claims,” the Justice Department said in a filing defending the cancellation of Education Department grants over school DEI policies.

Recent Rulings

The Tucker Act argument has had mixed success so far, including a high-profile loss in a multi-billion-dollar dispute between Harvard and the administration.

A Massachusetts federal judge earlier in September rejected the DOJ’s argument and held that the government’s move to freeze the elite university’s government grants violated its First Amendment rights.

“The resolution of these claims might result in money changing hands, but what is fundamentally at issue is a bedrock constitutional principle rather than the interpretation of contract terms,” wrote Judge Allison D. Burroughs, of the US District Court for the District of Massachusetts.

But in recent days, federal judges in Virginia and Washington have decided in the DOJ’s favor , including in two cases brought by school districts who claim the government illegally froze funding over the districts’ transgender student policies.

Those judges relied on guidance included in the US Supreme Court’s decision to partially stay a lower court’s ruling that blocked the administration’s cuts to medical research grants as part of the president’s DEI crackdown. Justices Neil Gorsuch, Brett Kavanaugh, and Barrett said in separate opinions that the dispute over the National Institutes of Health grants belongs at the Claims Court.

Barrett’s separate concurrence laid out a procedural vision where challenges to grant terminations would proceed in the Claims Court and challenges to agency guidance and other agency action would be directed to federal district court. “Logic and law” support “channeling” the monetary and administrative/constitutional claims to “different forums,” Barrett said.

That ruling built on an earlier order involving Education Department grants, in which a majority of the justices said the case should be litigated in the Claims Court.

Circuit Split

Conflicting views by appeals courts may tempt the high court to address the Tucker Act question more formally.

The Fourth Circuit, following the Supreme Court’s lead, has granted stays of district court orders in at least three cases. But the First Circuit—a venue of choice for many of the liberal challengers trying to stymie Trump’s agenda—has rejected the government’s Tucker Act argument.

Upcoming arguments over the US Agency for Global Media, which funds Voice of America and other networks, offer the D.C. Circuit a chance to weigh in.

The government has a strong argument that grant terminations connected to the networks belong in the Claims Court, while challenges to personnel decisions should be heard by the Merit Systems Protection Board, said Steven Gordon of Holland & Knight LLP.

“Whether district courts should address cases where there’s a constitutional or vindictiveness claim remains unclear,” he said. “But the majority of the Supreme Court wants to funnel most grant termination cases to the COFC.”