A federal appeals court in Boston on Monday upheld most of a lower court order that blocked a sweeping freeze on federal financial assistance put in place by the White House early last year. The 1st U.S. Circuit Court of Appeals concluded that the Office of Management and Budget likely exceeded its authority when it directed federal agencies to impose a categorical pause on certain grant and loan payments.
The three-judge panel sided with attorneys general from 22 states and the District of Columbia who challenged the directive. Chief U.S. Circuit Judge David Barron wrote that OMB had instructed agencies to withhold funds without accounting for "the reliance interests of the recipients of the obligated federal funds that were to be frozen." The panel cited a lower-court finding that agencies failed to carry out OMB's instruction in a manner that assessed, on a case-by-case basis, whether payments were legally required or appropriate.
The appeals court left intact the bulk of U.S. District Judge John McConnell's March 2025 injunction that prohibited enforcement of the categorical freeze. However, the panel modified that injunction to the extent it had compelled agencies to resume payments to the states that brought the suit. The appeals court said such relief conflicted with a Supreme Court decision last year in a separate Trump-era matter, which indicated that lawsuits seeking to recover government payments under contracts and grants must be filed in a specialized court.
The states launched their lawsuit after OMB issued a memo in January 2025 directing federal agencies to temporarily pause spending on federal financial assistance programs while the administration reviewed grants and loans for alignment with a set of executive orders. The memo said the pause was necessary while the review checked whether funding complied with new directives, including orders ending diversity, equity and inclusion programs and pausing spending on projects aimed at combating climate change.
OMB at one point estimated that the directive implicated as much as $3 trillion in federal funding. The agency later withdrew the memo after it became the subject of at least two lawsuits, including the case before Judge McConnell. The state attorneys general argued that withdrawal of the memo did not terminate the underlying policy, and the appeals court's decision reflects that contention by upholding most of the injunction blocking the freeze.
The White House did not respond to a request for comment on the appeals court ruling.
Analysis - The ruling emphasizes judicial concern about blanket pauses on obligated federal funds when recipient reliance is not examined. By upholding the majority of the injunction, the appeals court reinforces the principle that agencies should evaluate payments on an individualized basis, rather than imposing categorical halts. At the same time, the court's decision to remove the payment-recovery requirement for the plaintiffs underscores limits on district court authority to order monetary recovery when other procedural venues may be required.