By Nate Raymond
BOSTON, March 16 (Reuters) - A federal appeals court on Monday largely upheld a ruling that blocked a "sweeping and unprecedented" freeze on trillions of dollars in government financial assistance that President Donald Trump's administration instituted early last year.
A three-judge panel of the Boston-based 1st U.S. Circuit Court of Appeals sided with Democratic attorneys general from 22 states and the District of Columbia in finding that the White House's budget office had directed
federal agencies to implement a categorical freeze on funding that was likely improper.
Chief U.S. Circuit Judge David Barron said the Office of Management and Budget "directed the agency defendants to freeze such funds without considering an obvious aspect of the problem -- namely, the reliance interests of the recipients of the obligated federal funds that were to be frozen."
The judge, who like the other panel members was appointed by a Democratic president, pointed to a lower-court judge's conclusion that the agencies failed in carrying out OMB's directive to assess whether such payments were legally required or appropriate on a case-by-case basis.
While the appeals court largely upheld Rhode Island-based U.S. District Judge John McConnell's March 2025 injunction blocking the policy, it overturned part of it to the extent it required agencies to make payments to the states that sued.
It did so citing a ruling last year by the U.S. Supreme Court in a different Trump-era case that indicated lawsuits seeking to recover money owed by the government under contracts and grants must be pursued in a different, specialist court.
The White House did not respond to a request for comment.
The state attorneys general sued after the OMB in January 2025, shortly after Trump returned to the White House, issued a memo directing federal agencies to temporarily pause spending on federal financial assistance programs.
That memo said the freeze was necessary while the administration reviewed grants and loans to ensure they are aligned with Trump's executive orders, including ones ending diversity, equity and inclusion programs and directing a pause on spending on projects seeking to combat climate change.
The freeze implicated up to $3 trillion in federal funding.
OMB later withdrew that memo after it became the subject of two lawsuits, including the one before McConnell. But the states argued the memo's withdrawal did not mean the end of the policy itself.
(Reporting by Nate Raymond in Boston; Editing by Lincoln Feast.)
