This is Part Two of a two-part blog series that examines the impact of federal grant termination litigation on the Inflation Reduction Act’s Greenhouse Gas Reduction Fund (GGRF). Part One, which covers recent Supreme Court orders that have shaped the D.C. Circuit’s consideration of the GGRF case, can be accessed here.
In April 2025, the D.C. District Court issued a preliminary injunction in Climate United Fund v. Citibank, the case challenging the Environmental Protection Agency’s (EPA) unlawful termination of $20 billion in federal funding awarded through the Greenhouse Gas Reduction Fund (GGRF). The preliminary injunction prevented EPA from effectuating its grant terminations while the litigation was pending. Immediately after it was issued, EPA appealed the district court’s order in the Court of Appeals for the D.C. Circuit and asked the court to set aside the injunction.
On September 2, 2025, the Court of Appeals issued its long awaited decision. The court set aside the preliminary injunction in its entirety, delivering a devastating blow to the GGRF awardees’ litigation prospects and the future of their critical projects. This blog post, the second in a two-part series on federal funding award terminations, provides a summary of the Climate United Fund litigation and the Court of Appeals’ decision, and offers some thoughts on what the decision will mean for the GGRF awardees and other IRA grant recipients.
Litigation Background
The GGRF was created by section 60103 of the Inflation Reduction Act (IRA) of 2022. That section appropriated $27 billion to EPA to make grants to states, municipalities, tribal governments, and eligible nonprofit organizations to finance the deployment of low-carbon technologies and carry out other greenhouse gas emission reduction activities. The GGRF consists of three distinct programs: (1) Solar for All, which invests in residential solar energy; (2) the National Clean Investment Fund (NCIF), which funds financing institutions that in turn fund clean technology programs; and (3) the Clean Communities Investment Accelerator (CCIA), which funds hubs for technical and financing assistance for low-income and disadvantaged communities. Under President Biden and as required by the IRA, EPA awarded $20 billion in grants to eight entities through the NCIF and CCIA programs.
Under many federal grants, awardees access their funding by drawing down money from a Treasury account as they are ready to spend it. In setting up the NCIF and CCIA programs, EPA decided instead to follow a less common, but well-established, arrangement for disbursing funds. EPA designated Citibank as a financial agent of the United States to hold the grant funds in accounts under the NCIF and CCIA awardees’ names. Awardees were required to open deposit accounts at Citibank, draw down their entire award balance from their Treasury accounts, and deposit it in their Citibank accounts. When President Trump was inaugurated, all eight NCIF and CCIA awardees had already set up their Citibank accounts and were accessing funds through them.
Immediately after taking office, President Trump launched a campaign against what he terms the “Green New Scam” and, in particular, the GGRF programs. On March 11, 2025, EPA sent NCIF and CCIA awardees a Notice of Termination, purporting to terminate all NCIF and CCIA grants because of alleged “substantial concerns regarding program integrity, the award process, programmatic fraud, waste, and abuse, and misalignment with the Agency’s priorities.”
Climate United Fund v. Citibank, filed on March 8, 2025, is a consolidated lawsuit brought by all NCIF and CCIA awardees, plus some sub-awardees, to challenge the grant terminations as unlawful under the Administrative Procedure Act (APA), federal regulation, and the Constitution. On April 15, 2025, the D.C. District Court issued a preliminary injunction barring EPA and Citibank from giving effect to the termination notices and requiring Citibank to disburse grant funds. On April 16, 2025, EPA and Citibank appealed the preliminary injunction to the D.C. Circuit Court of Appeals. The Court of Appeals immediately took the temporary measure of partially staying the preliminary injunction as to its requirement that Citibank continue to disburse funds, which was a significant hit to the awardees as they awaited the outcome of the appeal.
More information about the NCIF and CCIA grant agreements, their terminations, and the plaintiffs’ claims can be found in a previous blog post here.
The Forum Dispute
The NCIF and CCIA grant terminations are part of a much larger, concerted effort by the Trump administration to terminate federal grants and claw back already-obligated funding for projects that do not align with President Trump’s policy priorities. As litigation over these terminations has proliferated, a dispute has arisen as to the proper federal court to hear these cases. Awardees whose grants have been terminated have brought their lawsuits in federal district courts, but the government argues that the proper forum for lawsuits of this nature is the Court of Federal Claims, which hears contract disputes against the federal government pursuant to the Tucker Act.
Whether grant termination cases are heard in federal district courts or the Court of Federal Claims is critical to plaintiffs because it dictates what remedies are available. District courts can award damages or injunctive relief. For example, in Climate United Fund, the plaintiffs are seeking an injunction ordering EPA to stop unlawfully interfering with the grant funds in their Citibank accounts.
The Court of Federal Claims is limited to awarding contract remedies as specified in the Tucker Act. Under contract principles, forcing the federal government to honor the full grant amount would be considered a remedy of “specific performance.” The Tucker Act does not authorize the Court of Federal Claims to award specific performance except in very limited circumstances which do not apply here. Instead, the plaintiffs would only be entitled to compensatory damages which would cover costs they incurred as a result of the government’s breach of contract, such as expenses already incurred for their operations. But the grantees would not recover the full amount of the grant they had been promised and, thus, would not be able to complete the projects that were the purpose of the grants.
EPA raised this forum argument early on in Climate United Fund but the district court shut it down in a preliminary order, confirming that “the D.C. Circuit has explicitly rejected the broad notion that any case requiring some reference to or incorporation of a contract is necessarily on the contract and therefore directly within the Tucker Act because to do so would deny a court jurisdiction to consider a claim that is validly based on grounds other than a contractual relationship with the government” (internal quotation marks omitted).
Other federal district courts have reached similar conclusions in other cases. However, the Supreme Court recently indicated that it would come to a different conclusion if the issue were before it. As discussed in detail in Part One of this blog series, the Supreme Court just handed down an emergency order in American Public Health Association v. National Institutes of Health in which it suggested that the Court of Federal Claims would be the proper forum for challenges to federal grant terminations. Although the claims in Climate United Fund are distinguishable from those in American Public Health Association (as articulated in a letter submitted by the NCIF and CCIA plaintiffs to the Court of Appeals), the Supreme Court’s emergency order forewarned of possible bad news ahead in the GGRF litigation.
The Court of Appeal’s Decision
On September 2, the D.C. Circuit Court of Appeals set aside the preliminary injunction in Climate United Fund, finding that the district court abused its discretion in issuing it because (1) the court lacks jurisdiction over the APA and regulatory claims, which are actually contract claims that belong in the Court of Federal Claims; and (2) the plaintiffs are not likely to succeed on the merits of their constitutional claim (although the court did confirm that the district court can still hear the constitutional claim).
First, to determine whether the district court had jurisdiction over the APA and regulatory claims which would allow it to issue the preliminary injunction, the Court of Appeals considered “(1) whether ‘the source of the rights’ asserted is contractual or is ‘based on truly independent legal grounds’ and (2) whether ‘the type of relief sought’ is a typical contract remedy.” The court held that the source of the rights asserted is contractual: even though the plaintiffs argue that EPA violated federal regulations and acted arbitrarily and capriciously in violation of the APA, and not that EPA breached the grant agreement, their claims still “turn on the government’s rights under the agreements” and are “therefore not ‘truly independent’ of the contracts.” The court also held that the remedies sought are contract remedies. The court determined that, although the plaintiffs are asking for injunctive relief, “[d]espite their characterization, in substance, the grantees are seeking specific performance of their agreements with the government.” In support of its position, the court cites to the recent Supreme Court orders offering the same reasoning.
Second, the Court of Appeals held that the plaintiffs are not likely to succeed on their constitutional “Separation of Powers” claim (which it states is not actually a constitutional claim but rather just a claim that EPA violated the IRA). The court concluded that EPA did not violate the IRA by cancelling the grants because there is “no statutory provision that barred the cancellation of the grants” even though the statute requires EPA to obligate the appropriations by a deadline that has already passed.
Judge Pillard dissented from the majority opinion, writing: “In these circumstances, ‘[i]t is no overstatement to say that our constitutional system of separation of powers w[ill] be significantly altered’ by ‘allow[ing] executive . . . agencies to disregard federal law in the manner asserted in this case.’” Judge Pillard explained that the plaintiffs’ case neither arises from a contract nor seeks contractual remedies. First, the plaintiffs’ “suit challenges the government’s decision to illegally seize their property—money in bank accounts opened in their names, in which the government has only a security interest (which it has not exercised).” Second, the plaintiffs are not seeking specific performance of their contract but rather “to unfreeze their funds and to enjoin EPA from unlawfully interfering with them based on the President’s announced policy disagreement with Congress’s objectives.”
Judge Pillard’s dissent also emphasizes the urgent need for a preliminary injunction while the case is being adjudicated: “The freeze has already caused Plaintiffs to default on promised loans and scuttled affordable housing and energy projects implementing Congress’s vision. EPA has done all that without presenting to any court any credible evidence or coherent reason that could justify its interference with Plaintiffs’ money and its sabotage of Congress’s law.”
The Future of the GGRF Litigation
The Court of Appeals’ decision to strike down the preliminary injunction is a major setback for the plaintiffs in Climate United Fund. There is now nothing preventing Citibank and EPA from refusing to disburse additional funds or removing the funds from the awardees’ Citibank accounts altogether while the litigation is ongoing.
There are still avenues that the plaintiffs can pursue. First, the plaintiffs may file a petition for rehearing en banc in the D.C. Circuit Court of Appeals. This means that, if a majority of judges in the circuit agree to rehear the case, the appeal will be reconsidered by all active judges in the circuit rather than just a three-judge panel. Second, the plaintiffs can continue to litigate their constitutional claim in the district court, albeit without a preliminary injunction in place. Third, the plaintiffs can bring a parallel lawsuit in the Court of Federal Claims to challenge EPA’s unlawful breach of their award agreements and seek monetary damages. Without funding continuing to flow, though, it remains to be seen how long the awardees can sustain operations and continue litigating—especially with the added burden of having to litigate in two courts now, as a direct result of Justice Barrett’s majority opinion in American Public Health Association, in which only she thought that bifurcated litigation was the right solution.
In the event that the plaintiffs run out of resources to continue litigating or lose their cases and the grant terminations are upheld, that money will almost certainly not be re-awarded to another GGRF awardee. Section 60103 of the IRA, which created and funded the GGRF, was repealed by the recent budget reconciliation bill, the One Big Beautiful Bill Act, thereby rescinding EPA’s authority to make GGRF grants.