The Supreme Court recently issued a ruling with significant impacts for federal contractors and grantees looking to challenge terminations of their contracts and grants in U.S. district courts. Terminated contractors and grantees may strongly prefer to challenge terminations in the district courts rather than in the Court of Federal Claims, because the Court of Federal Claims does not have authority to grant equitable relief to do things like restore funding or enjoin terminations, and the available grounds for challenging contract and grant terminations in the Court of Federal Claims are significantly limited.
In February 2025, the Department of Education (“DOE”) terminated $600 million in grants for teacher training on the grounds that the training included diversity, equity, and inclusion (“DEI”) concepts and thus no longer effectuated DOE priorities. The grantees challenged these terminations in a lawsuit filed in the U.S. District Court for the District of Massachusetts. The District Court issued a Temporary Restraining Order (“TRO”) directing DOE to restore the terminated grant funding. DOE asked the First Circuit to stay the TRO pending appeal, which the First Circuit denied. DOE then filed an emergency appeal to the U.S. Supreme Court, where a majority of the justices sided with DOE.
In a 5-4 per curiam ruling, the Supreme Court stated that the district court likely does not have jurisdiction under the Administrative Procedures Act because the controlling law for jurisdictional purposes is likely instead the Tucker Act. The majority seems to suggest that the Tucker Act applies to disputes arising under government contracts and grants and requires plaintiffs to file lawsuits in the Court of Federal Claims—rather than the district courts. The immediate effect of the Supreme Court’s ruling is that DOE can proceed with terminating these grants while the plaintiffs’ litigation proceeds.
The dissenting opinions authored by Justices Kagan, Sotomayor, and Jackson took issue with the majority’s decision to focus on jurisdictional arguments that they feel do not require the Supreme Court’s emergency intervention. The dissenters also criticized the majority’s reasoning that by enjoining the termination of the grants, the district court was enforcing “a contractual obligation to pay money,” a type of claim that must be brought in the Court of Federal Claims. The dissenters suggested that the plaintiffs were actually seeking injunctive relief based on allegations that DOE violated a federal statute.
Although the Supreme Court’s decision is not a final, binding ruling on whether district courts have jurisdiction over challenges to contract and grant terminations, the ruling puts the jurisdictional issue front and center for all district court judges who are adjudicating termination challenges. Already we are noticing that the Department of Justice is filing Notices of Supplemental Authority in numerous other litigation challenges, arguing that the Supreme Court believes that government contractors and grantees with disputes against the United States do not belong in U.S. district court.
We will continue to monitor further legal developments as the district court in Massachusetts considers its response to the jurisdictional points that the Supreme Court majority has raised.