Reading the Tea Leaves: Supreme Court Dips Its Toe into Brewing Federal Spending Fight

The early days of the Trump Administration have featured a wide range of actions related to federal spending. This has included payment pauses, contract and grant terminations or reevaluations, lease terminations, changes in payment rules, civil service employment actions and other activity. The propriety and legality of many of these activities is hotly disputed. One high-profile action involves a broad takedown of the U.S. Agency for International Development (USAID) and the U.S. Department of State's related work. This effort emanated from an executive order (EO) that was specific to foreign development assistance and spawned litigation that is likely to continue for some time. One aspect of this litigation – a judicial order for the federal government to pay invoices and drawdowns on letters of credit for certain work already performed – made its way to the U.S. Supreme Court and was upheld in a one-paragraph decision issued on March 5, 2025. Notably, four justices disagreed and provided an eight-page rationale explaining their thinking.

This is the high court's first substantive foray into this topic, and although it is limited in scope and leaves many questions still unanswered, it is nonetheless instructive in certain respects.

Background

Presidential EO and State Department/USAID Implementation

On Jan. 20, 2025, President Donald Trump issued an EO titled "Reevaluating and Realigning United States Foreign Aid" (20 FR 8619). The order instructed relevant department and agency heads to immediately pause new obligations and disbursements of foreign development assistance program funds pending a 90-day review of these programs for efficiency and consistency with U.S. foreign policy goals. The pause was to be effectuated through the U.S. Office of Management and Budget's (OMB) apportionment authority.

The State Department Secretary implemented the order through a memo suspending all new funding obligations pending review. USAID issued instructions to pause new funding, immediately issue stop-work orders and develop standards for review. Additionally, numerous USAID contracts were canceled.

Department of State, et al. v. AIDS Vaccine Advocacy Coalition, et al. Temporary Restraining Order

Contractors and grant recipients adversely affected by the grant payment suspensions, stop-work orders and cancellations filed suit in the U.S. District Court for the District of Columbia, contending that the government actions were arbitrary and capricious under the Administrative Procedures Act (APA), were contrary to law, violated constitutional separation of powers with respect to spending, violated the president's constitutional duty to "take care that the laws be faithfully executed" and was ultra vires. The court issued a temporary restraining order (TRO) on Feb. 13, 2025, finding that the plaintiffs had suffered injury and the government actions were likely arbitrary and capricious – essentially because it was unnecessary to disrupt funding while conducting a 90-day review of foreign development assistance programs (AIDS Vaccine Advoc. Coal. v. United States Dep't of State, 2025 U.S. Dist. LEXIS 27639 (D.D.C. 2025)).

The decision mentioned the plaintiffs' expectation interest in existing funding agreements (including that invoices for work performed would be timely paid), as well as the government's argument that many of those agreements included terms permitting their cancellation. Ultimately, the court stressed the "blanket" nature of the funding disruption as support for the TRO. It is noteworthy that although the plaintiffs did not contest the EO itself, the court did not find the government's argument that the U.S. Constitution exempted this executive action from APA review compelling.

On Feb. 20, 2025, the court denied the plaintiffs' request to hold the government in contempt for noncompliance with the TRO. The court clarified that the government was not restrained from using statutes, regulations or other authorities to address foreign development program funding in an individualized manner but could not simply search for and invoke new legal authorities as a "post-hoc rationalization for the enjoined agency action."

Emergency TRO Enforcement Order

On Feb. 23, 2025, the plaintiffs filed an emergency renewed motion to enforce the TRO. The plaintiffs indicated that the government was not complying with the TRO but instead choosing to "take a series of new actions … that have the predictable effect of all but halting the disbursements of foreign-assistance funds." The alleged actions included limiting access to a processing system, funneling payment processing through a single person and imposing new payment processing integrity and policy requirements. The court then granted the plaintiffs' request that the government, within 48 hours, pay all invoices and letter of credit drawdown requests on contracts for work completed prior to the entry of the TRO on Feb. 13, 2025. The government appealed to the U.S. Court of Appeals for the District of Columbia Circuit for a stay of this order, which was dismissed and then appealed to the Supreme Court (AIDS Vaccine Advoc. Coal. v. United States Dep't of State, 2025 U.S. App. LEXIS 4611 (D.C. Cir. 2025)).

Supreme Court Disposition

The Supreme Court issued a brief stay of the Feb. 23, 2025, order and, on March 5, 2025, Chief Justice John Roberts issued a one-paragraph decision upholding the order and dismissing the government's appeal (Dep't of State v. AIDS Vaccine Advoc. Coal., 2025 U.S. LEXIS 869 (2025)). In a noteworthy development, four justices (Samuel Alito, Clarence Thomas, Neil Gorsuch and Brett Kavanaugh) supported an eight-page dissent from the decision.

It is customary in cases of this nature that the Court does not issue an opinion explaining its decision, which makes it difficult to discern the majority's thought process. TROs such as the one at issue here are not ordinarily subject to appeal (as opposed to preliminary injunctions that can be appealed).

The same cannot be said for the dissent, which first argues that the emergency motion to enforce the TRO should be construed as a mandatory preliminary injunction subject to appeal and that the emergency motion should have been stayed. The crux of the dissent is that the doctrine of sovereign immunity deprives the district court of jurisdiction over the actions of the State Department and USAID in implementing the president's EO. The dissent stresses the government's argument that the order will force the government to pay out $2 billion that it would in all likelihood never be able to recover and notes the sovereign immunity bars "a suit by private parties seeking to impose a liability which must be paid from public funds in the … treasury" (quoting Edelman v. Jordan, 415 U.S. 651, 663 (1974). The dissent also says that provisions of the APA related to waiving sovereign immunity are inapplicable and that the order is overbroad in applying to contractors and other State Department and USAID fund recipients not among the plaintiffs in the case. The dissent concludes that the court made a misstep that "rewards an act of judicial hubris and imposes a $2 billion penalty on American taxpayers."

Discussion

The judicial activity in this case is, by its nature, very fast moving. As such, it does not yet involve a deep dive into many of the fundamental constitutional and statutory issues that will likely be considered in this and other court challenges. What is noteworthy is that the Supreme Court is allowing a judge's order that affirmatively directs the federal government to make payments to contractors and other funding recipients for work notwithstanding. Even the dissenting justices acknowledged that plaintiffs had raised "serious concerns about nonpayment for completed work." In addition, the acting solicitor general stated to the Court that the government "is committed to paying legitimate claims for work that was properly completed," but not on "an arbitrary timeline" determined by the district court.

Although the decision could be nothing more than adherence to the rule that a TRO is not subject to appeal, the dissenters do make a strong argument that the order has, in reality, morphed into a mandatory injunction to pay monies from the U.S. Department of the Treasury to third parties. The district court order's unstated premise is that these monies are owed to those third parties, and the inference in Justice Alito's dissent is that they may not be. Left unexplored are the terms and conditions of the underlying awards with respect to payment.

Also interesting are the competing visions at this stage of the litigation as to which party is being injured. For the district court, it is the contractors and grantees whose businesses and livelihoods are in jeopardy. For the Supreme Court dissenters, it is the government that will be forced to disburse nearly $2 billion with little likelihood of being able to recover.

Finally, beyond the general tone of the dissent that aligns with themes of reducing taxpayer spending and eliminating waste, the wholehearted embrace of sovereign immunity as a defense to nonpayment of incurred costs would seem to presage an affinity for robust executive powers with regard to spending (or not spending) appropriated monies. It will remain to be seen if those four justices continue in that vein in future cases and if they are joined by one more.

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