The Obscure Court That Now Controls Billions in Terminated Federal Grants

Most researchers who have lost federal grants in the past year made the same assumption: they would challenge the termination in federal district court, get an injunction, and the money would flow again. That assumption is now wrong, and the organizations that don't understand why are about to waste months and hundreds of thousands of dollars filing in the wrong court.

In National Institutes of Health v. American Public Health Association (No. 25A103), Justice Amy Coney Barrett's controlling opinion created what lawyers are calling the "two-step" — a bifurcated legal framework that sends different pieces of the same grant dispute to two entirely different courts. If your grant was terminated and you want the money back, you file in the Court of Federal Claims under the Tucker Act. If you want to challenge the policy that led to the termination, you file in federal district court under the Administrative Procedure Act. You cannot do both in the same place.

The ruling allowed NIH to terminate more than $780 million in grants. It has already reshaped the 64 active lawsuits over federal research funding. And for the thousands of universities, nonprofits, and small businesses that depend on federal grants, it has turned what used to be a straightforward legal process into a procedural labyrinth that requires specialized counsel, careful timing, and realistic expectations about what any court can actually do.

What the Tucker Act Two-Step Actually Means

Before the Supreme Court's ruling, organizations challenging grant terminations typically filed suit in federal district court under the Administrative Procedure Act. District courts could issue injunctions — orders that force the government to keep funding flowing while the case proceeds. Judges like Tanya Chutkan in Washington, D.C. and courts in Massachusetts and Minnesota had done exactly that, ordering NIH and other agencies to continue disbursing grant funds.

The Trump administration argued that these lawsuits were fundamentally about money — that grant recipients were trying to enforce payment obligations under contracts with the government. Under long-established law, contract disputes with the federal government belong in a specialized venue: the United States Court of Federal Claims, operating under the Tucker Act (28 U.S.C. § 1491).

Justice Barrett agreed, at least in part. Her opinion established that challenges to individual grant termination decisions — the question of whether the government breached its obligation to fund a specific award — must proceed in the Court of Federal Claims. But she also held that challenges to the underlying agency policies that drove the terminations — the executive orders, guidance documents, and directives that agencies cited when canceling awards — could remain in federal district court as standard APA challenges to agency action.

The result is a two-track litigation system that separates the "why" from the "what." You can challenge the policy in one court. You can seek your money in another. But you cannot get both answers in the same proceeding.

Why the Court of Federal Claims Is a Problem

The Court of Federal Claims sits in Washington, D.C. It has 16 judges. It handles government contract disputes, tax refund cases, and claims by military veterans — not, historically, research funding battles. Most grant recipients and their attorneys have never appeared there. And the court's most significant limitation is structural: it generally cannot issue injunctions.

That single fact changes the entire calculus of grant litigation. When a university filed suit in federal district court and won, the judge could order the agency to reinstate the grant and resume disbursements immediately. The research continued. The graduate students kept their stipends. The lab stayed open.

In the Court of Federal Claims, the best outcome is monetary damages — compensation for the government's breach of its funding commitment. The court can determine that the termination violated the grant agreement and award the dollar amount owed. But it cannot order NIH or NSF or DOE to reinstate the grant, resume funding, or reverse the termination decision. The research does not restart. The lab does not reopen. The graduate students find other positions — or leave science entirely.

For organizations whose primary goal is preserving ongoing research rather than collecting damages after the fact, this distinction is devastating. A damage award three years from now does not replace a functioning research program that closes this summer.

The Section 1500 Trap

The procedural complexity gets worse. Under 28 U.S.C. § 1500, the Court of Federal Claims loses jurisdiction over a claim if a suit involving "substantially identical operative facts" is already pending in another court. This means organizations that file their APA challenge in district court first — the instinctive move for most attorneys — may inadvertently bar themselves from the Court of Federal Claims for their Tucker Act claim.

Federal Circuit precedent suggests this trap can be avoided by filing the Tucker Act claim in the Court of Federal Claims first, then filing the APA challenge in district court. The Supreme Court has not definitively endorsed this approach, but it remains the safest procedural strategy available.

The filing order matters enormously. Get it wrong, and you may lose access to the only court that can award you the money the government owes. Legal counsel experienced in Court of Federal Claims practice — a specialized bar that most university general counsel offices and nonprofit attorneys do not belong to — is essential.

The "Final Agency Action" Problem

Even the district court track has complications. Justice Barrett noted in her opinion that it remains "not obvious" whether agency guidance documents — like the NIH directives that triggered the DEI-related grant terminations — qualify as "final agency action" reviewable under the APA.

The APA only permits challenges to agency actions that mark "the consummation of the agency's decisionmaking process" and determine legal consequences. If a court concludes that the guidance was merely advisory — that individual program officers made independent termination decisions that happened to align with the guidance — then the APA challenge fails at the threshold. There is no policy to challenge because the policy was never formally finalized.

This creates a paradox familiar to administrative law scholars: the more informal and discretionary the government makes its grant termination process, the harder it becomes to challenge in court. Agencies that issue formal rules can be sued under the APA. Agencies that issue vague guidance and let program officers exercise "discretion" may be litigation-proof.

What Researchers and Institutions Should Do Now

The two-step framework demands a fundamentally different approach to grant termination disputes. Organizations that have received termination notices — or that anticipate receiving them — should take several immediate steps.

Engage specialized counsel immediately. The Court of Federal Claims bar is small and specialized. General litigation attorneys, even experienced government contracts lawyers, may not have the specific procedural expertise that Tucker Act claims require. Universities should identify Court of Federal Claims practitioners now, before termination notices arrive, rather than scrambling to find qualified counsel under deadline pressure.

File Tucker Act claims first. If you intend to pursue both tracks — challenging the termination in the Court of Federal Claims and the underlying policy in district court — file the Tucker Act claim first to avoid the Section 1500 jurisdictional bar. This requires coordination between counsel in both venues and careful timing that cannot be improvised under pressure.

Document everything about the termination process. The strongest APA challenges will be those that can demonstrate agency staff treated challenged guidance as binding — not advisory — in making termination decisions. Preserve all communications from program officers, agency officials, and grants management staff. Record whether termination letters cite specific executive orders or guidance documents. This evidence will be critical in establishing that the guidance constitutes reviewable final agency action.

Consider constitutional claims. Challenges brought on constitutional grounds — arguing that terminations violate due process, exceed executive authority, or discriminate on the basis of viewpoint — may bypass the APA finality requirements entirely. Constitutional claims remain cognizable in federal district court even when the underlying agency guidance is not "final" for APA purposes.

Be realistic about remedies. If your primary objective is keeping a research program running, the Court of Federal Claims cannot help you. It can award damages after the fact, but it cannot order the government to resume funding. Organizations whose survival depends on continued grant disbursements need to pursue injunctive relief through the district court APA track — which means winning the argument that the underlying policy constitutes reviewable final agency action.

The Broader Implications for Grant Seekers

The Tucker Act two-step is not just a legal technicality. It reflects a fundamental shift in the relationship between the federal government and its grant recipients. By characterizing grants as contracts rather than regulatory obligations, the Supreme Court has moved grant disputes out of the public law framework — where courts can order the government to follow its own rules — and into the private law framework, where courts can only compensate you after the government breaks its promises.

For the thousands of universities, nonprofits, and small businesses that hold federal grants, this means building legal preparedness into grant management the same way they build compliance and reporting. The organizations most likely to survive the current wave of terminations are those that understand the procedural landscape before their grants are canceled — not after.

Tools like Granted help organizations track the grant opportunities that remain available even as the legal landscape shifts, ensuring that the search for new funding doesn't stop while the fight over existing awards plays out in court.