Nonprofits challenged a January 2025 Office of Management and Budget memo that they said could abruptly halt federal financial assistance and disrupt services nationwide. A federal district court issued a preliminary injunction, but in August 2026 the U.S. Court of Appeals for the D.C. Circuit vacated it because the challenge to the rescinded memo was likely moot. The appeals court did not decide whether the memo was lawful or reject the district court’s account of the disruption.
What the federal funding pause was
On January 20, 2025, President Trump issued executive orders addressing administration priorities, some of which directed agencies to review or pause funding connected to those policies. On January 27, Acting Office of Management and Budget Director Matthew J. Vaeth sent agency heads Memorandum M-25-13. It called for agencies to identify programs implicated by the orders and temporarily pause covered financial assistance while reviews were underway. Its language referred to pausing activities tied to “all Federal financial assistance,” subject to exceptions and limits permitted by law. D.C. Circuit opinion
On January 28, OMB issued guidance saying that programs not implicated by the executive orders were outside the pause and that the action was not an across-the-board freeze. The National Council of Nonprofits and three other organizations filed suit that day, before the memo’s scheduled effective time. OMB rescinded the memo on January 29. A White House statement after the rescission said the executive orders remained in force, helping fuel disagreement about whether the challenged policy had actually ended. D.C. Circuit opinion
Who sued and what harm they alleged
The plaintiffs were the National Council of Nonprofits, the American Public Health Association, Main Street Alliance, and SAGE. They argued that a sudden, broad funding halt threatened organizations that rely on federal awards and the people who receive services through them. Their challenge focused on the OMB memo, not on every funding action taken under the executive orders. D.C. Circuit opinion Case materials
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At the preliminary-injunction stage, the district court described federal funding as a lifeline for organizations and found evidence of nationwide panic and ongoing funding disruption during the emergency litigation. Those are the district court’s preliminary-stage findings and descriptions, not a final trial judgment establishing the full scale of harm. The reviewed court materials do not establish a validated nationwide count of affected nonprofits or services. D.C. Circuit opinion District court materials
The D.C. Circuit later wrote: “The Memorandum’s issuance instantly sparked widespread chaos based on concerns that it called for an across-the-board halt to vital funding of essentially all federally funded programs.” It also said it had “no cause to question” the district court’s assessment of the memo’s natural reading, the strength of the plaintiffs’ legal challenges, or the widespread effects and panic it caused. D.C. Circuit opinion
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How the courts handled the case
Emergency relief and preliminary injunction
The district court first issued emergency relief. On February 3, 2025, it granted a temporary restraining order and rejected the administration’s initial argument that the case was moot. On February 25, it converted that relief into a preliminary injunction. The court reasoned that OMB’s guidance did not cure the broader language in the memo and found the plaintiffs likely to succeed on an arbitrary-and-capricious claim. These were preliminary rulings, not a final decision after trial on the underlying claims. D.C. Circuit opinion
Appeal and vacatur
The D.C. Circuit heard argument on February 6, 2026, and issued its decision on August 21, 2026. It concluded that the challenge to the rescinded memo was likely moot: OMB had withdrawn the memo before learning of the lawsuit, guidance had already described a narrower scope, and the government showed little likelihood of reissuing a blanket freeze with the same allegedly unlawful features. The court vacated the preliminary injunction on that basis. It expressly said: “Rather, we vacate the preliminary injunction based solely on the likelihood that Plaintiffs’ challenge to the Memorandum has become moot because the Memorandum was rescinded.” D.C. Circuit opinion Case materials
What the August 2026 ruling does—and does not—mean
- It did vacate the injunction. The preliminary injunction no longer stands after the D.C. Circuit’s decision.
- It did not decide whether M-25-13 was lawful. The appellate court resolved the appeal on likely mootness grounds, not the merits of the nonprofits’ legal claims.
- It did not find that no disruption occurred. The court said it had no cause to question the district court’s preliminary assessment of the memo’s likely meaning, legal challenges, and effects.
- It did not establish a nationwide impact total. The court materials describe disruption and panic but do not supply a verified count of affected organizations or services.
Related nonprofit funding lawsuits are separate cases
Other lawsuits involved different agencies, funding streams, plaintiffs, and alleged injuries. They should not be treated as proof of specific harms in the National Council of Nonprofits case.
| Case | Action or funding stream | What the cited materials describe |
|---|---|---|
| National Council of Nonprofits v. Office of Management and Budget | OMB Memorandum M-25-13 and federal financial assistance | Four nonprofit plaintiffs challenged the memo; the D.C. Circuit vacated the preliminary injunction in August 2026 on likely mootness grounds. D.C. Circuit opinion |
| Woonasquatucket River Watershed Council v. USDA | USDA funding under the Inflation Reduction Act and Infrastructure Investment and Jobs Act | The First Circuit discussed district court findings about wasted staff time and planning, impending staff losses, and damage to nonprofit-community relationships. These are findings in that separate case, not the National Council case. First Circuit materials |
| Earthjustice’s USDA grant dispute | USDA grant commitments funded by the Inflation Reduction Act | A separate March 2025 case concerned those grant commitments; it involved different plaintiffs and funding, not OMB M-25-13. Earthjustice materials |
Why the distinction matters for nonprofits and fund recipients
The case illustrates a procedural distinction with practical consequences: a court can temporarily block an action while a legal challenge proceeds, yet an appeal can end on mootness grounds if the challenged action has been withdrawn and is unlikely to return in the same form. Vacating the injunction does not itself answer whether the earlier memo was lawful, nor does it settle claims about every later agency funding decision. The outcome described here is specific to M-25-13 and the plaintiffs’ challenge to that rescinded memorandum.
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