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The decision by the 2-1 majority on the U.S. Court of Appeals for the District of Columbia Circuit finds that federal officials have broad latitude to cancel funds that have been appropriated by Congress without facing allegations in federal district court that they broke the law. A strongly worded dissent said the outcome was a loss not just for the five green bank groups who sued the EPA, but for the authority of Congress to write policy and maintain its traditional power of the purse.

Appeals court says the dispute belongs in federal claims court

In an opinion written by Judge Neomi Rao, the appeals court said the dispute should be heard in a federal claims court that considers contract disputes. Rao was appointed by President Donald Trump in his first term.

“In sum, district courts have no jurisdiction to hear claims that the federal government terminated a grant agreement arbitrarily or with impunity. Claims of arbitrary grant termination are essentially contractual,� Rao wrote in a decision supported by Judge Gregory Katsas, also a Trump appointee.

The green bank groups said the federal claims court is limited to awarding possible monetary damages. The groups were seeking an order allowing them immediate access to their funds, which total about $16 billion.

EPA press secretary Brigit Hirsch said in a statement that the decision reaffirmed EPA's "duty to be an exceptional steward of taxpayer dollars.�

“It’s fantastic to see reason prevail in the court system," she said.

Green banks have been in the EPA chief's crosshairs for months

A lower court had previously said the EPA couldn’t support Administrator Lee Zeldin’s accusations of wrongdoing and that the and must have access to certain funding that had been frozen. The majority ruling overturned that decision Tuesday, although the order won’t go into effect immediately to allow for an opportunity to appeal.

The Greenhouse Gas Reduction Fund, commonly referred to as a “green bank,� was authorized by the 2022 Inflation Reduction Act, the climate law approved by congressional Democrats. However, its goals run counter to the Trump administration’s opposition to climate-friendly policies and its embrace of fossil fuels such as oil and coal. Zeldin quickly made the bank a target, marred by conflicts of interest and potential fraud.

In terminating the grants, Zeldin cited a conservative journalist’s undercover video made late last year that showed a former EPA employee saying the agency was throwing “gold bars off the Titanic� — presumably a reference to spending before the end of Biden's term.

In a February interview with Fox News, Zeldin said he suspected the green bank “was a clear-cut case of waste and abuse� and an example of what he called “self-dealing� among the Biden administration and like-minded groups.

The appeals court said the lower court was too quick to dismiss the EPA's concerns that the program lacked sufficient oversight.

“The court disregarded the government’s interest in prudent management of the grant programs and the government’s representations that it planned to properly supervise, rather than abandon, the grantmaking process,� Rao wrote.

Advocates vow to keep fighting for frozen funds

Climate United Fund and four other groups sued the EPA, Zeldin and Citibank, which held the grant money on behalf of the agency, saying they had illegally denied the groups access to funds awarded last year. They wanted access to those funds again, saying the freeze had paralyzed their work and jeopardized their basic operations.

Climate United CEO Beth Bafford said in a statement Tuesday, “This is not the end of our road.�

“While we are disappointed by the panel’s decision, we stand firm on the merits of our case: EPA unlawfully froze and terminated funds that were legally obligated and disbursed,� Bafford said.

Amir Kirkwood, CEO of the , said the ruling �hurts America’s under-resourced communities, stalling hundreds of American-made clean energy projects across the country.″

Critics say the ruling sets a dangerous precedent

Judge Cornelia Pillard, who was appointed by former President Barack Obama, said in a sharply worded dissent that the green bank groups provided evidence that the EPA simply disagreed with the program's goals and tried to end it, while throwing around allegations against the groups it couldn't support.

"Those unprecedented and unfounded actions were part of EPA’s hunt for reasons to shut down the congressionally mandated program and claw back the funding that had already been disbursed to Plaintiffs and committed to infrastructure projects,'' she wrote.

“The majority allows the government to seize plaintiffs' money based on spurious and pretextual allegations and to permanently gut implementation of major congressional legislation designed to improve the infrastructure, health and economic security of communities throughout the country,� she said, adding the lower court was right to block the termination of the grants.

Camille Pannu, an associate clinical professor at Columbia Law School, said the split ruling shows “what happens when courts are politicized." For an agency to “overrule Congress and decide not to spend legally appropriated money is surprising and seems like an overreach,'' she said in an interview.

“If the government is not honoring legally binding contracts, that's a problem," Pannu said.

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