Cases & Developments

Order Granting Plaintiffs’ Motion for Preliminary Injunction. Plaintiffs, Association of American Universities, the Association of Public and Land-Grant Universities, the American Council on Education, and twelve prominent research universities, filed suit challenging a Department of Defense (DOD) policy that capped reimbursement of indirect costs at 15% for research grants awarded to institutions of higher education (the “Rate Cap Policy”). Plaintiffs alleged that the Rate Cap Policy violated the Administrative Procedure Act (APA) because it was unlawful, arbitrary and capricious, and exceeded statutory authority. The same day the complaint was filed, plaintiffs moved for a temporary restraining order (TRO), which the court granted on June 17 and later extended. Plaintiffs then requested either a stay of the entire Rate Cap Policy or a preliminary injunction barring implementation against plaintiffs and their university members; the court granted the requested preliminary injunction. The court concluded that the Rate Cap Policy violated the Office of Management and Budget’s Uniform Guidance by “us[ing] an improper tool (indirect cost rates) to accomplish an impermissible goal (implicit cost sharing),” and doing so without adhering to the procedural and substantive requirements set forth in the regulations. The court further found that the policy lacked justification, disregarded mandated procedures, and failed to comply with both regulatory and statutory frameworks. The court agreed with plaintiffs that the policy was arbitrary and capricious because it failed to provide a reasoned explanation and relied solely on conclusory, unsupported assertions. Notably, the court observed that this marked the fourth attempt by a federal agency to impose such a rate cap—following similar efforts by the National Institutes of Health, Department of Energy, and National Science Foundation, each of which had previously been struck down for violating the APA and Uniform Guidance.

The U.S. Department of Education issued several notices inviting applications for new awards for fiscal year 2025 for the (1) Model Comprehensive Transition and Postsecondary Programs for Students with Intellectual Disabilities Program (TPSID); (2) TPSID Coordinating Center Program (TPSID-CC); (3) Native American-Serving Nontribal Institutions Program (NASNTI); (4) Alaska Native and Native Hawaiian-Serving Institutions Program (ANNH), Part A Grants; and (5) Asian American and Native American Pacific Islander-Serving Institutions Program (AANAPISI). The applications for all aforementioned awards must be submitted by August 13, 2025.

The Joint Association Group on Indirect Costs (JAG), a coalition of higher education and research organizations, convened a team of subject matter experts to develop a simplified and more accountable alternative to the federal facilities and administrative cost structure. The proposed new model, called the Financial Accountability in Research (FAIR) model, proposes a more efficient and transparent system for funding the indirect costs of federally sponsored research. The indirect costs include essential infrastructure and compliance-related expenses but exclude activities unrelated to research, such as education and athletics. The FAIR model introduces several key reforms: (1) a total-project-cost approach to clarify how indirect costs are calculated; (2) enhanced transparency and accountability to taxpayers and federal agencies; and (3) increased efficiency by eliminating institution-specific federal rate negotiations. Unlike the current one-size-fits-all system, the FAIR model is designed to accommodate the diverse needs of research institutions and accounts for project-specific differences. More information about JAG’s efforts and the FAIR model can be found here.

Order Granting Plaintiffs’ Motion for Preliminary Injunction and Provisional Class Certification. Plaintiffs, six University of California (UC) researchers, filed suit against Donald J. Trump, in his official capacity as President of the United States, the Department of Government Efficiency, the National Science Foundation, the National Endowment for the Humanities, the Environmental Protection Agency, and numerous other individuals and federal agencies. Plaintiffs challenged defendants’ termination of multi-year research grants at UC, which allegedly stemmed from President Trump’s series of executive orders that effectively blacklisted research on diversity, equity, and inclusion (DEI) topics and cut off funding for current projects in those areas. Plaintiffs claimed that the grant terminations (1) violated the Constitution’s separation of powers by overriding congressional appropriations; (2) constituted viewpoint discrimination under the First Amendment; and (3) denied researchers fair notice in violation of due process under the Fifth Amendment. Additionally, plaintiffs brought two other claims under the Administrative Procedure Act (APA), alleging that defendants’ actions were unlawful as well as arbitrary and capricious. Plaintiffs sought a preliminary injunction to enjoin defendants from enforcing the challenged executive orders affecting UC grants, as well as class certification for all similarly situated UC researchers. The district court granted both requests, finding that plaintiffs were likely to succeed on their claims, noting that the termination of grants based on blacklisted DEI words amounted to unconstitutional viewpoint discrimination. The court further held that defendants may not terminate grants that serve the purpose for which Congress appropriated the funds. In agreeing with plaintiffs, the court concluded that the en masse termination of grants via form letters—citing only that grants no longer reflected the “agencies’ priorities”—was arbitrary and capricious in violation of the APA. Lastly, the court rejected defendants’ attempts to require plaintiffs to bring their claims in the Court of Federal Claims and clarified that the plaintiffs had standing to challenge the terminations, despite the grants having been awarded to the university rather than to the individual researchers.

Memorandum and Order Granting Plaintiffs’ Request for Summary Judgment, Denying Defendants’ Motion for Summary Judgment, and Denying Plaintiffs’ Motion for Preliminary Injunction. Plaintiffs, the Association of American Universities, the Association of Public and Land-Grant Universities, the American Council on Education, and 13 research universities, challenged the National Science Foundation’s (NSF) Policy Notice that capped indirect cost rates at 15% for institutions of higher education, alleging that NSF exceeded its statutory authority, violated implementing regulations by departing from negotiated rates, and acted arbitrarily and capriciously under the Administrative Procedure Act (APA). Plaintiffs filed a combined motion for a preliminary injunction and summary judgment, followed by the defendants’ filing for summary judgment. The court held that NSF’s indirect cost cap was reviewable under the APA and that NSF did not have the regulatory authority nor congressional authorization to deviate from the negotiated rates. Further, the court found that the indirect cost cap was arbitrary and capricious, as “[d]efendants have not sufficiently explained why they concluded capping indirect cost rates for IHEs at 15% will further the objectives stated in the Policy Notice.” Accordingly, the court vacated the 15% indirect cost rate and Policy Notice and issued a declaratory judgment finding them “invalid, arbitrary and capricious, and contrary to law.” The court declined to enter plaintiffs’ request for a permanent injunction on the basis that vacatur and declaratory judgment adequately addressed plaintiffs’ harms. This marks the first ruling to strike down the 15% indirect cost cap imposed by various federal agencies, reaffirming that agencies cannot override negotiated agreements without clear statutory authority or adherence to proper regulatory procedures.