Strategy for Challenging the Administration’s Impoundment of Foreign Assistance Appropriations

By Robert Nichols and Andy Liu

In our article this past Sunday, we opined that OMB likely would be acting illegally if it tried to use the Impoundment Control Act (“ICA”) to run out the clock on the FY19 appropriations, or if it froze funds without timely notifying Congress.

Yesterday afternoon, Bloomberg reported that the White House intends to send a request to Congress on August 20 seeking rescission of unobligated funds in foreign assistance appropriations.  Additionally, OMB is imposing a daily spending limit of 2% of those unobligated funds per day, to block the agencies from distributing the funds before the end of the fiscal year.

The August 20 rescission notice may constitute a legal violation unless the Administration commits to releasing the funds “in sufficient time . . .  to be prudently obligated,” as GAO’s General Counsel has opined.[1]  Furthermore, the 2% cap would likely qualify as an illegal impoundment if OMB failed to timely notify Congress of this action.[2]

Several interested parties have asked us to outline a legal strategy for challenging both the anticipated rescission notice and 2% cap.  While more research is necessary, our initial thinking is informed by the ongoing lawsuit filed by the Sierra Club to stop President Trump’s reprograming of appropriated funds to pay for a border wall.  Several key takeaways from that litigation provide a good outline for such a challenge here.

Border Wall Litigation

When Congress refused to appropriate several billion dollars for construction of a border wall, President Trump declared that he would proceed with or without Congress’ blessing.  OMB reprogramed funding from various appropriations passed for other purposes, citing the National Emergencies Act (“NEA”)[3] and other fiscal statutes.  The Administration also waived the requirement for an Environmental Impact Statement for the border wall construction; that action triggered a response that President Trump may not have anticipated.

On February 19, 2019, the Sierra Club sued President Trump and his Cabinet in U.S. District Court for the Northern District of California.  The private party asked the District Court for an injunction against the Administration’s abuse of the fiscal laws to reprogram funds to a purpose not intended by Congress.  The White House, represented by the U.S. Department of Justice, opposed the request for injunctive relief.

On May 24, the District Court ruled for the Sierra Club and entered an injunction against the Administration.[4]  The Court focused its analysis on the application of the Constitution and the fiscal laws:[5]

The case is not about whether the challenged border barrier construction plan is wise or unwise. It is not about whether the plan is the right or wrong policy response to existing conditions at the southern border of the United States.  These policy questions are the subject of extensive, and often intense, differences of opinion, and this Court cannot and does not express any view as to them.

Assessing whether Defendants’ actions not only conform to the Framers’ contemplated division of powers among co-equal branches of government but also comply with the mandates of Congress set forth in previously unconstrued statutes presents a Gordian knot of sorts.  But the federal courts’ duty is to decide cases and controversies . . . .

Considering the Sierra Club’s request for relief, the District Court cautioned “[a] preliminary injunction is a matter of equitable discretion and is ‘an extraordinary remedy that may only be awarded upon a clear showing that the plaintiff is entitled to such relief.’”  The Court recited the legal standard that, to obtain preliminary injunctive relief, the plaintiff must establish:

• that it is likely to succeed on, or raises serious questions about, the merits;
• that it is likely to suffer irreparable harm in the absence of preliminary relief;
• that the balance of equities tips in its favor; and
• that an injunction is in the public interest.

The Court walked through each factor and found that the Sierra Club met its burden.  The crux of the analysis focused on the Court’s conclusion that the Administration’s reprogramming of funds likely violates the Constitution’s Separation of Powers, Congress’s most recent appropriations legislation, and the President’s statutory authorities regarding the handling of appropriated funds.  The Court found that:[6]

Congress’s “absolute” control over federal expenditures—even when that control may frustrate the desires of the Executive Branch regarding initiatives it views as important—is not a bug in our constitutional system.  It is a feature of that system, and an essential one. . . .  The Appropriations Clause is “a bulwark of the Constitution’s separation of powers among the three branches of the National Government,” and is “particularly important as a restraint on Executive Branch officers.” . . . Because the Court has found that Plaintiffs are likely to show that Defendants’ actions exceeded their statutory authority, and that irreparable harm will result from those actions, a preliminary injunction must issue pending a resolution of the merits of the case.

The Justice Department argued that the Sierra Club, a private party, has no standing to challenge the Administration’s use of Federal appropriations.  The District Court disagreed.  It found that the Sierra Club had met the Supreme Court’s standard for establishing standing:  the Sierra Club’s members would suffer an injury fairly traceable to the Administration’s reprogramming of funds, and the injury could be redressed by a favorable judicial decision.

Over the next several weeks, the District Court considered whether to issue a permanent injunction against the reprogramming.  Both the Sierra Club and the Administration, as well as various amici curiae (friends of the court), submitted briefs and testimony on the matter.  On June 28, the Court issued a second order confirming that the Administration had illegally reprogrammed appropriated funds for a purpose unintended by Congress.[7]  It then issued a permanent injunction against this unlawful fiscal action.

The Administration appealed the decision to the U.S. Court of Appeals for the Ninth Circuit.  Justice Department lawyers sought to stay the permanent injunction while the Circuit Court reviewed the District Court’s ruling; however, DOJ did not contest the Sierra Club’s standing (at least for purposes of lifting the injunction).  On July 3, the Circuit Court issued a lengthy opinion siding with the Sierra Club on both the illegality of the Administration’s funding actions and the Sierra Club’s standing.  It ordered that the injunction remain in place while the Circuit Court continued to consider other facets of the case.

The Administration immediately appealed to the Supreme Court.  On July 26, the Supreme Court issued a 5-4 decision releasing the funds during the pendency of the appeal at the Circuit Court.[8]  The majority stated that the Administration had raised sufficient doubt about there is a private cause of action to question the reprogramming of funds under one of the fiscal statutes in play.  Justice Breyer’s opinion, concurring in part and dissenting in part, observed that “[t]his case raises novel and important questions about the ability of private parties to enforce Congress’ appropriations power.”

Take-Aways From Sierra Club

We glean five key points from the Sierra Club litigation.

First, the District Court found that the Administration violated the law when it reprogrammed funds away from their intended purposes, and it granted an injunction halting the President’s actions.  The Court steadfastly focused on the Administration’s actions under the law, not on the policy differences that are motivating the litigants.

Second, a private party initiated the litigation.  The District Court and Circuit Court found that it has standing to do so, leading the Justice Department to concede the point at the Circuit Court (at least for purposes of seeking to lift the injunction).  However, at the Solicitor General’s urging, the Supreme Court questioned whether the Sierra Club has the right to enforce the fiscal statutes on which it is relying.  This issue remains in play.

Third, neither Congress nor GAO brought this litigation, nor is either participating in it as a plaintiff.  The U.S. House of Representatives and individual Members of Congress have joined the suit only as non-plaintiff amici curiae.[9]

Fourth, the Supreme Court released the funds for the Administration to spend while the Circuit Court continues its review of the District Court’s ruling.  The contrast in opinions between the California-based District Court and Circuit Court and the right-leaning Supreme Court should not go unnoticed.

Fifth, litigation such as this can move very quickly, requiring a comprehensive understanding of both appropriations law and legal rights of action to enforce fiscal laws.  Neither of these issues has been finally resolved by the courts.

Strategy for a Possible Challenge

In our view, any legal strategy to challenge the Administration’s impoundment of foreign assistance appropriations must involve three steps.

1. One or more contractors and/or NGOs would need to sign on as plaintiffs in a lawsuit and demonstrate that they will suffer harm from the Administration’s funding impoundments. Having other interested parties join the lawsuit—the House of Representatives, GAO, individual Members of Congress, and trade associations—would be helpful but may not be essential, given the ruling in Sierra Club.
2. Counsel would need to quickly nail down the legal arguments and draft a complaint addressing three issues:

   a. establishing that the plaintiffs meet the standards for standing;

   b. arguing that the Administration’s impoundments of the foreign assistance appropriations—

   • • • constitutes an illegal, de facto line item veto;
       • violates the Constitution’s Separation of Powers;
       • violates the Impoundment Control Act;
       • violates the foreign assistance appropriations statutes; and
       • possibly violates the Administrative Procedures Act.

   c. identifying the relief sought, which likely would include—

   • • • enjoining OMB from using any rescission package to “run out the clock” on the FY19 funding;
       • enjoining OMB from imposing the 2% cap on spending as an illegal impoundment of funds;
       • making the funds available during the pendency of the lawsuit; and
       • possibly making the funds available for a commensurate period after the fiscal year has expired.
3. Once the complaint is written, counsel could send it to OMB—without identifying the plaintiffs—as a warning shot before filing the lawsuit. This may very well cause the Administration to abandon its impoundment actions, at least for this year.  If not, the suit could be filed immediately.

This course of action obviously is not without litigation and political risks.  As the Sierra Club litigation shows, however, parties harmed by the Administration’s misuse of the fiscal laws may have a right to be heard—and might even be able to curb the President’s injurious disregard of fiscal laws.

[1] Impoundment Control Act—Withholding of Funds through Their Date of Expiration, B-330330 (Dec. 10, 2018), https://www.gao.gov/assets/700/695889.pdf.

[2] See 2 U.S.C. §§ 682-684 (requiring notice to Congress of any impoundment of appropriated funds).

[3] 50 U.S.C. §§ 1601-1651.

[4] Sierra Club v. Trump, 379 F. Supp. 3d 883 (N.D. Cal. 2019).

[5] See id. at 891 (citations omitted) (citing In re Aiken Cty., 725 F.3d 255, 257 (D.C. Cir. 2013) (“The underlying policy debate is not our concern . . . .  Our more modest task is to ensure, in justiciable cases, that agencies comply with the law as it has been set by Congress.”) (ellipsis in original)).

[6] Id. at 927-28 (citations omitted).

[7] Sierra Club v. Trump, No. 4:19-cv-00892-HSG, 2019 WL 2715422 (N.D. Cal. June 28, 2019).

[8] See Trump v. Sierra Club, 588 U. S. ____ (2019), available at https://www.supremecourt.gov/opinions/18pdf/19a60_o75p.pdf.

[9] Having said that, the U.S. House of Representatives did bring a separate lawsuit seeking a preliminary injunction in the U.S. District Court for the District of Columbia.  The District Judge dismissed that suit stating that, “while the Constitution bestows upon Members of the House many powers, it does not grant them standing to hale the Executive Branch into court claiming a dilution of Congress’s legislative authority.”  U.S. House of Representatives v. Mnuchin, 379 F. Supp. 3d 8, 11 (D.D.C. 2019).  That opinion has been strongly criticized by legal scholars and is now on appeal.