Ass'n of Am. Universities v. Dep't of Def.

• Court: U.S. District Court — District of Massachusetts
• Writing for the Court: MURPHY, United States District Judge
• Citation: Ass'n of Am. Universities v. Dep't of Def., 792 F.Supp.3d 143 (D. Mass. 2025)
• Docket Number: Civil Action No. 25-11740-BEM
• Decision Date: 18 July 2025
• Parties: ASSOCIATION OF AMERICAN UNIVERSITIES, et al., Plaintiffs, v. DEPARTMENT OF DEFENSE, et al., Defendants.

792 F.Supp.3d 143

ASSOCIATION OF AMERICAN UNIVERSITIES, et al., Plaintiffs, v. DEPARTMENT OF DEFENSE, et al., Defendants.

Civil Action No. 25-11740-BEM

United States District Court, D. Massachusetts

Signed July 18, 2025

Elizabeth Henthorne, Ishan Bhabha, Pro Hac Vice, Lauren J. Hartz, Pro Hac Vice, Lindsay C. Harrison, Pro Hac Vice, Zachary C. Schauf, Jenner & Block LLP, Washington, DC, James Xi, Kyle Raymond Eiswald, Pro Hac Vice, Paul D. Clement, Pro Hac Vice, Clement & Murphy, PLLC, Alexandria, VA, Shoba Pillay, Jenner & Block LLP, Chicago, IL, for Plaintiffs Association of American Universities, American Council on Education, Association of Public and Land-grant Universities.

Elizabeth Henthorne, Ishan Bhabha, Pro Hac Vice, Lauren J. Hartz, Pro Hac Vice, Lindsay C. Harrison, Pro Hac Vice, Zachary C. Schauf, Jenner & Block LLP, Washington, DC, Shoba Pillay, Jenner & Block LLP, Chicago, IL, for Plaintiffs Arizona Board of Regents, Brown University, California Institute of Technology, The Regents of the University of California, Cornell University, The Board of Trustees of the University of Illinois, The Johns Hopkins University, Massachusetts Institute of Technology, University of Pittsburgh of the Commonwealth System of Higher Education.

Elizabeth Henthorne, Ishan Bhabha, Pro Hac Vice, Lauren J. Hartz, Pro Hac Vice, Lindsay C. Harrison, Pro Hac Vice, Zachary C. Schauf, Jenner & Block LLP, Washington, DC, Lauren Kelsey Peach, Pro Hac Vice, Colorado Department of Law, Denver, CO, Michael McMaster, Colorado Attorney General's Office, Denver, CO, Shoba Pillay, Jenner & Block LLP, Chicago, IL, for Plaintiff Board of Governors of the Colorado State University System Acting by and through Colorado State University.

Elizabeth Henthorne, Ishan Bhabha, Pro Hac Vice, Lauren J. Hartz, Pro Hac Vice, Lindsay C. Harrison, Pro Hac Vice, Zachary C. Schauf, Jenner & Block LLP, Washington, DC, Michael Drezner, U.S. Department of Justice, Federal Programs Branch, Washington, DC, Michael Drezner, Office of the Attorney General- State of Maryland, Civil Division, Baltimore, MD, Shoba Pillay, Jenner & Block LLP, Chicago, IL, for Plaintiff University of Maryland, College Park.

Elizabeth Henthorne, Ishan Bhabha, Pro Hac Vice, Lauren J. Hartz, Pro Hac Vice, Lindsay C. Harrison, Pro Hac Vice, Zachary C. Schauf, Jenner & Block LLP, Washington, DC, Shoba Pillay, Jenner & Block LLP, Chicago, IL, Jessica Creighton, Office of the Attorney General of Washington, University of Washington Division, Seattle, WA, for Plaintiff University of Washington.

Bethany Theriot, I-Heng Hsu, DOJ-United States Attorney's Office, Washington, DC, for Defendants.

MEMORANDUM AND ORDER ON PLAINTIFFS' MOTION FOR PRELIMINARY RELIEF

MURPHY, United States District Judge

The Government has, for the fourth time, purported to announce a policy that has consistently been deemed unlawful, without acknowledgment of its apparent illegality and without any attempt to structure the policy in a manner that fulfills the established requirements of law. All three prior cases in this District have enjoined or vacated similar attempts to impose a 15% cap on indirect cost rates for federal research grants. See Massachusetts v. Nat'l Insts. of Health, 1:25-cv-10338-AK (preliminary injunction enjoining National Institutes of Health; entered on March 5, 2025, and converted to permanent injunction and final judgment; appeal pending); Ass'n of Am. Univs. v. Dep't of Energy, 1:25-cv-10912-ADB (preliminary injunction enjoining Department of Energy; entered on May 15, 2025, and converted to permanent injunction and final judgment); Ass'n of Am. Univs. v. Nat'l Sci. Found., 1:25-cv-11231-IT (granting summary judgment and entering final judgment on June 20, 2025, against National Science Foundation, vacating the rate cap). In each of those cases, the court has found not only that the policy at issue violates law on the books but that the Government has wholly failed its legal obligation to rationally explain why it has adopted these policies. Despite these successive losses—and despite the benefit of thorough, reasoned decisions from three different judges—the Government has imposed a nearly identical policy with respect to Department of Defense ("DOD") research grants issued to universities. Before the Court is Plaintiffs' motion for injunctive relief or a stay of the policy.¹ For the reasons set forth below, Plaintiffs' request for a preliminary injunction is GRANTED, and Plaintiffs' request for a stay is DENIED.

I. Background

A. Factual Background

1. The Parties

Plaintiffs are the Association of American Universities ("AAU"), the Association of Public and Land-Grant Universities ("APLU"), the American Council on Education ("ACE") (collectively, "Organizational Plaintiffs"), and 12 universities² that house significant scientific study and innovation supported by DOD grants (collectively, "University Plaintiffs," and with Organizational Plaintiffs, "Plaintiffs").

Defendants are DOD and Secretary of Defense Peter Hegseth (collectively, "Defendants").

2. DOD Grants

Congress has authorized DOD to issue grants supporting research that advances American defense capabilities, protects national security, and meets DOD's other research needs.³ See 10 U.S.C. § 4001.⁴ As relevant here, DOD frequently engages institutions of higher education ("IHEs" or "universities") to partner on those research efforts.⁵ It is undisputed that this partnership with academia is "essential for the development of transformative research concepts that drive [DOD's] future capabilities." Dkt. 1-2 ("Michael Memo") at 3.

Federal research grants typically work through reimbursement. See 2 C.F.R. § 200.305(b)(3) (stating that reimbursement is the federal government's preference unless certain conditions are met). IHEs are required to document their research costs, which are then "charged" back to the relevant grant. See 2 C.F.R. § 200.400(d).

3. Statutory and Regulatory Framework

a. The Uniform Guidance

The same statute that authorizes DOD to issue research grants provides that those grants will be awarded "in accordance with chapter 63 of title 31" of the U.S. Code. 10 U.S.C. § 4001(b)(1) (referring to 31 U.S.C. § 6301 et seq.). In turn, that chapter authorizes the Office of Management and Budget ("OMB") to issue guidelines "to promote consistent and efficient use of . . . grant agreements." 31 U.S.C. § 6307; see also id. § 503 (granting OMB authority to "establish governmentwide financial management policies").

OMB has thereupon issued regulations that govern the fiscal administration of federal grants, namely the Uniform Guidance for Federal Awards. 2 C.F.R. pt. 200 (hereinafter, the "Uniform Guidance").⁶ The Uniform Guidance establishes basic principles and procedures for federal grant accounting.

i. Allowable vs. Unallowable Costs

Two such principles relevant to this case are "allowable" versus "unallowable" costs. Allowable costs—in other words, what the Government will pay for—must, among other requirements, be "necessary and reasonable"; must "conform to any limitations or exclusions"; must be consistently accounted for; and must be "adequately documented." Id. § 200.403. Unallowable costs, by contrast, are what the Government will not pay for—for example, entertainment costs are generally unallowable. See id. § 200.438. Accordingly, the principle of allowability filters out costs that have been deemed undeserving of federal dollars, based on the nature of the expense.

ii. Direct vs. Indirect Costs

Whereas allowability dictates what costs can be reimbursed using grant funds, the idea of direct and indirect costs informs how those costs can be tied back to the grants themselves. Simply, some allowable costs are easier to associate with a specific project than others. For example, if a government-sponsored research program uses some amount of a chemical or other consumable as part of an experiment, the organization can relatively easily track that expense and attribute it to the specific project. Such expenses are called "direct" costs because they are directly allocable. See id. § 200.413(a). By contrast, some allowable costs cannot easily be attributed to a particular project. For example, research is very often conducted in buildings, and buildings cost money. Maintenance of that building is explicitly an allowable cost, id. § 200.452, but it would make little sense to talk about how much of the cost to fix the front door of a research lab is attributable to any given research project housed within that lab. Because these costs cannot be directly associated with any given project without resort to unreasonably fictitious methods of accounting, they are referred to as "indirect costs." See id. § 200.414(a); cf. id. § 200.413(a).

"There is no universal rule for classifying certain costs as direct or indirect costs." Id. § 200.412. Unlike the distinction between allowable and unallowable costs, which is based on the nature of the expense, a cost's being treated as direct or indirect is a function of accounting and of the principles set forth in the Uniform Guidance. For example, most administrative salaries are properly considered indirect costs because administrators usually do work that is relevant to multiple functions or activities of an institution, and so their salaries cannot reasonably be attributed to one grant over another. Id. § 200.413(c). However, if an organization hires an administrator to work exclusively on a single government-sponsored grant project, that salary might be treated as a direct cost. Id. §§ 200.413(c)(1)-(3). Thus, salaries for two individuals doing the exact same type of work might appear as either direct or indirect on the final balance sheet depending on non-substantive factors. Likewise, "minor items"—such as pens and postage stamps—are typically treated as indirect costs. Id. § 200.413(d); id. pt. 200, App. III(B)(6)(b)(2). However, in circumstances where a substantial (and traceable) number...