A divided federal appeals court has breathed new life into two Virginia school districts' legal challenges to the Trump administration's funding threats over their transgender student policies. The U.S. Court of Appeals for the 4th Circuit ruled Thursday that lower court dismissal was premature, sending the cases back for further proceedings.
The ruling overturns a judge's decision that the Fairfax County and Arlington County school boards—both in the Washington, D.C., suburbs—had filed in the wrong venue. The lower court had insisted their grievances were fundamentally contractual and should be heard by the U.S. Court of Federal Claims, which handles disputes over government contracts.
In a 2-1 decision, the appellate panel rejected that blanket conclusion. Writing for the majority, Judge Allison Jones Rushing stated: "Because the school districts have asserted some claims that are not at their essence contractual, the district court erred in dismissing these complaints in full for lack of jurisdiction."
The legal battle stems from the school boards' refusal to alter policies that allow transgender students to use bathrooms and locker rooms matching their gender identity. In response, the Education Department placed the districts on "high-risk status," a designation that shifts federal grant payments from advance disbursement to a reimbursement-only basis.
The majority opinion was joined by Judge Albert Diaz, an Obama appointee, while Judge Julius Richardson, a Trump appointee, dissented. Richardson argued the districts' complaints were "simple" contractual disputes over payment timing, writing: "Strip back the veneer, and the districts' claims are simple: They want their contractual payments made in advance, as before. Those claims are founded upon contract, and Congress has assigned them to the Court of Federal Claims."
Richardson sided with the original trial judge, Rossie Alston, also a Trump appointee, who had pointed to recent Supreme Court emergency rulings that pushed similar contractual disputes out of district courts. Rushing, however, distinguished those cases, noting that the school boards raise broader statutory and constitutional challenges beyond payment mechanics.
Earlier this year, Rushing herself had applied that logic in a separate case involving agricultural grants. But on Thursday, she clarified that the school boards' complaints contain claims that transcend contract law, such as alleged violations of federal statutes and constitutional rights. "In sum, the district court erred by concluding that the recent injunction decisions dictated that it lacked jurisdiction over all the claims in these complaints as a whole," she wrote.
The ruling does not guarantee the school boards will prevail on the merits. The majority explicitly stated it was going "no further" than deciding the jurisdictional question. The case now returns to the district court, where the substantive arguments over transgender student policies and federal funding conditions will be heard.
The decision arrives amid a broader legal landscape where courts are grappling with the scope of federal authority over state and local education policies. Recent appellate rulings have shown the judiciary's willingness to intervene in contentious policy disputes, though outcomes remain unpredictable.
The Education Department and the school boards have not yet commented publicly on the ruling. The case highlights the ongoing friction between local school governance and federal directives, a theme that has resonated in other contexts, such as lawsuits forcing accountability in institutional actions.
