Citibank Ordered to Release Nonprofit Funds - EPA Arguments Rejected

EPA Actions Deemed “Arbitrary and Capricious” by Federal Judge

A ruling delivered on Tuesday by a federal judge determined that the Environmental Protection Agency (EPA) acted in an “arbitrary and capricious” manner when it decided to terminate contracts held by three nonprofit organizations.

Consequently, a temporary restraining order was issued. This order mandates both the EPA and Citibank to grant the nonprofits access to the funds currently held within their respective accounts.

Lawsuit and Allegations of Improper Conduct

This development stems from a lawsuit initiated by the three nonprofits, all of whom were recipients of grants originating from the Greenhouse Gas Reduction Fund. This fund was established as part of the Inflation Reduction Act, which became law in 2022.

The EPA had previously directed Citibank to freeze the nonprofits’ accounts, citing concerns regarding potential waste, fraud, and conflicts of interest. However, the judge presiding over the case found these claims to be “vague and unsubstantiated.”

Lack of Specificity in Termination Notices

The judge’s assessment of the EPA’s termination letters revealed a critical flaw. They “vaguely reference ‘multiple ongoing investigations’ into ‘programmatic waste, fraud, and abuse and conflicts of interest’ but offer no specific information about such investigations, factual support for the decision, or an individualized explanation for each [of the nonprofits],” the judge stated.

This lack of detail was deemed “insufficient” to justify the contract terminations.

Imminent Harm to Nonprofits

Judge Tanya Chutkan, of the U.S. District Court for the District of Columbia, concluded that the nonprofits would “suffer imminent, irreparable harm” if they were denied access to their allocated funding.

Impact on Ongoing Projects

Climate United, one of the plaintiffs, has already committed $392 million to projects eligible for funding from the Greenhouse Gas Reduction Fund.

This includes a $31.8 million investment in solar projects located in rural Arkansas, and a $63 million allocation for the development of solar power plants in Oregon and Idaho, undertaken in collaboration with tribal communities.

Power Forward, another plaintiff, has committed $539 million. The account freeze has rendered them “unable to pay outstanding invoices from contractors.”

Procedural Failures in Contract Termination

Typically, government agencies, including the EPA, are required to provide written notice and an opportunity for rebuttal when terminating a contract.

In this instance, the nonprofits received no prior communication from either the EPA or Citibank before their accounts were frozen. Requests for withdrawals made in February and March were ignored by Citibank, and inquiries were left unanswered.

The EPA also failed to respond to the nonprofits’ attempts at communication.

Delayed and Ultimately Canceled Meeting

The EPA initially proposed a meeting with Climate United for the week of February 24, but subsequently “rescheduled the meeting three times and then canceled it without explanation,” according to the judge’s findings.

Formal termination letters were not sent to the nonprofits until March 10, shortly before a scheduled hearing concerning the withheld funds.

Statutory Rights Violated

Judge Chutkan asserted that the termination letter “appears to contravene a duly enacted statute and interferes with [the nonprofits’] statutory rights to these funds.”

The judge further noted that the EPA did not demonstrate adherence to the “legally required steps necessary to terminate these grants,” leading to a determination that their actions were “arbitrary and capricious.”

During a hearing on March 12, the EPA was unable to provide evidence supporting the basis for the termination or confirmation that proper procedures were followed.

Likelihood of Success in Lawsuit

In issuing the temporary restraining order, the judge determined that the nonprofits “have shown a substantial likelihood of success” in their legal challenge.