A divided federal appeals court on Thursday breathed new life into lawsuits filed by two Virginia school boards against the Education Department, which had threatened to withhold or alter federal funding over the districts' transgender student policies.
The U.S. Court of Appeals for the 4th Circuit, in a 2-1 ruling, reversed a lower court's dismissal of the cases brought by Fairfax County and Arlington County school boards. The lower court had said the districts sued in the wrong forum and should have taken their contract disputes to a specialized court.
Writing for the majority, U.S. Circuit Judge Allison Jones Rushing said the district court erred in tossing the complaints in their entirety because some of the school boards' claims are not purely contractual. "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," Rushing wrote.
The legal battle stems from the Trump administration's decision to place the two districts on "high-risk status" last year after they refused to change policies allowing transgender students to use bathrooms and locker rooms matching their gender identity. That designation shifted the Education Department's payment method from advance funding to reimbursement, a significant administrative burden for the districts.
The majority opinion stressed that it was going "no further" and that the ultimate success of the lawsuits remains uncertain. Judge Rushing was joined by U.S. Circuit Judge Albert Diaz, an appointee of former President Obama, while U.S. Circuit Judge Julius Richardson, a Trump appointee, dissented.
In his dissent, Richardson sided with the lower court judge, Rossie Alston, also a Trump appointee, arguing that the districts' claims are fundamentally about contract payments. "Strip back the veneer, and the districts' claims are simple: They want their contractual payments made in advance, as before," Richardson wrote. He pointed to recent Supreme Court emergency orders that have pushed similar contract disputes toward the Court of Federal Claims.
Notably, Judge Rushing herself had previously agreed with that approach in a separate case involving agricultural grants. But in this instance, she determined that some of the school boards' claims go beyond contract and can proceed in federal district court.
The ruling adds another layer to the ongoing legal and political battles over transgender student policies, which have become a flashpoint in several states. Similar disputes have arisen elsewhere, and courts have issued mixed rulings on the scope of federal funding conditions.
The Education Department and the school boards have not yet commented on the decision. The case will now return to the district court, where the merits of the claims will be examined.
