The ruling converts the temporary restraining order issued in February into a final judgment on the merits.

Vargas concluded the states properly challenged the suspension under the Administrative Procedure Act, while dismissing claims involving separate Railroad Rehabilitation and Improvement Financing loan agreements for lack of jurisdiction.

"Defendants do not dispute that the suspension of federal grants flagrantly violates federal law," Vargas wrote. "The Court rejects the notion that the States are without a remedy in such a situation."

The administration argued the dispute belonged exclusively in the U.S. Court of Federal Claims because it arose from Gateway's grant agreements. Vargas rejected that position, writing that "the Tucker Act is not a lock designed to bar Plaintiffs from any door" and concluding the states challenged USDOT's compliance with federal grant regulations—not the terms of Gateway's funding agreements.

The court wrote that the Uniform Grant Guidance governs when federal agencies may suspend grant payments. Vargas wrote that the Uniform Grant Guidance permits agencies to withhold grant payments only after first determining that a recipient failed to comply with applicable law.

She also found the regulations require grantees be given an opportunity to challenge the action before payments are suspended.

Instead, she wrote, "The September 30 Suspension skipped right to payment suspension without any finding that GDC had violated the law." The court also found USDOT failed to provide the opportunity to challenge the suspension required under federal grant regulations before withholding payments.

Brian Turmail, vice president of association and industry image for the Associated General Contractors of America, said in an email the ruling "should help clarify and add certainty to the federal funding process for vital infrastructure work."

If the decision ultimately stands, he said, it will help future administrations understand "the safeguards that are in place once funding has been awarded," making it easier for contractors "to commit to building complex mega projects."

Building Through Litigation

In describing the consequences of the funding freeze, the court wrote that the project had reached "the cusp of a suspension-induced work stoppage that would have eliminated hundreds of jobs, left active construction sites abandoned, and wreaked havoc on the Project's timeline and budgets."

Gateway temporarily halted construction in February before Vargas issued a temporary restraining order restoring federal reimbursements. ENR later reported the interruption cost the project millions of dollars in site security and maintenance, delayed procurement of the Hudson River Tunnel and New Jersey Surface Alignment contracts, and compressed construction sequencing after work resumed.

The opinion also recounts President Donald Trump's public statements that he had decided to terminate Gateway funding "because the Democrats are so foolish," while USDOT maintained the suspension was tied to its review of the project's compliance with revised disadvantaged business enterprise requirements.

In a joint statement, New York Gov. Kathy Hochul, New Jersey Gov. Mikie Sherrill, New York Attorney General Letitia James and New Jersey Attorney General Jennifer Davenport said they were "grateful that a federal court has once again agreed that the Trump Administration's decision to freeze billions of dollars in grants for the Gateway Tunnel Project is flagrantly unlawful."

Gateway Development Commission Executive Vice President Catherine Rinaldi called the Hudson Tunnel Project "the most urgent passenger rail project in the country," saying it remained on schedule and on budget before federal funding was frozen.

In an email to ENR, she said the commission has made significant progress since funding resumed in February and "will continue working with our federal partners to maintain access to funding so we can keep workers on the job and this nationally important project moving forward."

A U.S. Department of Transportation spokesperson reiterated the department's previous statement that it is committed to ensuring taxpayer dollars are spent responsibly and is considering its legal options. As of publication, the administration had not announced whether it would appeal.

Vargas described the approximately $16.04 billion Hudson Tunnel Project as "the largest federal investment into any rail transportation project in modern history."