Judge dismisses most of Gateway tunnel funding freeze lawsuit

The basics:

• Federal judge dismisses most claims tied to Gateway tunnel funding freeze
• $205M in withheld funds recently released to Gateway Development Commission
• Funding halt previously forced temporary construction shutdown, 1,000 layoffs
• Claims over damages, good-faith obligations remain under review

A United States Court of Federal Claims judge dismissed most of a lawsuit tied to the Trump administration’s temporary freeze of funding for the Gateway rail tunnel project.

Judge Richard Hertling ruled March 12 the case was largely moot, after the federal government released the $205 million it had withheld.

Hertling said the U.S. Department of Transportation fulfilled its contractual obligation by paying the outstanding funds to the Gateway Development Commission. GDC oversees construction of the $16 billion Hudson River rail tunnel project.

As a result, the judge dismissed six breach-of-contract claims brought by the commission. However, two counts will remain under consideration, including whether the federal government violated its duty of good faith as well as whether the commission is entitled to damages tied to the recent temporary construction shutdown.

How it started

The funding freeze began in October 2025, forcing the Gateway project to halt work for about a week in February. GDC then had to lay off roughly 1,000 workers after the commission ran out of cash to pay contractors. NJBIZ has reported extensively on this situation (see a timeline below).

In a statement following the hearing, a spokesperson for the GDC said the court acknowledged the federal government’s breach while dismissing claims tied to the withheld payments because the funds had already been released.

The GDC said:

Today the court found that GDC preliminarily established that the federal government was in breach of multiple contracts in connection with the Hudson Tunnel Project.

However, the court dismissed the first six of eight total claims in GDC’s complaint because the federal government already provided the funds thanks to a separate case brought by the States of New York and New Jersey. GDC was seeking payment of the $205 million that the federal government withheld from September 30, 2025, through the date the claim was filed.

The judge also made it clear that the court would provide expedited review of similar claims if they arise in the future. There are two remaining claims seeking to recover damages related to the breach and subsequent pause of work on the Hudson Tunnel Project. The judge will establish a schedule for adjudicating those claims.

States’ legal battle

The court’s ruling follows a separate legal battle brought by New Jersey and New York to restore the funding. On Wednesday, the United States Court of Appeals for the Second Circuit declined to block a lower-court order requiring the federal government to resume payments – clearing the funds to continue flowing while that case proceeds.

“We have repeatedly fought Donald Trump’s illegally cutting off funding for the Gateway Tunnel project and won, for workers, and for the 200,000 daily riders who need the Gateway tunnel,” said Gov. Mikie Sherrill said in a March 12 statement.

“As a result, 1,000 workers are back at work and the nation’s most urgent infrastructure project is back on track. Just yesterday, we won for the fourth time in court, ensuring the Trump Administration keeps funding the project every month, as it is legally obligated to do.

“We will continue to fight, and continue to win, if Donald Trump tries to illegally stop funding again.”

‘Back on track’

“We’re thrilled that the Second Circuit has rejected DOT’s emergency efforts to put back in its political and unlawful funding freeze of the Gateway project,” said New Jersey Attorney General Jennifer Davenport in a statement following the March 11 ruling from the appeals court. “Because the injunction we secured remains in place, the project is back on track and workers are back on the job.

“It’s time for the administration to admit that its efforts to derail the project and reinstitute its funding freeze are a waste of time, and focus on lowering costs for everyone instead of attacking our commuters and our workers.”

While work on what is dubbed the nation’s most critical infrastructure has resumed, the GDC warned earlier this week that construction could halt again within two to three months without consistent federal funding.

The Trump administration did not immediately respond to a request for a comment.

Please stay with NJBIZ for the very latest on this developing story.