Twenty state AGs sue over vague anti-DEI clause added to 640,000 federal contracts

President Lyndon Johnson signed Executive Order 11246 on September 24, 1965, requiring federal contractors to take affirmative action in hiring and employment. It established the Office of Federal Contract Compliance Programs to enforce those requirements. Every administration from Nixon through Biden — Republican and Democratic — maintained some version of the contractor diversity obligation for 60 years. Trump's EO 14173, signed January 21, 2025, formally revoked EO 11246, ending a framework that had been in place since the Johnson administration.

Trump signed Executive Order 14398 on March 26, 2026, directing more than two dozen federal agencies to insert a new certification clause into all federal contracts and subcontracts. The clause requires contractors to certify they don't engage in "racially discriminatory DEI activities." The agencies had until April 25, 2026 to insert the clause into covered contracts. No federal agency has defined what "racially discriminatory DEI activities" means. The FAR Council's April 2026 implementation guidance didn't resolve the definitional gap that the 20 plaintiff states identified as the core legal problem.

A coalition of 20 state attorneys general and Washington, D.C., filed Maryland v. Hegseth, No. 1:26-cv-02322, in the U.S. District Court for the District of Maryland on June 10, 2026. Co-leads are California AG Rob Bonta and Maryland AG Anthony Brown. The plaintiff states are California, Colorado, Connecticut, Hawaii, Illinois, Maine, Maryland, Massachusetts, Michigan, Minnesota, Nevada, New Jersey, New Mexico, Oregon, Rhode Island, Virginia, Vermont, Washington, and Wisconsin.

The coalition chose Maryland because the Fourth Circuit had already issued a preliminary injunction against EO 14173 in 2025, making it the most favorable venue for a challenge to the follow-on order. Filing in Maryland placed the case before judges already familiar with the legal landscape of Trump DEI executive orders.

The order could affect up to 640,000 federal contracts and subcontracts involving more than 34,000 unique contractors — one of the broadest employer-compliance mandates in recent executive order history. The covered entities aren't just defense contractors: they include state university systems receiving federal research grants, nonprofit hospitals with Medicare and Medicaid contracts, state transportation departments with federal highway funding, and private companies across every sector of the economy.

The FAR Council's guidance extended coverage to subcontractors at any tier, meaning a nonprofit subcontracting with a university holding a federal research grant is also required to certify under the clause.

The states' primary legal theory is an Administrative Procedure ActAdministrative Procedure Act1946 law governing how federal agencies develop regulations and make decisions through rulemaking and adjudication.Key ConceptAdministrative Procedure Act1946 law governing how federal agencies develop regulations and make decisions through rulemaking and adjudication.Open conceptBookmark violation. The APA, enacted in 1946, requires agencies to publish proposed rules in the Federal Register, accept public comments for at least 30 days, and issue a final rule with a reasoned explanation before imposing major new regulatory requirements. The states argue that agencies simultaneously inserting identical certification clauses into hundreds of thousands of contracts is rulemaking — not routine contract management — and that agencies skipped every required step.

Courts regularly vacate agency actions on APA grounds without reaching constitutional questions. This makes the APA claim strategically faster and more reliable than the First Amendment arguments the earlier NADOHE v. Trump suit pursued.

Contractors who sign the certification falsely face False Claims Act liability up to $27,894 per violation. Contractors who refuse to certify lose their federal contracts. The states argued this creates an impossible compliance bind: certify under an undefined standard and accept FCA exposure, or refuse to certify and lose funding. California AG Bonta specifically called the clause "unlawful, confusing" because it's impossible to certify compliance with a term that no agency has defined. Illinois AG Kwame Raoul noted that University of Illinois system researchers run mentorship programs and HBCU partnerships that may fall within the undefined prohibition.

The earlier NADOHE v. Trump lawsuit, filed by the National Association of Diversity Officers in Higher Education, challenged EO 14398 on First Amendment grounds, arguing the certification clause constituted viewpoint discrimination. The Fourth Circuit vacated a preliminary injunction against EO 14173 in February 2026 on narrow grounds — finding the earlier certification language only required following existing antidiscrimination law, and leaving open as-applied challenges if officials misinterpret those laws.

EO 14398's clause uses different language: "racially discriminatory DEI activities." The Fourth Circuit has not addressed that phrase. The 20-state coalition deliberately chose the APA procedural theory as the lead argument, betting it's faster and more reliable than First Amendment claims the Fourth Circuit had already shown reluctance to accept.

The University of Illinois system receives billions in federal research grants and runs diversity offices, HBCU partnerships, and mentorship programs. Illinois AG Raoul cited these programs as directly at risk under the undefined prohibition. Inside Higher Ed reported that higher education groups broadly denounced the GSA's proposed funding strings as an attack on academic programs that support students from underrepresented backgrounds.

Oregon AG Dan Rayfield said the order would "punish" federal contractors in his state. The economic harm to research universities extends beyond diversity programs: researchers whose projects depend on diverse research teams, communities, or participant pools face uncertainty about whether their grant-funded activities qualify as "racially discriminatory DEI activities."