A federal appeals court has handed Donald Trump another setback in one of the most extraordinary legal disputes of his second presidency — a case in which the president sued agencies inside his own administration and then reached an agreement with that same administration providing sweeping benefits to himself, his family and potentially his political allies.
A unanimous three-judge panel of the 11th U.S. Circuit Court of Appeals refused Tuesday to pause sanctions stemming from the case.
The appellate court did not issue a final ruling on the entire underlying dispute.
But it concluded that Trump's side had not demonstrated that it was likely to succeed in overturning the lower court's findings concerning collusion and bad-faith litigation.
Those findings came from U.S. District Judge Kathleen Williams, who concluded that Trump's lawsuit against the Internal Revenue Service and Treasury Department had been brought for an improper purpose and used to facilitate a settlement between parties that were not genuinely adversarial.
The reason for that conclusion was difficult to ignore:
Trump was effectively suing his own executive branch.
It Started With Trump's Stolen Tax Information
There was a legitimate crime at the center of the original dispute.
Former IRS contractor Charles Littlejohn illegally obtained and disclosed confidential tax information belonging to Trump and thousands of other wealthy Americans.
Littlejohn pleaded guilty and was sentenced to five years in prison.
In January, Trump, Donald Trump Jr., Eric Trump and the Trump Organization sued the IRS and Treasury Department for $10 billion, alleging that the government had failed to protect their confidential tax information.
But there was an unprecedented complication.
Donald Trump was now president.
The IRS and Treasury Department he was suing were part of the executive branch he controlled.
His own Justice Department was responsible for defending the federal government against his lawsuit.
That arrangement eventually produced something extraordinary.
Instead of fighting Trump's $10 billion claim in the normal adversarial manner, the two sides reached a settlement.
The $1.776 Billion Fund
The agreement went far beyond resolving Trump's personal claim.
It led to plans for a roughly $1.776 billion taxpayer-funded “anti-weaponization” compensation program.
The fund was designed to compensate people who claimed they had been improperly targeted by the federal government.
Potential beneficiaries reportedly included people prosecuted in connection with the January 6 attack on the Capitol and others claiming political persecution by the government.
Trump himself would not simply have received a giant $1.776 billion personal check.
But his lawsuit provided the vehicle through which the enormous taxpayer-funded program was created.
The arrangement generated immediate controversy.
Then came another provision with potentially enormous consequences for Trump personally.
Extraordinary Protection From the IRS
The settlement included sweeping protections involving past tax matters.
According to court records, the agreement purported to release Trump and related individuals and entities — including family members, trusts and affiliated businesses — from federal claims that could have been asserted concerning tax returns filed before the settlement took effect.
In practical terms, the provision could shield Trump and associated entities from future IRS enforcement involving earlier tax matters.
That caught the attention of the court.
Thirty-five former federal judges intervened and asked the court to examine whether the settlement was collusive and potentially constituted a fraud on the judicial process.
Judge Williams reopened the matter.
What followed was a remarkable judicial rebuke.
The Judge Found the Lawsuit Was Collusive
Williams concluded that the parties weren't genuinely opposing one another.
Trump controlled the executive branch.
The IRS and Treasury were executive-branch agencies.
The Justice Department defending those agencies was also part of Trump's administration.
The judge concluded that Trump's lawsuit had been filed for an improper purpose: providing judicial cover for a settlement the parties already wanted to reach.
Williams voided the settlement and imposed sanctions on Trump's attorneys.
One attorney was referred to the Florida Bar for possible disciplinary action.
Another was temporarily restricted from obtaining special admission to practice before the Southern District of Florida.
The court also sent its order to the New York State Bar Association because Acting Attorney General Todd Blanche — Trump's former personal criminal-defense attorney — had participated in the arrangement.
The Justice Department strongly rejected Williams' conclusions.
It argued there was a genuine dispute because Trump's family had been victims of an admitted illegal disclosure of confidential tax information and maintained that the judge's collusion finding was wrong.
The administration appealed.
Now the Appeals Court Has Weighed In
Trump's side asked the 11th Circuit to stop the sanctions while the larger appeal proceeds.
The appeals court refused.
The three-judge panel concluded that the attorneys had not demonstrated they were likely to succeed in challenging Williams' finding that they acted in bad faith.
The panel specifically noted that the appellants had failed to offer evidence explaining their litigation conduct or demonstrating that the lawsuit and settlement were not collusive.
The decision was unanimous.
And its composition is notable.
Judges Robin Rosenbaum and Adalberto Jordan were appointed by Barack Obama.
Judge Kevin Newsom was appointed by Donald Trump.
All three agreed that the sanctions should remain in place while the litigation continues.
That does not mean the appeals court has issued its final judgment on every legal question surrounding the settlement.
It hasn't.
But Trump's attempt to immediately neutralize the lower court's sanctions has failed.
The $1.8 Billion Fund Is Dead — But the Tax Issue Remains Important
The Justice Department has since abandoned the proposed $1.776 billion anti-weaponization fund following intense criticism.
Acting Attorney General Todd Blanche has said that portion of the arrangement will not move forward.
But the controversy surrounding the broader settlement — including the tax protections afforded to Trump and related parties — has continued through the courts.
And that's what makes this case so extraordinary.
Presidents routinely become involved in litigation.
Presidents routinely disagree with federal agencies.
But this case presented a fundamentally unusual arrangement.
The president sued agencies controlled by the president.
The president's Justice Department represented the agencies being sued by the president.
Those parties then negotiated a settlement that would have created a nearly $1.8 billion taxpayer-funded compensation program while simultaneously granting substantial tax protections to the president, his family and associated businesses.
A federal judge concluded that the parties were not truly adversaries and that the judicial system had been used to legitimize an agreement they had already arranged.
Now Trump's lawyers have asked a federal appeals court to intervene against the consequences of that finding.
So far, the appeals court has declined.
The Courts Are Still Examining What Happened
The underlying litigation isn't finished.
Additional appellate proceedings remain, and Trump's attorneys and the Justice Department continue to dispute Williams' characterization of the lawsuit and settlement.
They are entitled to pursue those arguments.
But what happened this week is significant.
A federal district judge concluded that Trump's lawsuit was brought in bad faith to facilitate a collusive settlement.
She imposed sanctions.
Trump's side asked a federal appeals court to stop those sanctions.
Three appellate judges — including one appointed by Trump himself — unanimously refused.
The ultimate legal questions will continue working their way through the courts.
But for now, the lower court's extraordinary finding remains standing:
The president's lawsuit against his own government was used to facilitate an agreement between parties the court concluded were never truly adversaries in the first place.