Starting in 2008, one of the busiest ports in the United States, the Port of Los Angeles (POLA), entered into “concession agreements” with motor carriers doing business at the port. POLA enforced the agreements through a system of tariffs levied against noncompliant carriers and remedial provisions that empowered it to revoke noncompliant carriers’ access to the port. The American Trucking Association (ATA) sued POLA, arguing that the agreements were barred under the Federal Aviation Administration Authorization Act of 1994 (FAAAA) and the Supreme Court’s decision in Castle v. Hayes Freight Lines, Inc. The Central District of California and Ninth Circuit found that multiple provisions of the concession agreements were exempted from the FAAAA’s preemption clause under the market-participant doctrine and held that Castle did not bar suspension of carriers’ port access because of the FAAAA’s express safety exemption. In resolving the questions presented, the Supreme Court will determine the scope of the market-participant exemption to FAAAA preemption and whether Castle bars POLA from enforcing its concession agreements through revocation or suspension of port access. The case directly affects local and state governments’ power to regulate and contract under the FAAAA and similar Congressional legislation and has broad regulatory implications for motor carriers and other regulated actors in interstate commerce.
Questions as Framed for the Court by the Parties
Title 49 U.S.C. § 14501(c)(1), originally enacted as a provision of the Federal Aviation Administration Authorization Act of 1994, provides that “a State [or] political subdivision . . . may not enact or enforce a law, regulation, or other provision having the force and effect of law related to a price, route, or service of any motor carrier ... with respect to the transportation of property.” It contains an exception providing that the express preemption clause “shall not restrict the safety regulatory authority of a State with respect to motor vehicles.” Id. § 14501(c)(2)(A). The questions presented are:
- Whether an unexpressed “market participant” exception exists in Section 14501(c)(1) and permits a municipal governmental entity to take action that conflicts with the express preemption clause, occurs in a market in which the municipal entity does not participate, and is unconnected with any interest in the efficient procurement of services.
- Whether permitting a municipal governmental entity to bar federally licensed motor carriers from access to a port operates as a partial suspension of the motor carriers’ federal registration, in violation of Castle v. Hayes Freight Lines, Inc., 348 U.S. 61 (1954).
Does federal law prevent enforcement of certain aspects of motor carrier-related contracts used by the Port of Los Angeles?
The Port of Los Angeles (POLA) is the busiest port in the United States. It is an independent division of the City of Los Angeles, depending entirely on fees and property leases for its revenue. Starting in 2008, POLA prohibited motor carriers from operating drayage, or heavy-load, trucks on its property unless the carriers entered into “concession agreements” with it. POLA adopted the concession agreements as part of its Clean Truck Program, in response to community opposition and litigation that had halted port growth since the mid-1990s.
American Trucking Associations (ATA) has challenged the concession agreements, arguing that they are preempted by the Federal Aviation Administration Authorization Act of 1994 (FAAAA) and the Supreme Court’s holding in Castle v. Hayes Freight Lines, Inc. ATA first obtained a preliminary injunction against several provisions of the concession agreements and then challenged five specific provisions at trial—namely, the employee-driver, off-street parking, maintenance, placard, and financial capability provisions. The United States District Court for the Central District of California held that none of the challenged provisions fell within the scope of federal preemption.
The Ninth Circuit Court of Appeals, in large part, affirmed the lower court’s holding. Specifically, the Ninth Circuit held that the financial capability provision did not fall within the FAAAA’s scope of preemption for “rates, routes, or services”; the off-street parking and placard provisions fit the market participant preemption exception; and the maintenance provision fit the safety exception, which was not precluded by Castle. The Ninth Circuit did find that the employee-driver provision was preempted and not within the scope of the market participant exception to the FAAAA.
ATA appealed the Ninth Circuit’s decision to the U.S. Supreme Court. The Supreme Court granted certiorari on January 11, 2013, to determine whether the concession agreements fall within the market participant exception to the FAAAA and are permissible under Castle.
This case presents the Supreme Court with the opportunity to consider whether certain aspects of motor carrier-related contracts utilized by the Port of Los Angeles are preempted by federal law. American Trucking Associations (ATA) argues that the Federal Aviation Administration Authorization Act of 1994 (FAAAA) explicitly preempts the off-street parking and placard provisions of the contracts and that enforcement of the contracts by barring port access acts as a “partial suspension” of motor carriers’ federal registration, in violation of Castle v. Hayes Freight Lines, Inc. The Port of Los Angeles (POLA) counters that the off-street parking and placard provisions fall within the market-participant exemption to the FAAAA and that Castle does not bar states from limiting motor carriers’ access to particular land in the furtherance of public safety. The Supreme Court’s resolution of the case implicates the interests of the federal government and interstate commercial actors in a comprehensive federal regulatory scheme as well as the interests of local and state governments and nongovernmental organizations in localized economic, environmental, health, and safety controls.
Interests in Comprehensive Federal Regulation
In supporting reversal of the Ninth Circuit’s decision, the United States maintains that it “has an interest in achieving the deregulatory objectives of the [FAAAA] by eliminating unwarranted burdens on motor carriers imposed by state or local laws.” The FAAAA, the United States explains, was Congress’ response to a confusing, inconsistent, duplicative, and burdensome patchwork of state and local laws that inhibited entry, growth, and efficiency in the interstate transportation market.
The U.S. Chamber of Commerce agrees that the purpose of the FAAAA is to eliminate a burdensome patchwork of state and local law and argues that federal policy goals and uniform regulation of interstate commerce must “prevail over local concerns.” The Owner-Operator Independent Drivers Association and the National Federation of Independent Business Small Business Legal Center contend that the POLA concession agreements are a form of restrictive local regulation that increase transportation costs and reduce business opportunities, and these groups are concerned that a judgment in favor of POLA could lead to a proliferation of economically burdensome state and local regulation.
Interests in Localized Control
The Natural Resources Defense Council (NRDC), an intervenor in the case, counters that POLA’s concession agreements result from business necessity and serve important economic, environmental, health, and safety purposes. NRDC contends that POLA adopted the concession agreements “in response to costly environmental litigation and ongoing community opposition that thwarted port growth for nearly a decade” and that a private business would have taken the same approach in order to remain competitive. NRDC emphasizes that port operations, and in particular drayage trucks, are a substantial contributor to air pollution and associated health risks, including cancer. According to NRDC, port operations also pose substantial safety and homeland security risks. NRDC suggests that invalidation of the concession agreements could threaten the local environment, community health and safety, and the vitality of POLA’s continued operations.
In sum, this case presents the Supreme Court with the opportunity to determine whether certain aspects of POLA’s concession agreements are preempted by federal law. The case pits local interests against federal interests and may have broad regulatory implications for motor carriers and other regulated actors in interstate commerce.
As a part of comprehensive federal transportation legislation, the Federal Aviation Administration Authorization Act of 1994 (FAAAA) explicitly preempts states and municipalities from introducing their own regulations of federally licensed motor carriers. To that end, the FAAAA provides that a state “may not enact or enforce a law, regulation, or other provision having the force and effect of law related to a price, route, or service of any motor carrier.”
American Trucking Associations (ATA) argues that this provision preempts the off-street parking and placard provisions of concession agreements with motor carriers doing business at the Port of Los Angeles (POLA). ATA further contends that the Ninth Circuit’s decision below is inconsistent with Castle v. Hayes Freight Lines, Inc., in which the Supreme Court held that a state cannot enforce otherwise-valid motor-carrier regulations through a “partial suspension” of a motor carrier’s access to the channels of interstate commerce. POLA responds that its concession agreements are exempted from FAAAA preemption because they fall under the market-participant exemption, which exempts state or municipal actors that have entered the market and are thus operating in a commercial, as opposed to regulatory, capacity. POLA also argues that Castle does not bar states from limiting motor carriers’ access to particular land when the state’s purpose is the furtherance of public safety.
Do the off-street parking and placard provisions of POLA’s concession agreements with motor carriers come under the language of the FAAAA’s preemption clause?
ATA argues that the FAAAA preempts the off-street parking and placard provisions of POLA’s concession agreements with motor carriers doing business at the port. To reach this conclusion, ATA asserts that the FAAAA’s preemption clause is an express preemption and that the scope of express preemption clauses is determined by the intent of Congress. Relying on Medtronic, Inc. v. Lohr and Chamber of Commerce of U.S. v. Whiting, ATA asserts that the “plain wording of the clause . . . necessarily contains the best evidence of Congress’ preemptive intent.” In this case, ATA argues that the “plain wording” of the FAAAA shows that Congress intended federal law to preempt any state or municipal “law, regulation, or other provision having the force and effect of law.” ATA asserts that the off-street parking and placard provisions of POLA’s concession agreements with motor carriers constitute provisions “having the force of law” and therefore are invalid under the FAAAA’s preemption clause. In support of this assertion, ATA notes that the parking and placard requirements are imposed on all licensed motor carriers by order of the Board of Harbor Commissioners and are enforced through a penalty tariff. Based on these facts, ATA argues that the concession agreements come under the language of the preemption clause.
POLA disputes ATA’s assertion that the parking and placard provisions have the force of law and thus come under the language of the statute. First, POLA argues that the phrase “having the force of law” functions as a limitation upon the types of state action that fall under the preemption clause. Relying on American Airlines, Inc. v. Wolens, POLA argues that the phrase “having the force of law” limits the preemption clause from applying to private agreements. POLA contends that the agreements are private agreements that do not have the force of law, and thus the preemption clause should not apply in this case.
Are the off-street parking and placard provisions of POLA’s concession agreements with motor carriers nonetheless valid under the market-participant doctrine?
POLA argues that even if the concession agreements do come under the language of the preemption clause, the agreements should be exempted under the market-participant doctrine. The market-participant doctrine was first articulated in Hughes v. Alexandria Scrap Corp., which held that, in context of the Commerce Clause, when a state provides goods or services or otherwise acts in the market for its own proprietary interests, it is permitted to discriminate against non-residents. Relying upon Boston Harbor, POLA asserts that absent any express indication from Congress that the state “may not manage its own property when it pursues its purely proprietary interests” (i.e., when it acts as a market participant), the market-participant doctrine applies. POLA asserts that the market-participant doctrine creates a presumption that Congress intends only to preempt state regulation, while leaving the state free to pursue its proprietary interests. POLA claims that the concession agreements constitute market activity and not regulation because POLA’s adoption of the pertinent provisions of the concession agreements was motivated by purely commercial interests—the desire of the port to expand in order to remain competitive—rather than any regulatory interest in furthering some state policy.
ATA contends that no market-participant exception should apply to the FAAAA’s preemption clause because Congress did not expressly provide for such an exemption. ATA argues that the fact that Congress explicitly included several other exceptions—but not a market-participant exception—indicates that Congress did not intend to exempt states from preemption when they act as market participants. ATA also points to the fact that similar legislation, the Airline Deregulation Act of 1978, did include an explicit market-participant exception; thus, according to ATA, had Congress intended such an exception to apply to the FAAAA, it would have included it in the statutory language. ATA also argues that POLA’s reliance upon Boston Harbor is misplaced. ATA claims that Boston Harbor is inapposite because that case concerned an implicit preemption provision (unlike the FAAAA’s explicit preemption clause), and Boston Harbor does not empower courts to disregard the plain language of the statute, which ATA claims preempts the concession agreements. Furthermore, even if the market-participant doctrine applies to the FAAAA, ATA claims that such an exception cannot save the concession agreements at issue here. ATA argues that POLA’s activity constitutes regulatory activity, as opposed to market activity. To that end, ATA asserts that market activity is not merely any action that a private party could undertake; rather, it is limited to the efficient procurement of goods and services or the use of state-allocated funds. ATA argues that the concession agreements in this case further environmental and labor regulatory policies independent of the port’s economic interests. Thus, ATA claims that even if a market-participant exception applies to the FAAAA, POLA’s concession agreements are outside the scope of that exception.
Does the Court’s ruling in Castle v. Hayes Freight Lines, Inc. bar enforcement of the concession agreements through the suspension or revocation of port access?
In Castle v. Hayes Freight Lines, Inc., the Supreme Court held that under the Motor Carrier Act of 1935, Congress granted the Interstate Commerce Commission the exclusive right to determine which motor carriers could operate in interstate commerce. Thus, the Court barred Illinois from punishing motor carriers that consistently failed to meet weight limits by revoking those carriers’ right to use Illinois highways. Under Castle, Illinois was allowed to set carrier weight limits but could only enforce those limits through “conventional forms of punishment”—not through suspension of a federal carrier’s federally granted right to use state highways.
ATA argues that Castle should apply to the off-street parking and placard provisions of POLA’s concession agreements with motor carriers, barring the port from sanctioning noncompliant motor carriers with suspensions of those carriers’ port-access rights. According to ATA, POLA’s enforcement of its concession agreements by suspending carriers’ port access constitutes a suspension of those carriers’ access to the channels of interstate commerce. ATA asserts that this is precisely the sort of improper sanction that Castle forecloses. ATA argues that Congress has consistently affirmed the regulatory scheme upon which Castle was based and that the case thus remains good law.
POLA responds that Castle does not bar safety-based restrictions on motor carriers’ access to private port property. POLA argues that because Congress provided a safety exception in section 14501(c)(2)(A) of the FAAAA, Castle does not foreclose safety-based restrictions, even such restrictions that suspend or revoke port access. POLA argues that ATA’s attempt to apply the 1954 Castle decision to invalidate an express safety exception adopted by Congress in 1994 is “illogical” and would render the safety-exception provision of section 14501(c)(2)(A) meaningless. POLA further argues that Castle is no longer good law and should not be applied because the regulatory schemes upon which the case was based and the policy concerns that underlie its holding have changed drastically in the past half century. Finally, POLA contends that Castle only applies to public roads, whereas the port is private land operated by the City of Los Angeles. Thus, POLA argues that Castle is inapposite or otherwise not good law and should not be applied in this case.
This case will determine whether the FAAAA preempts the off-street parking and placard provisions of POLA’s concession agreements with motor carriers, whether the market-participant doctrine applies, and whether the Court’s decision in Castle bars POLA from enforcing its concession agreements by revoking or suspending access to the port. The Court’s decision will dictate the power of local and state governments to regulate, contract, and enforce their own regulations and contracts within the comprehensive federal transportation framework established by Congress. Thus, the case pits local governments’ interest in local control against the federal government’s interest in a comprehensive regulatory scheme and may have broad regulatory implications for motor carriers and other regulated actors in interstate commerce.
- Aviation & Airport Development Law News, Barbara E. Lichman: Challenges to the Port of Los Angeles’ Truck Pollution Limits to be Heard at the Supreme Court (Jan. 25, 2013)
- Royalty Truck Insurance: Supreme Court Will Hear Los Angeles Clean Trucking Lawsuit (Jan. 23, 2013)