Key Points

  • The Second Circuit granted New York's petition and set aside FMCSA's final determination that the state was substantially noncompliant with federal rules for non-domiciled commercial driver's licenses.
  • The court held that the regulations in force before September 2025 did not require states to match a non-domiciled license's expiration date to the expiration of the driver's lawful presence documents; FMCSA conceded the plain text contained no such requirement and disclaimed deference.
  • Because that purported requirement was the sole basis for the determination, FMCSA could not withhold four percent of New York's fiscal year 2027 federal-aid highway funds ($73,502,543).
  • Judge Nathan wrote for the court; Judge Schwartz concurred only in the judgment, objecting to the majority's reliance on regulatory structure, history and pending amendments once the text was clear.
  • The court expressed no view on the lawfulness of FMCSA's 2026 rule, which now expressly requires expiration matching and is the subject of ongoing litigation.

A federal appeals court on Nov. 13 set aside a decision by federal trucking regulators to withhold about $73.5 million in highway funding from New York. The court held that the state could not be penalized for breaking a rule on noncitizens' commercial driver's licenses that the regulations did not contain when New York issued the licenses.

A three-judge panel of the U.S. Court of Appeals for the Second Circuit granted New York's petition for review of a final determination by the Federal Motor Carrier Safety Administration, the Transportation Department agency that sets national licensing standards for commercial drivers. Judge Nathan wrote for the court. Judge Schwartz concurred only in the judgment.

The decision eliminates the only basis the agency gave for withholding New York's fiscal year 2027 funds, and for its threat to withhold up to $147 million in later years. The agency "could not withhold federal funding based on a state's noncompliance with a regulatory requirement that did not exist," Judge Nathan wrote.

The dispute concerned non-domiciled commercial licenses, which states issue to noncitizens living in the United States who cannot show citizenship or lawful permanent residency. New York had about 32,600 holders of such licenses and learner's permits as of July 2025, about seven percent of the state's total, according to the opinion. The state issued them for the same default terms as other licenses: five years at first issuance and eight years on renewal.

In 2025 the agency concluded that the regulations required states to make each such license expire no later than the driver's immigration paperwork, which the opinion calls an expiration-matching requirement. Of 200 New York licenses and permits the agency sampled, it said, 101 remained valid after the applicant's lawful presence documents expired.

The agency ordered New York to pause issuing the licenses and to void those it deemed noncompliant. New York refused, arguing that the requirement "did not exist anywhere in law or regulation." In April 2026 the agency found the state substantially noncompliant, calling the rule "not a new requirement," and withheld four percent of the state's federal-aid highway funds, or $73,502,543.

Courts set aside agency action that is arbitrary, capricious or contrary to law. Judge Nathan wrote that the regulations in force before September 2025 required identical procedures for non-domiciled and other licenses, with three exceptions. The general procedures capped every license at eight years, and none of the exceptions addressed expiration dates.

The agency conceded in its final determination, in its briefs and at oral argument that the plain text contained no matching requirement, and it disclaimed any deference to its own reading. Judge Nathan wrote that the concession "should be the end of the matter," because regulated parties are not required "to divine the agency's interpretations in advance." The opinion continued: "FMCSA expected New York to do just that."

The agency argued that the requirement "flowed as a matter of common sense" from a rule that applicants present an unexpired work permit or an unexpired foreign passport with an approved I-94 entry record. In its view, "any other interpretation would allow non[-]domiciled drivers unlawfully present in the United States to operate commercial motor vehicles."

The majority disagreed. A foreign passport's expiration date says nothing about lawful presence in the United States, and a work permit reflects work authorization rather than lawful presence, the court said. Matching license terms to those documents "would not have guaranteed that the driver was lawfully present for the duration of her license," Judge Nathan wrote.

The majority also relied on regulatory history. In a 2011 rule, the agency declined a suggestion from states including Michigan that commercial licenses expire when a driver's legal presence expires. "That the agency considered and rejected a requirement that was proposed by states and expressly stated in a parallel regulatory scheme is strong evidence that no such requirement was implicit in Section 383.73," Judge Nathan wrote.

Judge Schwartz agreed that the text decided the case. After listing the agency's concessions, the concurrence stated: "These concessions were honest but fatal." It rejected the argument that New York's reading produced results odd enough to override the text, writing that "Mere oddities and anomalies are not, in and of themselves, absurdities." It added that immigration laws already address drivers who lose lawful status.

Judge Schwartz objected to the majority's further discussion of regulatory structure, history and amendments still being challenged in other circuits. "Jumping into the regulatory history risks missteps and mischief that may create unnecessary snares for future regulatory actions or ongoing litigation," Judge Schwartz wrote. The concurrence concluded: "I would begin with the text and end when it is clear and would not lead to absurd results, so I concur in the judgment only."

The agency has since written the requirement into its rules. A final rule effective March 16, 2026, requires non-domiciled licenses to expire by the date on the applicant's I-94 or after one year, whichever is sooner, according to the opinion. The D.C. Circuit, which stayed an earlier interim version, declined in May to stay the final rule pending appeal.

Lawyers for New York included Assistant Solicitor General Anthony R. Raduazo of the office of New York Attorney General Letitia James. The federal government was represented by Simon G. Jerome of the Justice Department's Civil Division appellate staff.

The court granted the petition and set aside the final determination, noting that New York's noncompliance with the matching requirement was its sole basis. The majority left the 2026 rule untouched, writing in a footnote: "We express no view as to the lawfulness of the newly enacted regulations, which are the subject of ongoing litigation."