Supreme Court Finds Federal Law Preempts Agreements Between Trucking Companies and the Port of Los Angeles

On June 13, 2013, in American Trucking Ass’n, Inc. v. City of Los Angeles, the United States Supreme Court held that the Federal Aviation Administration Authorization Act of 1994 (FAAAA) expressly preempts certain provisions of a concession agreement (Agreement) that the Port of Los Angeles (Port) requires short-haul (drayage) trucking companies to enter. The preempted provisions require truck companies to affix placards bearing a phone number for reporting concerns to each truck and to submit a plan for off-street truck parking when the trucks are not in service. The Agreement also provides for penalties for any signatory trucking company that violates the Agreement.

The Port, a division of the City of Los Angeles, is the largest port in the country. In late 1990, the City of Los Angeles, Board of Harbor Commissioners, proposed a port expansion. Neighborhood and environmental groups opposed the expansion and filed suit to stop it, citing air pollution among their concerns. In response, the Port created the Clean Truck Program. Under the Clean Truck Program, the Port developed the Agreement and amended its tariff, a form of municipal ordinance, to prohibit terminal operators from permitting access into any Port terminals unless the trucking company has registered under the Agreement. Terminal operators who violate the tariff are guilty of a misdemeanor and are subject to criminal penalties.

American Trucking Associations, Inc., (ATA) whose members include trucking companies servicing the Port, sued the Port and the City of Los Angeles seeking an injunction against the Agreement’s requirements. The ATA contended that the Agreement requirements are expressly preempted by the FAAAA.

The Supreme Court found that the FAAAA expressly preempts the Agreement’s placards and parking requirements because section 14501(c)(1) of the FAAAA preempts a state “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. “ The parties agreed that the Agreement’s requirements related to a motor carrier’s route and service and therefore the only disputed question at issue was whether the Agreement’s requirements had the “force and effect of law.”

The Supreme Court reasoned that the FAAAA’s “force and effect of law” language excludes from its scope contractual arrangements made by a State when it acts as a market participant, not as a regulator. However, here, the Port had exercised regulatory authority in imposing the placard and parking requirements therefore these requirements were preempted by the FAAAA. Although the Port argued that the concession agreements are the same as private agreements, regulatory authority was imposed since terminal operators, and trucking companies through them, were forced to alter their conduct due to a criminal prohibition as set forth in the Port’s tariff. The Supreme Court indicated this was clearly an action having the “force and effect of law.” Further, the Agreements clearly functioned as “part and parcel of a governmental program wielding coercive power over private parties, backed by the threat of criminal punishment.” Private parties entering into similar agreements could not impose such criminal penalties.

ATA also argued that the Supreme Court’s holding in Castle v. Hayes Freight Lines, Inc., limits the way the Port can enforce the two other provisions of the Agreement that are in effect, financial-capacity and truck maintenance requirements, by not allowing the Port to rely on the Agreement’s penalty provisions to suspend or revoke trucking companies rights to operate on the premises. “Castle puts limits on how a State or locality can punish an interstate motor carrier for prior violations of trucking regulations.” However, the Supreme Court did not decide the ATA’s Castle-based challenge. Because ATA’s claim was attacking the Port’s enforcement scheme and given the pre-enforcement posture of American Trucking Ass’n, the Supreme Court could not tell what the Port’s enforcement scheme entailed. Therefore, the Supreme Court reasoned that it would not take a guess now about what the Port will do later.

The American Trucking Ass’n decision may have important consequences for port agencies and other municipal bodies that fall within the FAAAA’s purview and are struggling to address environmental concerns. While agreements with other parties may be useful tools in reducing environmental impacts, they must not rise to the level of having the force and effect of law.