Supreme Court: FAAAA Preempts Port of Los Angeles' Clean Truck Program Requirements

Practical Law Legal Update 3-531-9765 (Approx. 5 pages)

Supreme Court: FAAAA Preempts Port of Los Angeles' Clean Truck Program Requirements

by PLC Commercial

Background

The Port of Los Angeles (Port), a division of the City of Los Angeles, leases marine terminal facilities to operators that load and unload cargo from docking ships. Federally-licensed short-haul trucks, known as drayage trucks, move the cargo into and out of the Port. In 2007, the Port implemented a Clean Truck program (Program) in response to community concerns over the Port's impact on traffic, safety and the environment. As part of the Program, the Port devised a standard concession agreement (Agreement) to govern the relationship between the Port and drayage companies operating at the Port. To transport cargo at the Port, the Agreement required drayage companies to, among other things:

Affix a placard on each truck listing a phone number for reporting environmental or safety concerns.
Submit a plan listing off-street parking locations for each truck when not in service.

The Agreement also set out penalties for violations, including suspension or revocation of the right to provide drayage services. Prior to the implementation of the Program, drayage companies contracted with terminal operators (such as shipping lines and stevedoring companies) but did not enter into agreements with the Port itself.

As part of the Program, the Port also amended a municipal ordinance to:

Ensure that every drayage company would enter into the Agreement.
Make it a misdemeanor, punishable by fine or imprisonment, for a terminal operator to grant access to a drayage truck not registered under an Agreement.

The American Trucking Associations, Inc. (ATA), a national trade association representing the trucking industry, filed suit in the US District Court for the Central District of California against the Port and the City of Los Angeles seeking an injunction against several provisions of the Agreement. The ATA contended that:

Sections 14501(c)(1) and 14506(a) of the FAAAA expressly preempt the Agreement's requirements.
Even if the requirements of the Agreement are valid, Castle v. Hayes Freight Lines, Inc. prevents the Port from enforcing them by withdrawing a defaulting company's right to operate at the Port.

The District Court held that neither the FAAAA nor Castle prevents the Port from proceeding with any part of the Program. On appeal, the US Court of Appeals for the Ninth Circuit mainly affirmed, holding that:

The FAAAA does not preempt the Agreement's placard and parking requirements because they do not have the force and effect of law.
Castle does not bar the Port from enforcing the Agreement's penalty clause to withdraw a trucking company's right to operate at the Port.

Outcome

The Supreme Court:

Held that the placard and parking provisions of the Agreement are preempted by the FAAAA as provisions having the force and effect of law.
Declined to address ATA's challenge to the Agreement's penalty provision based on Castle because of the case's pre-enforcement posture.

Placard and Parking Requirements

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 Supreme Court stated that the Port exercised classic regulatory authority when it imposed the placard and parking requirements. Although they are contained in contracts between the Port and drayage companies, the contracts are not the result of the parties' voluntary commitments. Rather, the Agreements function as part of a governmental program wielding coercive power over private parties, backed by the threat of criminal punishment. The Court pointed to the fact that the Port:

Aimed to require drayage companies to enter into the Agreement with the Port.
Achieved this objective by amending a municipal ordinance to:
- deny access into the Port to any drayage truck not registered under an Agreement; and
- make a violation of the ordinance a violation of criminal law.

Therefore, the Court said, the Port did not act as the owner of an ordinary commercial enterprise. The threat of criminal sanctions to secure a contract commitment, rather than ordinary bargaining, is a manifestation of the government performing its regulatory role.

The Port argued that the Program did not have the force and effect of law because its intention in implementing the Program was to respond to a perceived business necessity (namely, to adopt green growth plans), similar to the business incentives of a private company. The Court disagreed, stating that:

The Port's intentions are not relevant.
When the government employs a coercive mechanism not available to private parties it acts with the force and effect of law.
The government can only escape the preemptive scope of the FAAAA if it forgoes the exercise of legal authority.

The Court also held that the Port could not escape preemption by shifting its regulatory focus to the terminal operators instead of the drayage companies. It made no difference that the Program's criminal sanctions targeted the terminal operators because the effect of the requirements was the same: to force the drayage companies into the Agreements.

Castle and the Program's Enforcement Scheme

ATA argued that Castle limits the way that the Port can enforce the Program's requirements. Castle struck down a state's attempt to bar a federally-licensed motor carrier from its highways for past infringements of state safety regulations. The state was implicitly prohibited from taking action resulting in the suspension or revocation of a motor carrier's federally granted right.

The Court pointed out that nothing in Castle prevents a state from taking a motor carrier off its roads that is contemporaneously out of compliance with the state's safety regulations. Therefore, the Port would not violate Castle if it barred a drayage truck from operating at the Port to prevent an ongoing violation of the Agreement's requirements.

Since the Port had yet to use the suspension or revocation power to penalize a past violation of the Program, the Court declined to address whether or not the Program's enforcement scheme violated Castle.

Practical Implications

The Court's decision in this case will help to ensure consistency across the rules of the various ports in the United States by preventing municipalities from enacting a patchwork of regulatory schemes that companies must comply with throughout their supply chains.

For more information on supply chain logistics, see Practice Note, Logistics: Federal Agencies Overview and Practice Note, Logistics: Transportation Service Providers Overview.

Supreme Court: FAAAA Preempts Port of Los Angeles' Clean Truck Program Requirements | Practical Law