Oral Argument Preview: Does Federal Law Preempt LA Port's Drayage Agreement?

The Supreme Court will hear oral arguments tomorrow in American Trucking Association v. Los Angeles, testing whether the Federal Aviation Administration Authorization Act preempts certain provisions of the "concession agreement" that the Port of Los Angeles requires of all Port drayage service providers, as part of the Port's efforts to reduce drayage truck emissions.  

Here's my ABA Preview of United States Supreme Court Cases article on the case, reprinted here with permission:

FACTS

 The Port of Los Angeles (POLA, or the Port) is an independent division of the City of Los Angeles. That is, it raises and manages its own revenue, independent of the City, by leasing its terminal facilities to shipping lines and stevedoring companies, which load and unload cargo from docking ships.

Drayage trucks are an integral part of the operations at the Port. They transport cargo from the Port’s marine terminals directly to customers, or to off-Port long-distance trucks or railroads for further transport. But POLA does not contract for any drayage services. Instead, cargo owners, ocean carriers, railroads, and other transportation providers arrange for drayage services through Licensed Motor Carriers (LMCs). Most LMCs, in turn, contract with independent truck owners and operators to provide drayage services.

In 2008, the Port adopted a “concession agreement” system for drayage service providers. The system was part of an earlier-adopted “Clean Action Plan” designed to address community opposition to Port expansion and to reduce air pollution produced by Port activities. Under the system, the Port requires any drayage service provider seeking access to the Port’s premises to enter into a standard-form “concession agreement” with the Port. That agreement grants the concessionaire “a non-exclusive license to access [the] Port property for the purpose of transporting containers and/or other cargo to and from marine terminals.” In exchange, the concessionaire agrees to comply with several requirements. In particular, the concessionaire must (1) submit an off-street parking plan for all of its permitted trucks, (2) display placards on its trucks that provide a phone number for reporting environmental or safety concerns, (3) demonstrate that it has sufficient financial resources to perform its obligations under the agreement, and (4) ensure that vehicle maintenance is conducted in accordance with the manufacturer’s instructions.

The standard-form agreement also lists penalties for failure to comply with these requirements. The penalties for a default, if not timely cured, include suspension or revocation of the concession agreement and the right of the concessionaire to use the Port’s facilities. In other words, the Port could altogether exclude a drayage service provider for significant noncompliance with the agreement—what the agreement calls a “Major Default.”

Moreover, violation of the agreement can result in criminal penalties. This is because the Port incorporates the concession agreement system into the preexisting tariff that governed Port operations. A violation of the tariff constitutes a misdemeanor subjecting the violator to a $500 fine and imprisonment up to six months.

American Trucking Associations, Inc. (the ATA), a trucking-industry trade group, sued the City and the Port in federal court, arguing that certain concession agreement requirements were preempted by the Federal Aviation Administration Authorization Act (FAAA). The district court found none of the requirements preempted. A divided panel of the Ninth Circuit largely affirmed, reversing the district court only as to a requirement that is not relevant here. This appeal followed. The federal government petitioned to participate as amicus in support of reversal.

 CASE ANALYSIS

This case raises two distinct issues of federal preemption of state law. The first issue, an express preemption issue, involves two sections of the FAAA. The first section, 49 U.S.C. § 14501(c)(1), covers general state regulation of motor carriers, like the concession agreement’s off-street parking requirement. It provides that:

a State, political subdivision of a State, or political authority of 2 or more States 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.

This first section exempts “the safety regulatory authority of a State with respect to motor vehicles.” 49 U.S.C. § 14501(c)(2)(A).

The second section, 49 U.S.C. § 14506(a), specifically addresses vehicle identification requirements, like the concession agreement’s placard requirement. It provides that:

[n]o State, political subdivision of a State, interstate agency, or other political agency of two or more States may enact or enforce any law, rule, regulation standard, or other provision having the force and effect of law that requires a motor carrier . . . to display any form of identification on or in a commercial motor vehicle . . ., other than forms of identification required by the Secretary of Transportation.

The first issue asks whether the concession agreement’s off-street parking and placard requirements “hav[e] the force and effect of law” under these sections so that the requirements are preempted by the sections. That question, in turn, depends on whether the concession agreement looks more like a state regulation or more like an ordinary commercial contract. If the concession agreement looks more like a state regulation, it is covered by these sections, and it is preempted. On the other hand, if it looks more like an ordinary commercial contract, it is not covered by these sections, and it is not preempted.

A related question is whether the market participant doctrine applies. The market participant doctrine says that the FAAA preempts only state regulation, not actions a state takes as a market participant. The parties and the federal government disagree about whether the market participant doctrine applies in this case—in particular, whether it applies when the FAAA does not contain an explicit market participant exception.

The second issue involves the application of a 1954 Supreme Court case on preemption, Castle v. Hayes Freight Lines, Inc. In Castle, the Court considered an Illinois statute that limited the weight of freight that could be carried in commercial trucks registered under the federal Motor Carrier Act. The Illinois law punished a carrier’s repeated violations by suspending the carrier’s right to use Illinois state highways for periods of ninety days and one year. The Court said that the Motor Carrier Act left regulation of the size and weights of trucks to the states. But it also held that Illinois’s law forbidding an offending carrier from using all of the state’s highways was “equivalent to a partial suspension of [the carrier’s] federally granted certificate” and was therefore preempted.

The parties and the federal government disagree about the meaning, the scope, and even the continued vitality of Castle. For example, they disagree about whether Castle prohibits the Port from punishing drayage service providers by banning them merely from the Port, even if not from the entire state highway system (as in Castle). The parties also disagree about which concession agreement requirements might be covered by Castle. Finally, they disagree about whether Castle remains good law. The government, for its part, is unsure whether the Port will punish only past, cured violations (as in Castle), and thus whether the punishment even falls under Castle.

The ATA argues first that the plain language of the FAAA expressly preempts the off-street parking and placard provisions of the concession agreement. It says that the parking provision regulates drayage trucks’ “price, route, or service” in violation of § 14501(c)(1), and that the placard provision requires drayage trucks “to display any form of identification . . . other than forms . . . required by the Secretary of Transportation” in violation of § 14506(a). Moreover, it claims that the concession agreement amounts to a “comprehensive licensing scheme” that is “penally enforceable” through the tariff and thus have “the force and effect of law.”

The ATA argues that the market participant exception does not apply. It says that because Congress enacted the FAAA, and because it does not contain a market participant exception, there is no market participant exception to the Act’s provisions. But the ATA claims that even if the FAAA contains an implicit market participant exception, it does not apply here. According to the ATA, that is because the parking and placard requirements are not aimed at the efficient procurement of goods and services or at the use of state-allocated funds, the purposes of the exception; instead, the provisions are aimed at a traditional regulatory goal, to reduce air pollution. Moreover, the ATA contends that the Port is not even a direct participant in the drayage market; instead, it is a regulator of drayage services.

Next, the ATA argues that Castle bars the Port from enforcing even non-preempted regulations on drayage service providers by suspending or revoking their access to the Port. The ATA says that the concession agreement permits the Port to deny a drayage service provider “any and all access” to the Port for certain defaults of the concession agreement, and that this penalty is directly at odds with the Court’s holding in Castle. It claims that Castle forbids even a partial suspension of a drayage operator’s federally licensed activities, even though a denial of access to the Port may not rise to the level of the comprehensive ban at issue in Castle. Finally, the ATA contends that Castle is still good law, and that Congress has only reaffirmed the federal government’s exclusive authority to issue interstate-commerce permits, and to revoke them.

The federal government supports the ATA, but takes a more nuanced tack. It says that the FAAA does not naturally preempt all arms-length commercial agreements between the government and motor carriers. But it says that the Port’s concession agreement looks more like a regulatory scheme than an arms-length commercial agreement between market participants. In particular, the government points to four features of the Port’s agreement and its operations that together suggest that the agreement is really a regulation (and not a commercial agreement): the criminal sanctions that back the agreement; the public ownership of the Port; the generally regulatory character of the agreement’s provisions; and the fact that the government generally does not contract with drayage service providers. For these reasons, the government claims that the FAAA preempts the off-street parking and placard requirements.

Next, the federal government says that it is unclear whether the concession agreement provisions at issue here would contravene Castle. The government argues that Castle prevents the Port from barring a motor carrier’s access to the Port only for a past, cured infraction, and not for the carrier’s current failure to comply with otherwise non-preempted state safety regulations. In other words, it says that nothing in Castle prevents the Port from prohibiting a carrier’s truck from operating at Port facilities until it complies with non-preempted regulations. Given that we do not know whether the Port might punish past, cured violations of the agreements by barring Port access, the government urges the Court to remand the case for a determination on that question.

The Port argues first that the market participant exception shields the off-street parking and placard provisions from preemption. It claims that the Court’s precedents and related acts suggest that the market participant exception applies to the FAAA, even with its express preemption clauses. Moreover, the Port claims that its adoption of the concession agreements fall within the market participant exception. In particular, the Port claims that the concession agreements do not have the “force and effect of law,” because they are contractual in nature, not regulatory in nature. (It claims that under the terms of the tariff and the concession agreement, the criminal sanctions under the tariff do not apply to LMCs.)

Next, the Port claims that Castle does not bar the concession agreements’ safety-based restrictions on access to the Port. The Port says that Castle only prohibits a ban on using all of a state’s freeways, not a ban on a single Port, as here. But even aside from the Ninth Circuit’s approach, the Port claims that the ATA’s argument that Castle prevents the Port from suspending or revoking a motor carrier’s access for safety-related violations would improperly read the safety exception out of § 14501(c)(2)(A). Finally, the Port contends that Castle is no longer good law with respect to the concession contract requirement. That is because Castle arose under an earlier, and superseded, regulatory regime.

SIGNIFICANCE

The Port of Los Angeles is the largest container port in the United States in terms of both shipping container volume and cargo volume. In 2007, it was the thirteenth busiest port in the world, and the fifth busiest in the world when combined with the cargo volume at the adjacent Port of Long Beach. In both 2007 and 2008, the Port handled more than $240 billion in cargo. The Port’s activities are connected with over 900,000 jobs in the greater Los Angeles region. As big as it is, however, the Port projects that increased global trade and larger ships will double the demand for its cargo handling capacity over the next decade. To meet demand and stay competitive, the Port seeks to expand.

At the same time, Port activities produce pollution that significantly affects the air quality of the surrounding area and the health of local residents. Community and environmental groups tied up Port expansion plans in court for years because of these concerns. (They continue to oppose expansion efforts, for example, by protesting the Port’s plan to develop a new rail yard, approved just last month.) The Port’s Clean Action Plan, including the concession agreements, was designed to address these kinds of environmental concerns.

In this way, the case is a classic conflict between economic growth and environmental justice. If the Court reverses the Ninth Circuit and holds that the FAAA preempts some or all of the Port’s concession agreement requirements, the ruling will frustrate the Port’s efforts to reduce pollution in order to address the concerns of community and environmental groups. This could lead community and environmental groups to redouble their efforts to halt expansion and thus deal a significant set-back to Port expansion efforts. The Los Angeles Chamber of Commerce, as amicus in support of affirming the Ninth Circuit, put it this way: “If the Port is not permitted to take such modest and reasonable steps as those represented by the off-street and placard provisions, its ability to adopt limited measures tailored to specific, local issues arising from Port activity will be compromised, which may result in additional litigation and delays.”

On the other hand, if the Court affirms the Ninth Circuit and holds that the FAAA does not preempt the concession agreement requirements, the Port’s efforts will stay on the books. This may be a victory for community and environmental groups, and for the Port itself. But given the issues that have come to a head just recently with the rail yard project, it is safe to say that this case will certainly not resolve all the problems or in any way mark the end of this ongoing dispute.

SDS