Appeals Court Restores $73.5M in Federal Highway Funds to New York

A federal appeals court has handed New York a clean win in its fight with the U.S. Department of Transportation, ordering the restoration of approximately $73.5 million in federal transportation funds that the DOT withheld in April over the state's handling of non-domiciled commercial driver's licenses.

In a unanimous decision issued Friday, a three-judge panel of the U.S. Court of Appeals for the Second Circuit agreed with New York that the funding denial — $73,502,543, or about 4% of the state's normal federal transportation allocation — was "arbitrary and capricious." For a state transportation budget, that is money with real consequences: roughly equivalent to what a mid-sized highway resurfacing program costs in a single year.

What was the dispute about?

At the center of the case sits a mismatch between license validity and immigration status. The federal government, including the Federal Motor Carrier Safety Administration — a defendant in the suit New York brought — argued that New York was issuing non-domiciled CDLs to non-citizens whose authorization to remain in the U.S. expired before the license did. Those licenses can run as long as eight years.

New York's position was simple: nothing in federal law requires a non-domiciled CDL to end before a driver's authorized stay in the country expires. A state cannot violate a rule that does not exist, the state argued.

The stakes for the driver market are not trivial. According to the judges' own summary, New York has about 32,600 non-domiciled CDL or Commercial Learner's Permit holders — approximately 7% of all licenses in the state. Any policy that suddenly invalidated that pool would have removed a measurable slice of trucking capacity overnight, tightening an already thin driver supply for carriers and forwarders moving freight through the Northeast.

Why did the court side with New York?

The panel was unambiguous in rejecting FMCSA's reading of its own rules.

"As FMCSA itself concedes, the plain text of the federal regulations in place during the relevant period did not contain an expiration-matching requirement," the judges wrote. "The regulatory structure and history confirm that conclusion."

The court laid out the licensing framework in detail. To obtain a CDL, beyond passing the operational tests, non-domiciled applicants needed to present "lawful presence documentation instead of proof of citizenship or lawful permanent residency." The license terms were fixed at five years after initial issuance and eight years after renewal — the same terms that apply to domiciled licenses. Acceptable documentation included an unexpired Employment Authorization Document, or a foreign passport paired with an approved I-94 arrival form.

After reviewing New York's practices in 2025, FMCSA had found the state "substantially noncompliant with federal regulations," objecting specifically to CDLs that ran past a holder's lawful-presence expiration date. FMCSA insisted the expiration-matching requirement was "not a new requirement" and that its earlier focus on other aspects of state CDL programs did not preclude enforcement now.

The court was not persuaded. It noted that FMCSA had "conceded in its final determination, throughout its appellate briefing and at oral argument that the plain text of the regulation does not contain a matching requirement."

Does 'common sense' override regulation text?

FMCSA's fallback argument was interpretive: it urged the court not to read its regulation "literally," and characterized its own interpretation as "common sense."

The panel brushed that aside.

"FMCSA's concession that a 'literal' reading of the 'clear' words of its own regulations supports New York's understanding should be the end of the matter," the court wrote. Asking New York to "infer" the agency's intent from its actions rather than the regulatory text was, in the judges' words, "unsupported by the regulatory text."

The history cut against the agency too. Before September 2025, the court found, "states were not required to tailor non-domiciled CDL validity periods to the expiration dates on lawful presence paperwork." The 2011 rule FMCSA was enforcing contains no such matching requirement, and the agency had chosen "not to enforce an expiration-matching requirement until now."

One detail is telling: "FMCSA has not pointed to a single instance before the final determination in this case when it found a state noncompliant for failing to adhere to that requirement," the judges wrote. Fourteen years of non-enforcement is a hard record to reverse mid-course.

What comes next?

New York is not the only battleground. A parallel suit between the federal government and California over non-domiciled CDL rules is pending before the U.S. Court of Appeals for the District of Columbia Circuit. How FMCSA responds — through new rulemaking that would put an expiration-matching requirement into actual regulatory text, or through continued litigation — will determine whether the roughly 32,600 New York license holders, and similar drivers in other states, keep driving under the status quo.