What separates a regulation from a commercial contract? Is a municipal port a regulatory agency or a commercial enterprise? And does a Supreme Court precedent set deep in trucking’s regulatory past still hold in this highly deregulated era?
Those were a few of the questions raised at the April 16 U.S. Supreme Court hearing on the American Trucking Associations’ challenge to the Port of Los Angeles drayage concession program, a challenge backed by the U.S. Justice Department.
The hearing brought years of lawsuits over the concessions — introduced in 2008 as part of the broader clean-trucks program banning older trucks from the port — to a head. Los Angeles defended the concessions, arguing they’re key to its campaign to reduce air pollution, while the ATA said the concessions are illegal and should be scrapped.
The 9th Circuit U.S. Court of Appeals in 2011 shot down the most contentious element of the concession program, a requirement that drayage companies use employee drivers rather than owner-operators, but several provisions survived to comfort the port and trouble the trucking industry and its allies.
Those provisions require carriers to submit an off-site parking plan for all harbor trucks, display placards on trucks and prove they have the financial resources to meet their obligations under the agreement. Penalties for noncompliance with the concession requirements include loss of the concession as well as civil and criminal penalties, all of which infringe on the federal pre-emption of state trucking regulation under the 1994 Federal Aviation Administration Act, the ATA says.
Where LA Goes, Others May Follow
There’s more at stake than just drayage business at the busiest U.S. port. The ATA fears the Los Angeles concession program is a model other U.S. ports could follow. The port argues the concessions are a necessary part of its clean-trucks program and of its plans to expand the port, for which it needs community support.
“If we are prohibited from taking what are substantively limited actions to control trucking, then essentially this port will be disabled by its surrounding community from doing what it needs to do to compete,” said attorney Steven S. Rosenthal, who represented Los Angeles at the hearing. In the past, community activists have opposed port expansion in Los Angeles on environmental grounds.
Do the concession requirements amount to a regulation and interfere with interstate commerce, as the ATA and federal government argue, or are they contract provisions between private or semiprivate businesses, as Los Angeles contends?
A key question at the hearing was whether the “market participant” exemption — which states federal law only pre-empts state and local regulations, not actions a state or city takes as a “market participant” — applies in this case and whether the port should be considered a market participant or a municipal regulator.
The justices attacked those questions — and grilled the attorneys — from several angles. “Of course, cities can have parking regulations,” Justice Stephen Breyer said. “Isn’t there room (in the statute granting such authority) to address environmental considerations?”
“It seems to me the answer is no,” said Justice Antonin Scalia, who warned the attorney for Los Angeles that the port’s claim to be acting as a commercial enterprise leaves “a very high hill for you to climb.”
Rosenthal struck out for the hill’s summit early in his argument. “At issue are conditions in a contract between commercial actors,” the drayage truckers, terminal operators and the port, he said. “The owner of the land” — in this case the Port of LA — “has to have some type of control” over access to that property by motor carriers. “As a business, we should be entitled to do what Wal-Mart or any other company could do to enable us to prosper.”
Scalia didn’t seem to buy the comparison between the nation’s largest retailer and the nation’s largest port. “Do market participants impose civil and criminal penalties?” he asked. “No,” Rosenthal replied. “Ah,” said the judge.
That’s the main reason the ATA argues the concession requirements aren’t just provisions of a private contract but an attempt to usurp federal regulatory authority over trucking. “The port is evoking the full punitive power of the state to impose conditions on motor carriers,” said Daniel N. Lerman, an attorney for the ATA. “That’s what Congress was trying to prevent” in the 1994 Federal Aviation Administration Authorization Act, which extended federal authority over intrastate trucking, effectively eliminating state economic regulation of motor carriers.
The Roots of Pre-Emption
The parking and placarding restrictions expressly violate the 1994 FAAA law, which pre-empts regulation of motor carrier “price, route or service” by states or cities, according to ATA. “The port actions have the force and effect of law under any reasonable interpretation,” Lerman said.
That penalties are imposed on terminal operators and not truckers is irrelevant, said John F. Bash, assistant to the solicitor general at the U.S. Department of Justice, who argued the federal case. “What if a state highway commission said certain trucks can’t use our roads unless you sign a certain agreement, but don’t worry, if you don’t abide by that agreement we won’t do anything to you, but we’ll throw anyone you do business with in jail?” Among other things, that would clearly be a violation of federal pre-emption, he said.
The port hasn’t actually barred any carriers from its gates, Rosenthal said. “We haven’t used revocations, and we haven’t used suspensions,” he said. “We’re really talking about future options.” But those options would still violate a legal precedent set by the Supreme Court six decades ago, the ATA argued.
In 1954, the high court in Castle v. Hayes Freight Lines ruled a state — Illinois in the case — cannot entirely bar federally licensed trucks from its highways as punishment for noncompliance with state laws limiting truck weights.
The ATA argues the Castle decision applies to the Port of Los Angeles — a key conduit for commerce — as much as it would to state highways. The attorney for Los Angeles tried to draw a distinction between the port and highways. Running a port is “substantially different than running public roads,” Rosenthal said. He even said Castle should not serve as a legal precedent in today’s deregulated world.
“The decision was predicated on a very specific regulatory regime under the Motor Carrier Act of 1935,” he said. “That regime died several decades ago, and we would argue that Castle died with that regime.”
The regulatory regime that gave trucking “the Rule of Eight” may be dead, but the precedent set in Castle lives, Lerman said. “Castle is still alive. The statutory scheme that formed the basis of this court’s decision in Castle remains to this day in Title 49 of the U.S. Code,” he said. That was the basis for the decision then, and it’s the basis today.”
The Supreme Court is expected to issue a decision in this case by July.