A federal appeals court in Manhattan ruled on Friday, November 13, that the U.S. Department of Transportation acted unlawfully when it withheld almost $74 million in highway funding from New York to pressure the state into revoking about 33,000 commercial driver's licences held by immigrant truck and bus drivers. A three-judge panel of the 2nd U.S. Circuit Court of Appeals found that the Federal Motor Carrier Safety Administration (FMCSA) acted in a way that was “arbitrary, capricious, or contrary to law” when it imposed the funding penalty after New York refused to cancel the licences, CDL Life reported, citing U.S. News.
Source: CDL Life
In its written decision, the court said the department's move “runs afoul of fair notice principles, departs from the regulatory text, and underestimates the complexity of its supposedly 'common sense' requirement,” Reuters reported. For the thousands of immigrant drivers whose licences were at the centre of the dispute, the ruling removes, at least for now, the federal lever that was being used to force New York to cancel licences that were lawfully issued under the rules in place at the time.
Source: Reuters
A penalty built on an expiration-date rule
The fight began with an FMCSA audit of New York's Department of Motor Vehicles, which the agency began as part of its annual review in July 2025. Federal officials said New York had been issuing non-domiciled commercial driver's licences — licences for drivers who are not U.S. citizens or green-card holders — for five years on initial issuance and eight years on renewal, even when a driver's immigration documents expired sooner. The department said 107 of 200 sampled records, more than 53 percent, were issued in violation of federal law, and that DMV computer systems defaulted to eight-year licences for foreign drivers. Those figures are the department's audit findings, not findings of the court.
On April 16, 2026, FMCSA issued a final determination of “substantial noncompliance” against New York, based on the expiration-date rule as it read before September 2025. The penalty was set at $73,502,543, equal to 4 percent of New York's National Highway Performance Program and Surface Transportation Block Grant funds for fiscal 2027. According to New York's court petition, the determination also warned of possible decertification of the state's entire CDL program and about $147 million a year in additional withholding unless the state took corrective action, including cancellation of thousands of previously issued licences.
What the judges decided
The court's reasoning turns on fair notice, a basic limit on government enforcement: a state or a driver cannot fairly be punished for breaking a requirement the agency never clearly stated. The appeals court ruled that New York cannot be blamed for failing to cancel a licence after a driver lost legal status in the United States when the rules requiring that cancellation were not in place at the time the licence was issued, U.S. News reported. Reuters noted that the full opinion had not yet been reviewed in detail and the precise remedy the court ordered is not yet clear, but the practical effect is that the April funding penalty and the cancellation pressure tied to it cannot stand on the old rule.
Transportation Secretary Sean Duffy framed the April action as a safety measure, saying the department was “refusing to fund Governor Hochul's dangerous, anti-American policies.” Governor Kathy Hochul called the funding cut “devastating” and “political payback,” and earlier described it as “reckless” and “illegal.” Defending the penalty after Friday's ruling, the Transportation Department said: “We've put a stop to the madness to keep the driving public safe.”
New York Attorney General Letitia James, who filed the state's challenge on April 24 under the Hobbs Act, argued that the department had adopted “a new and unsupported interpretation of longstanding federal regulations.” In a joint statement reported by Newsweek after the ruling, James and Hochul said: “Once again, New York has defeated this administration in its endless quest to hurt New Yorkers.”
Source: Newsweek via Newsdesk International
What the ruling does not change
The decision does not strike down the stricter federal licensing rule now in force. FMCSA's September 2025 emergency rule limited new non-domiciled licences largely to H-2A temporary agricultural workers, H-2B temporary nonagricultural workers and E-2 treaty investors, cutting out many work-permit holders such as asylum applicants and DACA recipients. The D.C. Circuit stayed that interim rule in November 2025, and FMCSA published a final rule on February 13, 2026, which took effect on March 16, 2026, with tighter eligibility, expiration-matching and a maximum one-year validity for non-domiciled licences. That final rule is being challenged separately in the D.C. Circuit. New applications and renewals are judged under the current standard; Friday's ruling protects licences issued under the old rules from this particular cancellation campaign.
The licensing fight is unfolding alongside a wider federal enforcement push aimed at immigrant commercial drivers. The Department of Homeland Security has said ICE made 4,795 CDL-related arrests nationwide between January 20, 2025, and October 28, 2026, including 1,233 arrests involving CDL holders, and that a three-day operation across 15 states in late October led to more than 230 arrests, including more than 40 commercial licence holders. For Punjabi and other immigrant truckers based in New York — a community that supplies a large share of the state's long-haul drivers — the ruling means a licence issued under the old rules cannot be cancelled through this funding-pressure route while the decision stands, though it offers no protection in individual immigration cases.
What happens next
The Transportation Department's options are to ask the full 2nd Circuit to rehear the case or to petition the U.S. Supreme Court. Lawyers watching the case say the key questions are whether the written opinion sets aside the April 16 determination in full, including the decertification warning and the threatened $147 million a year, and whether other states facing similar audit findings use the same fair-notice argument against FMCSA. Drivers holding New York non-domiciled licences should keep their immigration documents and licence paperwork current, because renewals remain governed by the stricter 2026 rule. Awaaz Punjab will update this story as the department responds.