Court Overturns $73.5M Penalty Over Non-Domiciled CDLs

A federal appeals court has ruled in favor of New York in a legal dispute over non-domiciled CDLs. The decision overturns a federal determination that led to the withholding of more than $73.5 million in highway funding.

On November 13, 2026, the U.S. Court of Appeals for the Second Circuit found that the Federal Motor Carrier Safety Administration (FMCSA) had based its enforcement action on a requirement that did not exist under previous federal regulations.

The ruling marks a significant development in the ongoing dispute over commercial driver’s licenses issued to noncitizens. However, it does not overturn the new federal licensing requirements that took effect earlier this year.

Why FMCSA Withheld New York’s Highway Funding

In July 2025, FMCSA began its annual review of New York’s commercial driver licensing program. Five months later, the agency issued a preliminary determination that the state had failed to comply with federal licensing standards. FMCSA reviewed a sample of 200 non-domiciled CDLs and commercial learner’s permits (CLPs). The agency found that 101 remained valid beyond the expiration dates of the immigration documents presented by applicants.

FMCSA directed New York to stop issuing non-domiciled commercial licenses and cancel unexpired licenses that the agency considered noncompliant. New York disputed the findings, arguing that previous federal regulations did not require the expiration dates to match.

In April 2026, FMCSA issued its final determination of substantial noncompliance. The agency announced that it would withhold four percent of New York’s federal highway funding for fiscal year 2027. The initial penalty totaled $73,502,543. Additional penalties could have reached more than $147 million in subsequent years if the agency continued to find the state noncompliant.

New York challenged the determination in federal court.

Court Rejects FMCSA’s Interpretation of Non-Domiciled CDL Rules

The dispute centered on federal regulations in effect before September 2025. Under those regulations, eligible noncitizens applying for non-domiciled CDLs had to present one of the following:

• An unexpired Employment Authorization Document (EAD).
• An unexpired foreign passport accompanied by an approved Form I-94.

Federal regulations also established a maximum CDL validity period of eight years. New York’s longstanding practice was to issue commercial licenses for five years upon initial issuance and eight years upon renewal. The state applied these periods to both domiciled and non-domiciled CDLs.

FMCSA argued that states were also required to ensure that commercial licenses expired no later than the immigration documents used during the application process. However, the court found that the previous regulations contained no such requirement.

The judges also noted that FMCSA acknowledged during the legal proceedings that the plain language of its regulations did not support its interpretation. As a result, the court granted New York’s petition and set aside FMCSA’s final determination.

Court Examines History of Federal CDL Requirements

The majority opinion also examined the history of federal commercial licensing regulations.

In 2008, FMCSA proposed establishing an eight-year maximum validity period for CDLs. During the rulemaking process, some states suggested requiring commercial licenses to expire when a driver’s legal presence expired. However, FMCSA declined to adopt that requirement as part of its 2011 final rule.

The court also noted that FMCSA had not identified any previous instance in which it found a state noncompliant for failing to match those expiration dates before the determination against New York.

Circuit Judge Alison Nathan wrote in the majority opinion:

Although FMCSA was free to—and later did—go through the rulemaking process to enact new requirements with respect to non-domiciled CDLs, the agency could not withhold federal funding based on a state’s noncompliance with a regulatory requirement that did not exist.

All three judges agreed with the outcome, although Judge Schwartz issued a separate concurring opinion.

What the Ruling Means for Non-Domiciled CDL Holders

According to court documents, New York had approximately 32,600 non-domiciled CDL and CLP holders as of July 2025. They represented about seven percent of the state’s active commercial licenses and permits. These license holders included individuals such as asylum recipients, refugees, and Deferred Action for Childhood Arrivals (DACA) recipients.

The court’s decision removes the federal noncompliance determination that formed the basis of the funding penalty and related corrective action demands. However, the ruling does not explicitly require New York to reinstate previously canceled commercial licenses. It also does not automatically restore licenses canceled in other states.

Further guidance from New York’s Department of Motor Vehicles or FMCSA may clarify how the decision affects individual license holders. The separate concurring opinion also emphasized that possessing a valid CDL does not grant immigration status or employment authorization. Federal employment eligibility requirements continue to apply.

New Non-Domiciled CDL Rules Remain in Place

The ruling addresses previous federal regulations rather than the newer requirements governing non-domiciled CDLs. FMCSA published its new final rule in February 2026, with an effective date of March 16, 2026.

The updated regulations include stricter immigration eligibility requirements and an explicit expiration-matching provision. They also limit the validity period of non-domiciled commercial licenses to a maximum of one year.

The Second Circuit made clear that it was not ruling on the legality of these newer regulations, which are the subject of separate litigation. As a result, the November 13 decision does not invalidate the current federal licensing requirements.

Potential Impact on Other States

The decision could have implications beyond New York. Other states facing enforcement actions based on FMCSA’s interpretation of previous licensing regulations may reference the court’s findings in future legal challenges.

However, the ruling directly addresses New York’s final determination and does not automatically reverse penalties or licensing decisions elsewhere. For the trucking industry, the decision establishes an important distinction between enforcement under previous regulations and compliance with newly adopted federal requirements.