The Supreme Court ruled that two conditions imposed by the Port of Los Angeles on trucking companies using their facilities were invalid by federal law in the case American Trucking Associations v. City of Los Angeles.

In order to build community support for an expansion, the Port of Los Angeles had asked all drayage trucks operating in the facility to sign an agreement that, among other things, required the trucks to display a placard with a number to call in case of environmental or safety complaints and to submit a plan for off-street parking. Any port terminal operator who permitted a non-compliant truck to use the facility was subject to a fine or up to six months in prison on a misdemeanor charge.  

The Court held that those conditions were invalid under the Federal Aviation Administration Authorization Act (FAAAA). While a government may normally escape preemption when it signs private contracts or otherwise acts as a market participant, the use of criminal law to enforce the agreement led the Court to conclude that the Port was exercising its power as a government regulator rather than entering an agreement as a private actor.

The Court decided not to expand the reach of the market participant exception as the State and Local Legal Center amicus brief joined by the ICMA had argued, which would have allowed local entities significantly more latitude when making arrangements with companies using public property for business purposes. The Court also struck down two provisions in an agreement the Port of Los Angeles drew up to control access to its own facilities because of a federal deregulation law.  

However, the Supreme Court’s ruling was very narrow. While a local government cannot use criminal law to encourage businesses to sign contracts, the Court chose not to limit the ability of governments to escape preemption when they act as market participants. The Court declined to rule on the question of whether the Port may exclude noncompliant truckers from its property for past violations, but confirmed that it may bar trucks that are currently in violation of the remaining provisions of the agreement from using the facility.

The ruling allows local governments to continue concession agreements for motor carriers that use their facilities for business purposes. Following this decision, however, it is important to make sure that there are no criminal penalties that might be seen as coercing private parties into signing such agreements.