Appeals Court Rejects Federal Penalty Against New York Over Licenses

Three judges on the federal appeals court for the 2nd Circuit found that the federal motor carrier safety agency acted unlawfully when it penalized New York for not revoking nearly 33,000 commercial licenses flagged in an audit. The licenses cover drivers of vehicles including trucks, buses and limousines.

The judges said New York could not be faulted for failing to cancel licenses after drivers lost legal status in the United States because rules requiring those cancellations were not yet in effect. The case concerned federal highway funding that New York said it needed for road and bridge repairs.

The dispute followed tighter federal rules on when immigrants may obtain commercial licenses. Officials said some states had issued licenses that remained valid after a driver’s authorization to stay in the country expired. New York licenses could last eight years regardless of the duration of a driver’s visa, authorities said.

The federal government’s scrutiny intensified after a 2025 audit found licensing problems nationwide. The Transportation Department said about 30,000 licenses had been canceled as illegally issued, while roughly 26,000 drivers were removed from the road for failing English-proficiency requirements. Immigrant groups have said drivers are being unfairly targeted.

New York Attorney General Letitia James had challenged the funding cut, and Gov. Kathy Hochul called it devastating and described it as political payback. The Transportation Department had no immediate comment on the ruling.

Court Blocks Federal Funding Cut Against New York

A federal appeals court has rejected the Transportation Department’s attempt to punish New York by withholding nearly $74 million in highway funds. The state could not be required to revoke licenses under rules that had not yet taken effect, the judges found.

The ruling is a check on a federal response that threatened money New York needs to repair roads and bridges. The case involved nearly 33,000 licenses questioned in an audit, but the court said the state could not be blamed for failing to cancel them when drivers lost legal status if no cancellation rule applied at the time.

Federal scrutiny expanded after licensing reviews found problems around the country. The department says about 30,000 commercial licenses were canceled as illegally issued and about 26,000 drivers were taken off the road for failing English-proficiency tests. Immigrant groups say many drivers are being unfairly targeted.

New York officials called the funding cut unfair, with Gov. Kathy Hochul describing it as political payback. Federal officials said states faced action after licenses were found to remain valid beyond drivers’ authorization to stay in the country. The court’s decision underscores the cost of imposing penalties without a legal basis.

Court Shields New York After License Audit Exposed Problems

A federal appeals court has blocked the Transportation Department from withholding highway funds from New York, even as audits exposed serious problems with immigrant commercial driver’s licenses. The court said rules requiring cancellations were not in place when drivers lost legal status, so the state could not be penalized for failing to revoke those licenses.

Nearly 33,000 New York licenses were questioned, while authorities said the state issued licenses for eight years without regard to how long a driver’s visa remained valid. The department’s nationwide response included canceling about 30,000 licenses it said were illegally issued and removing roughly 26,000 drivers who could not demonstrate English proficiency.

The ruling does not erase the licensing concerns that prompted federal action. It does, however, prevent the department from using nearly $74 million in highway money against New York on the basis the court rejected. Transportation Secretary Sean Duffy had tightened rules on immigrant eligibility for commercial licenses.

New York argued the funding was needed for roads and bridges, and Hochul called the cuts devastating. The case leaves a sharp divide between the state’s challenge to the penalty and federal concerns that licenses remained active after drivers’ authorization expired.