A D.C. Circuit panel grilled both sides on September 11 over whether FMCSA had the legal authority to withhold federal highway dollars from California. The state says no federal law required the cancellations. The federal government says it found systemic failures. One of them is wrong, and the ruling will land before October 1.
On September 11, 2026, a three-judge panel of the U.S. Court of Appeals for the District of Columbia Circuit spent nearly two hours listening to lawyers argue about expiration dates on commercial driver’s licenses. That’s the surface description. The real question is whether FMCSA can use a $160 million funding lever to force a state to cancel credentials the state says it legally issued, and whether the agency’s answer will hold up on the merits before October 1, when the money disappears.
California Deputy Attorney General Kristen Kido put the state’s position plainly before the panel. The FMCSA’s final determination, she told the judges, “cites just one basis for its decision to withhold $160 million of highway funding from California: that DMV had not canceled approximately 20,000 licenses with expiration dates that exceeded the date on the driver’s legal presence documentation, but no federal law required those cancellations.” She followed it with a single sentence: “All of the licenses at issue complied with federal law.” The Justice Department lawyers went the other direction, arguing the DOT audit had uncovered systemic failures that went well beyond any single data point, “a number of systemic issues,” they told the panel, “issues that pervaded the process by which the California DMV issues commercial driver’s licenses.” The panel grilled both sides. It didn’t signal how it would rule or set a timeline. The October 1 cutoff date, though, is its own kind of pressure.
The three judges hearing this are Circuit Judges Cornelia Pillard, a nominee of President Obama; Brad Garcia, a nominee of President Biden; and Douglas Ginsburg, a nominee of President Reagan. None of that partisan math tells you anything reliable about how this comes out. The legal questions here aren’t ideological in the normal sense. They’re administrative law questions: whether FMCSA followed the right procedural path, whether the funding withholding was supported by the record, and whether California agreed to a January 5, 2026 cancellation deadline. That last point was visibly contested at the podium.
The case is California Department of Motor Vehicles v. U.S. Department of Transportation, filed in the D.C. Circuit earlier in 2026. Non-domiciled is the regulatory term for a commercial driver’s license issued to someone who doesn’t have a U.S. domicile, which means not a citizen, not a lawful permanent resident, but who is legally present and authorized to work. Federal law permits these individuals to obtain a CDL. That’s not disputed. What is disputed is what expiration date the license can carry, and what happens when a state gets that wrong.
The backstory starts in September 2025, when FMCSA issued an Interim Final Rule, Docket No. FMCSA-2025-0622, that significantly tightened the standards for issuing and renewing non-domiciled CDLs. That IFR took effect September 29, 2025. A nationwide FMCSA audit found that more than 30 states had issued non-domiciled credentials with expiration dates that extended past the expiration of the driver’s lawful presence documentation, issued credentials to Mexican and Canadian nationals who weren’t eligible, and issued credentials without adequate immigration status verification through the DHS SAVE system. California was not the only state with problems. It was the first to get the bill.
After the September IFR, FMCSA issued a Preliminary Determination of Noncompliance against California. In November 2025, FMCSA issued a Conditional Determination, temporarily holding off on sanctions in exchange for California’s commitment to cancel approximately 17,000 improperly issued non-domiciled CDLs by January 5, 2026. California’s account of what happened next doesn’t match the federal government’s. According to FMCSA, the agency told California in December that any extension of that deadline had to be in writing and approved by the federal government. California told FMCSA on December 24 that it needed until March to work through the process. FMCSA’s position: California announced a March deadline without receiving approval. On January 7, 2026, FMCSA Administrator Derek Barrs issued a Final Determination of Substantial Noncompliance against the California DMV. The funding withholding, $158.3 million for fiscal year 2027, which starts October 1, followed. Transportation Secretary Sean Duffy put the number publicly at approximately $160 million.
California’s counter is the one Kido argued before the panel: the licenses were legally issued under the standards in place at the time, no federal regulation in force at the time of issuance required the expiration dates to match the work authorization dates, and FMCSA is trying to apply new rules retroactively to punish a state for conduct that was lawful when it happened. The state also disputes whether it ever committed to the January 5 deadline in the binding sense the federal government is asserting. The panel pressed California hard on that point.
While the federal case was building, a parallel fight was running in California state court. In November and December 2025, approximately 20,000 CDL holders received notices from the California DMV that their licenses would be canceled because of mismatched expiration dates. The Asian Law Caucus, the Sikh Coalition, and Weil, Gotshal & Manges filed a class action in December 2025 to block those cancellations. In a March 2, 2026 ruling in Doe v. Department of Motor Vehicles, the Alameda County Superior Court declined to stop the March 6 cancellation date but ordered California to allow affected drivers to immediately reapply for CDLs and have them reissued within a reasonable time. On March 6, approximately 13,000 non-domiciled CDLs were canceled, according to the California DMV’s own public notice. California then tried to reissue corrected licenses to eligible drivers. FMCSA blocked it. The D.C. Circuit denied California’s emergency stay request that would have allowed the reissuance. The applications are piling up. California is accepting them and not acting on them because FMCSA has directed the state not to issue non-domiciled CDLs at all.
The February 13, 2026 Final Rule, published in the Federal Register at 91 FR 7045 under Docket No. FMCSA-2025-0622, is what replaced the IFR and took effect March 16, 2026. It limits eligibility for non-domiciled CDLs to individuals holding H-2A (temporary agricultural worker), H-2B (temporary non-agricultural worker), or E-2 (treaty investor) visas. Those three categories share a feature: they involve enhanced consular vetting and interagency screening that serve as a proxy for the driver history checks state DMVs can’t independently perform because U.S. licensing databases don’t capture foreign driving records. Employment Authorization Documents alone no longer qualify. That cuts out DACA recipients, TPS holders, asylum seekers, asylees, and refugees. FMCSA estimates roughly 194,000 current non-domiciled CDL holders will eventually leave the eligible pool as their credentials expire under the new framework.
The safety predicate that FMCSA used to justify the rule’s pace is a specific number. The agency told Congress and the public that 17 crashes involving 30 deaths in 2025 involved drivers holding non-domiciled CDLs that wouldn’t qualify under the new eligibility rules. FMCSA Administrator Barrs put it flatly in the February announcement: “If we cannot verify your safe driving history, you cannot hold a CDL in this country.” Whether that data fully supports the rule’s breadth, limiting hundreds of thousands of existing credential holders, not just new applicants, is one of the live arguments the D.C. Circuit is weighing in the parallel Lujan v. FMCSA challenge to the Final Rule itself, where oral argument is scheduled for September 15. That’s a different case from the California funding fight, but they’re in the same courthouse the same week, and either ruling could reshape what the other means.
California isn’t alone in the funding fight. On April 16, 2026, DOT announced that FMCSA was withholding more than $73.5 million from New York for the same category of violations: non-domiciled CDLs issued with expiration dates that didn’t align with work authorization documents. New York’s fight is behind California’s on the docket. How the D.C. Circuit rules on the California case will set a floor or a ceiling for New York, depending on the outcome. Florida tried a different approach earlier, a direct lawsuit against California and Washington over their CDL issuance practices. The Supreme Court declined to take that case, holding, as it always does in state-vs.-state matters, that original jurisdiction sits with the Court itself, and finding the case not worth exercising that jurisdiction over.
For fleets and brokers, the practical situation right now is this. A driver holding a California non-domiciled CDL whose license is still within its printed expiration date can legally operate a commercial motor vehicle. That license is valid. The state isn’t issuing new ones, renewals, upgrades, transfers, or replacements under FMCSA’s directive, so when a non-domiciled CDL expires, the driver has nowhere to go in California. Under 49 CFR 384.307, FMCSA’s authority to withhold funds for noncompliance runs well past the $160 million figure—the agency can fully decertify California’s CDL program, which would prohibit the state from issuing any commercial credential, not just non-domiciled ones. That is a contingency, not a stated threat at this point. But it’s the statute underneath the funding fight, and anyone tendering loads to California-based fleets built around non-domiciled drivers should understand the ceiling.
The D.C. Circuit hasn’t ruled. It hasn’t set a timeline. October 1, though, is when the $160 million stops flowing to California under FMCSA’s Final Determination, and that date doesn’t wait for a ruling. If the court moves before then, it’ll move fast. If it doesn’t, California loses the money while the litigation continues. Either outcome lands before the industry in the next few weeks. Pull your California non-domiciled CDL roster now, verify the printed expiration dates against your drivers’ current work authorization documentation, and identify which operators are running on credentials that can’t be renewed under the current federal directive. You can’t claim you didn’t know this was coming.
