The Congestion Pricing litigation drama continued this week, rising to new levels of intrigue in response to a misfiled publication of an internal memo from DOJ to USDOT dated April 11. The memo provides a rare glimpse into internal analysis of the litigation risks and possible weaknesses of the government’s case (which according to the memo are many) and also offers some carefully worded concerns about the overall accuracy of certain assertions made by U.S. Transportation Secretary Sean Duffy. But just as important, the memo indicates the current thinking and likely next steps for USDOT on their effort to terminate congestion pricing. It also provides useful context for re-reading the Secretary’s April 21 letter to Gov. Hochul, which predated the accidental publication of the memo on April 23, but was clearly informed by its legal analysis. 

“Considerable litigation risk” 

In their April 11 memo, the DOJ attorneys begin with the numerous concerns and risks they have identified in defending the Secretary’s decision to terminate the congestion pricing program. The statement from Sec. Duffy in February offered a few rationales for terminating the approval for NY’s congestion pricing. Specifically, he stated that cordon pricing is not an allowable use of the Value Pricing Pilot Program (VPPP) and is unlawful because it doesn’t offer a toll-free option. Further he argued that the program “appears to be driven primarily by the need to raise revenue” for transit rather than setting rates based on the desired congestion reduction impacts. The memo from DOJ takes each of these rationales in turn and documents DOJ’s efforts “to identify a compelling legal argument to support” each claim and reports that they’ve been unable to do so. 

Regarding the claim that ‘cordon pricing’ is not an authorized form of congestion pricing, the attorneys reviewed legislative and judicial history and found that “it is unlikely that the Court would conclude that… cordon pricing is not the type of ‘innovative’ pilot program included in the undefined and broad term ‘congestion pricing’”. Several international examples of cordon pricing were discussed as part of the legislative record. The attorneys further document the “numerous examples of FHWA themselves interpreting ‘congestion pricing’ to include such area-wide or cordon pricing projects” including the solicitations of VPPP applicants in 2005 and 2007. The memo notes that in that era the leadership of USDOT in the Bush Administration “explicitly identifie[d] ‘cordon pricing’ as an eligible, and preferred, value pricing project.”  

DOJ’s memo goes on to point out several factual gaps in statements made by the Secretary in relation to the legality and use of cordon pricing. For instance, the Secretary’s assertion that the program is unprecedented and that FHWA had never approved the use of cordon pricing before “is not entirely correct.” (A VPPP cordon pricing pilot was approved in Fort Myers Beach and the FHWA also approved the  Express Travel Choices (Phase II) which studied cordon pricing in Southern California as part of VPPP.) His claim that cordon pricing is impermissible because it doesn’t provide a toll-free option is “undercut” by the legislative history and FHWA’s own guidance, according to DOJ. And finally, the idea that the major questions doctrine would prevent the VPPP statute from being read broadly to include cordon pricing is unlikely to be upheld by “any court of review.” 

Similarly, with regard to Sec. Duffy’s argument that NY’s program is impermissible because the toll rates must be based solely on reducing congestion or other road-related goals, the DOJ attorney find “two impediments to this argument being successful.” First, the government has previously and repeatedly affirmed that NY’s program goals are two-fold, to reduce congestion and to fund transit, and have concluded that the tolls will decrease congestion. (For current data and analysis, see this week’s article on the actual effects of the congestion pricing program on congestion levels in NY.) The attorneys note “there is nothing in the statute that prohibits a VPPP program from having a two-fold goal, limits how tolls are to be set, or sets forth the amount of congestion reduction that is to be achieved.” Further, not only does the legislative history contain discussion about the use of tolls for supporting transit, the DOJ memo notes that the court has previously found that the investment in transit itself will function as a means of reducing demand for road capacity and therefore will support the congestion reduction goals of VPPP.  

On the basis of this analysis, DOJ’s attorneys conclude that “it is very unlikely that Judge Liman or further courts of review will uphold the Secretary’s decision on the legal grounds articulated in the letter.”   

Their memo further discusses their concerns about the lack of written material explaining and supporting DOT’s change of position. Indeed, it is likely that the letter that had been intended to be submitted on the 23rd was this subsequently filed letter regarding the administrative record, responding to the court’s question of whether any documents will be submitted as an administrative record, outside of the Secretary’s February 19th letter. DOJ suggests that it will include other documents but that review is ongoing. Yet in their internal memo, the attorneys make clear that the administrative record on this reversal is exceedingly thin and little written record exists “other than the Secretary’s decision itself.” Their memo then notes that this lack of a written record poses yet another risk, as it could likely be used as a justification for extra-record discovery, including “requests for production of emails and depositions of agency officials, including the Secretary in particular.” 

Options to “accomplish the same goal, for the same reasons” 

With these risks and shortage of compelling evidence fully articulated, the last 4 pages of the 11-page memo offer USDOT advice on how to terminate the agreement, without even needing to articulate a different rationale, while avoiding said litigation risks. Specifically, the letter suggests seeking termination pursuant to OMB’s regulations at 2 CFR 200.339(c) and 2 CFR 200.340(a). The regulations at 339(c) provide a structure for remedying an award recipient’s non-compliance with the U.S. Constitution, Federal statutes, regulations, or terms and conditions of the Federal award, and those at 340(a) explain the process for terminating a cooperative agreement. There has evidently been some legal discussion about whether these regulations are applicable in letters that were not inadvertently submitted to the docket, and the letter states that “DOT has noted that the CBDTP agreement between the MTA and FHWA does not appear to fit within the regulatory definition of a ‘cooperative agreement’.” However, DOJ offers a defense and justification for taking this approach nonetheless, including the fact that MTA and the other litigants have argued that the agreement is a cooperative agreement and that Secretary Duffy’s termination can only be terminated pursuant to the OMB procedures. 

In light of the analysis and recommendations provided on April 11, it is useful to re-read the Sec. Duffy letter to Gov Hochul sent on April 21. The April 21 letter identifies the measures that FHWA will take in response to New York’s refusal to end the tolling, including removing authority for advance construction and pausing all environmental approvals for projects in Manhattan other than safety projects, as well as pausing approvals of Statewide Transportation Improvement Program modifications requested by NY Metropolitan Transportation Council (NYMTC). In his letter, Sec. Duffy also doubles down on the assertion that “FHWA lacked statutory authority to approve the New York City Cordon pricing project as a ‘value pricing project’” despite the clear analysis to the contrary that was evidently received by his staff ten days prior.  

Sec. Duffy also reiterates concern about the lack of a toll-free option and the use of revenues for transit, but rather than calling them legally impermissible as he had in his Feb 19th letter, he objects to these aspects of the program “as a matter of policy.” This reframing is aligned with the DOJ recommendations in their April 11 memo, which argues that USDOT could use the OMB procedures to terminate the agreement “not as a matter of statutory construction, but rather as a matter of changed agency priorities.” The memo proposes that if “FHWA decides to issue letters concerning MTA’s non-compliance after the April 20th deadline, it may include in those letters a formal ‘notice of termination’”. Accordingly, the USDOT’s April 21st letter to NY states in its conclusion that “to the extent the regulations at 2 CFR Part 200 apply, this letter serves as the written notice of termination.” 

However, there are reasons why this approach under OMB regulations may also prove challenging. DOJ’s memo notes one such reason “which may make this argument more difficult,” which is that the congestion pricing agreement with NY does not include any termination provisions. The OMB regulations at 2 CFR 200.340(b) state that a cooperative agreement “must clearly and unambiguously specify all termination provisions in the terms and conditions of the Federal award.” The OMB conditions for termination also require either the consent of the recipient or the failure to comply with the terms and conditions of the Federal award, or be pursued “pursuant to the terms and conditions” for termination included in the agreement, which—as stated—don’t exist. The DOJ memo notes that the litigants have acknowledged that termination would be allowed under OMB procedures, however their memo fails to note that NY  has already argued in their intervenor complaint that “none of the conditions in which termination is permitted under the Uniform Guidance are present here.” Changing agency policies and priorities do not appear to be grounds for termination under the OMB regulations. 

Perhaps for this reason, the DOJ memo also queries USDOT staff on “if there are other DOT or FHWA regulations that pertain to termination of cooperative agreements.” DOJ notes that USDOT does have standard terms for federal awards which permit termination “if the award no longer effectuates the program goals or agency priorities” and notes that “if FHWA or DOT have similar provisions for contract awards, even in sub-regulatory guidance or policy, it would strengthen this argument.” Notably, USDOT’s letter of April 21 does not provide any additional regulations or guidance that would strengthen their argument for termination, and points only to the OMB regulations.  

As a defense of last resort, DOJ suggests that “even if FHWA cannot point to explicit termination provisions… it is plain that the ‘pilot project’ agreement can be terminated at some point by FHWA.” This argument is one that Sec. Duffy leans into, noting that “it simply cannot be that this ‘pilot program’ must be permitted to go on forever” and that “the right to termination is inherent.” (It’s worth noting that the agreement for the congestion pricing program does not include any end date, and assumes an extended duration, referring for example to a performance reporting  period of “at least ten years or to the end of the life of the Project, whichever is sooner.”) 

In response to the USDOT’s declared intent to “implement appropriate initial compliance measures beginning on or after May 28, 2025,” the lawyer for the litigants submitted a letter to the docket  in which they noted a likely intent to request a preliminary injunction preventing the threatened enforcement measures and also reiterated their intention not to halt their congestion pricing program “absent a court order, notwithstanding the threats in the April 21 Letter.” 

Following the accidental publication of a document subject to attorney-client privilege, they requested that the judge seal the defendant’s letter and that the litigants not download or read the letter. The judge agreed to seal it temporarily while weighing whether the publication on the docket and republication by the media undermines any basis for sealing, and whether the defendant waived their privilege through their inadvertent publication. In the meantime, USDOT responded on X by lambasting the Southern District of New York attorneys’ malpractice and reiterating their claim that NY’s congestion is “unprecedented and illegal.” Various media outlets have since reported that the attorneys named in the letter have been removed from the case and the litigation will be handled by attorneys in DOJ headquarters. 

As a final note of their memo, the DOJ attorneys remind USDOT that “it should follow all applicable notice and hearing provisions” required to terminate the cooperative agreement under the OMB regulations. Specifically under that regulation, the agency must provide an opportunity to object and challenge the termination, which Secretary Duffy does in his April 21 letter, stating that he is providing “a fair opportunity to contest the termination”. Regulations further require the agency to comply with any requirements for hearings, appeals, or other proceedings to which NY would be entitled. Finally, DOJ’s memo suggests that USDOT should “evaluate whether a new NEPA analysis is required to assess the environmental impacts of terminating” the program. Unsurprisingly, the Secretary’s letter does not suggest that any such review will be proposed but failure to do so could provide additional grounds for litigation.