Supreme Court Upholds Appointment of Board Overseeing Puerto Rico’s Debt Restructuring

June 1, 2020 Updated: June 1, 2020

The Supreme Court on June 1 unanimously upheld the constitutionality of an oversight board established to help Puerto Rico out of a financial crisis and charged with restructuring its billions of dollars of debt.

The top court held that members of the government board—the Financial Oversight and Management Board for Puerto Rico—were properly appointed because they weren’t federal officers of the United States who needed to be confirmed by the Senate. The ruling reverses a lower court’s decision that threatened to disrupt the island’s recovery process, which includes the panel’s restructuring of about $120 billion of its debt.

The oversight board was created by Congress in 2016 under the Puerto Rico Oversight, Management, and Economic Stability Act. The law allowed the president to appoint its seven members without Senate confirmation, provided that six of those members were selected from lists provided by congressional leadership.

In 2016, President Barack Obama appointed all seven voting members of the board, six of whom were selected from lists recommended by congressional leadership.

The challengers, a number of Puerto Rico creditors, argued that the appointments were unlawful because the members hadn’t been confirmed by the Senate. Challengers include Aurelius Investment, LLC, a hedge fund that holds Puerto Rico bonds, and Unión de Trabajadores de la Industria Eléctrica y Riego, Inc., a labor group that represents workers at Puerto Rico’s government-owned electricity utility.

They argued that the board exercises significant federal authority and that Congress had vested the board powers that go beyond the ones exercised by territorial officials (pdf).

Meanwhile, the board argued (pdf) that the U.S. Constitution’s appointment clause didn’t apply to territorial governments. It also claimed that the appeals court’s ruling siding with the challengers calls into question the “constitutionality of territorial self-governance that Congress has authorized over the past seven decades.”

The Supreme Court justices held that the appointment clause didn’t dictate how the board members were to be appointed, because their powers and duties were primarily local in nature, meaning that they weren’t “Officers of the United States” as defined under the clause.

Justice Stephen Breyer wrote in the opinion (pdf), “The Board’s statutory responsibilities consist of primarily local duties, namely, representing Puerto Rico in bankruptcy proceedings and supervising aspects of Puerto Rico’s fiscal and budgetary policies.”

“We therefore find that the Board members are not ‘Officers of the United States.'”

Justices Clarence Thomas and Sonia Sotomayor both agreed with the June 1 ruling and wrote separate concurring opinions.

Reuters contributed to this report.

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