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Puerto Rico, the Board, and the Appointments Clause

posted by Stephen Lubben

As many will have seen in the press, the First Circuit has said that PROMESA's Oversight Board was appointed in violation of the Appointments Clause. In short, while PROMESA allowed President Obama to appoint members of the Board without Senate confirmation, the Court says such confirmation was required.

The Board has decided to appeal to the Supreme Court, and the First Circuit's decision is on hold for 90 days. But what happens in 90 days?

In short, chaos. The title III "bankruptcy" cases for Puerto Rico and its affiliates are all run by the Board. Without the Board, the cases would seem to grind to a halt. If they remain that way for an extended period of time – and who really thinks this Congress and this President are going to get their act together in 90 days? – the District Court may have little choice but to dismiss the cases.

The appeal was brought by old-friend Aurelius. They presumably assume that they will get better treatment outside of title III.

But is that right? Maybe Congress will decide to enact a streamlined insolvency process for Puerto Rico, one that "cuts to the chase." After all, even the current President (hardly a friend to the Commonwealth) once suggested it might be necessary to simply cancel Puerto Rico's debt

Congress has a lot of power under the Bankruptcy Clause – and perhaps even more under the Territories Clause. Be careful what you wish for, and all that.


The "chaos" meme was also used in the spring of 2016 to force Congress to pass Promesa. Note that Jack Lew ran the US Treasury then and Antonio Weiss flogged the members of Congress to "do something or the island would collapse".

It's all nonsense. Nothing collapsed and the PR govt has accumulated $12 billion in cash while the Promesa stay is in place. Spending has not decreased and 100% of pensions have been paid and no debt service has been paid for three years (excepting recent Cofina payments in the last month). PR govt issues 1,000 of contracts for publicity in the meantime.

The Oversight Board earned the Aurelius, Assured and Utier (electric utility public union) lawsuits because they didnt follow Promesa and have basically acted like an endlessly funded litigation machine.

This is not what Congress intended in Promesa. The statute and Congressional record are rife with instructions that the OBoard is supposed to work consensually with creditors after completing audited financials (now +975 days late) and identifying essential services. Meanwhile CBS ran a story yesterday where a woman in Nevada has waited ***8 months*** to retrieve her deceased father's corpse from the PR govt morgue. This is not an isolated incident and can anyone think of something more **essential** for a govt than to quickly process the dead? Point being OBoard has also failed at statutory requirement to identify and fund "essential services".


The OBoard could easily ask major creditors to sign forebearance agreements and actually "negotiate in good faith" as Promesa requires. That is the fastest and easist way to quiet any "chaos" that might arise.

NY Law Journal on Aurelius


A streamlined insolvency process that "cuts to the chase" you say? Hmmm. Why look! There was one introduced last Congress and it was sponsored by no less than four Democratic 2020 presidential candidates: Warren, Sanders, Gillibrand, and Harris. I suppose that makes it less likely that the President will ever agree to the legislation, but it also means that it might get some attention.


They Board will lose in Supreme Court. Majority now, especially Chief Justice is a jealous guardian of constitutional lines. Following Justices, Rehnquist and Scalia line of thinking, taking Appointment Clause seriously [more than "etiquette or protocol", Ryder case], the Board is waiting to be wiped out.

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