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PROMESA heads to the U.S. Supreme Court?

posted by Melissa Jacoby

In February 2019, the United States Court of Appeals for First Circuit held that the selection process of the Oversight Board in PROMESA, the rather bipartisan Puerto Rico debt restructuring law (and more), is unconstitutional. The reason: its members were not selected with advice and consent of the Senate, in violation of the Appointments Clause. In other words, it held that the Appointments Clause applies even when Congress created the positions through plenary power over territories, and that Oversight Board members constitute "Officers of the United States." The First Circuit also used the de facto officer doctrine to avoid a complete do-over; it did not dismiss the Title III petition of Puerto Rico (parallel to the filing of a bankruptcy petition), it did not invalidate the already-taken acts of the Board, and the Board could continue to act, at least until the court's stay runs out (originally 90 days, then extended to July 15). 

Given that last remedial twist, even the prevailing parties found reasons to dislike the First Circuit's ruling. Like the Jevic case, the PROMESA dispute invites unlikely bedfellows. Joining Aurelius Capital Management in challenging the First Circuit's ruling on the remedy is the labor union UTIER. They likely have little in common other than wanting a new Oversight Board, or, even better, no Oversight Board. A full bouquet of certiorari petitions followed, including one by the United States/Solicitor General predicting dire consequences if the Appointment Clause ruling stands. On June 20, 2019, the Supreme Court consolidated and granted certiorari on the various petitions. Argument is to take place in October.

If the Supreme Court actually hears and decides this case (e.g., if it does not become moot in the interim), its focus inevitably will be broader than PROMESA and Puerto Rico's financial crisis. According to the United States in particular, the First Circuit's Appointments Clause ruling not only has "imperiled Puerto Rico's recovery from the worst fiscal crisis in its history," but it also "cast substantial doubt on the constitutionality of territorial self-governance." In other words, the Appointments Clause reasoning and holding may have significant effects on other territorial officials in Puerto Rico and elsewhere. Also to keep in mind is that the Supreme Court expressed interest in more rigorous enforcement of the Appointments Clause in the administrative agency context 2018 in Lucia. As for the remedy for an Appointments Clause violation, any analysis of the de facto officer doctrine is likely to be shaped by forces far removed from the debt restructuring dispute that incited it, given the separation of powers and individual liberty issues more broadly at stake.

I am not sure how much it will matter that selection of the Oversight Board was remarkably collaborative - between Congress and the Obama Administration as well as between political parties and between the House and Senate. President Obama selected six of the members from lists provided by Congress.  This of course does not literally satisfy the Appointments Clause (because they were operating on the belief that the Appointments Clause did not apply to the Oversight Board). But it is another reminder that it is not really the selection process that offended the objectors. As stated above, they want a new Board, or, even better, no Board.

The President of the United States has renominated the seven existing members of the Oversight Board, setting a process in motion to cure the main constitutional defect. One suspects that those who brought this judicial challenge are also lobbying hard to deter Senate confirmation. Because, you know the refrain now, they want a new Board, or, even better, no Board.






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