Tuesday, April 24, 2018

Aurelius hedge fund: Puerto Rico fiscal board is unconstitutional

By on January 8, 2018

SAN JUAN – U.S. District Court Judge Laura Taylor Swain is slated to hear arguments Wednesday about a lawsuit filed by Aurelius Capital Management LP in August to have Puerto Rico’s bankruptcy case thrown out because the U.S. Senate did not confirm the members of the Financial Oversight and Management Board for Puerto Rico.

The suit is important because the hedge fund’s objection is virtually a constitutional challenge to the Promesa federal law, which was enacted in 2016 to create a bankruptcy-like process for the island to deal with its $69 billion debt.

Judge Swain sets deadlines on Aurelius, Utier actions

Aurelius is refuting the board’s contention that Congress is exempted from the appointments clause—and the Constitution’s other structural protections—when it legislates with respect to the U.S. territories. The clause states that all federal government officials must be appointed by the president and then confirmed by the Senate.

“The Board’s ‘reply’ to the United States embraces the same dangerous brand of congressional supremacy that animated the infamous and racist Insular Cases on which the Board astoundingly relies,” Aurelius wrote in a document on the case’s dismissal. “By its plain terms the Appointments Clause controls the appointment of ‘all’ officers of the United States whose offices are ‘established by Law,’” the hedge fund said.

The Irrigation & Electrical Workers Union (Utier by its Spanish acronym), which groups Puerto Rico’s electric power workers, also filed a similar suit to undo the board’s decision to place the Puerto Rico Electric Power Authority (Prepa) under bankruptcy.

The seven members of the board were never confirmed by the U.S. Senate. Instead, former President Barack Obama chose the members from lists of candidates selected by congressional leaders.

The board was empowered by Promesa to put Puerto Rico agencies into bankruptcy allowing a judge to cut the debt, resulting in deep losses for creditors.

Aurelius has hired renowned lawyer Ted Olson, who helped convince the U.S. Supreme Court to stop Puerto Rico from writing its own bankruptcy laws. Aurelius was one of the firms that sued to force Argentina to pay its debt.

Pro-statehood lawyer Gregorio Igartúa believes the suit is very much related to Puerto Rico’s status. In a “friend of the court” motion he filed, Igartúa objected the board’s arguments that Puerto Rico is an unincorporated territory subject to the plenary powers of Congress.

He argued that the board has ignored laws enacted by Congress and other actions that have transformed the legal relationship Puerto Rico has with the United States to a “de facto incorporated territory in transit to statehood.” For instance, he said federal laws are not only applicable to Puerto Rico but also that federal agencies treat Puerto Rico as a state and that most federal internal revenue code laws apply to the island.

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