Thursday, November 23, 2017

US government to defend Promesa’s constitutionality

By on November 6, 2017

SAN JUAN — On Monday, the U.S. Department of Justice notified in a court filing that it will defend the validity of the Puerto Rico Oversight, Management & Economic Stability Act (Promesa) as part of the commonwealth’s bankruptcy cases under Title III of the 16-month-old federal law.

“The United States will file its memorandum of law in support of Promesa’s constitutionality on or before December 6, 2017,” reads the motion submitted to Judge Laura Taylor Swain, who oversees Title III proceedings.

The action by the federal government is in response to lawsuits filed in early August by Aurelius—a creditor group that holds Puerto Rico general obligation bonds (GOs)—and the Irrigation & Electrical Workers Union (Utier by its Spanish acronym), which is the lead union for the island’s Electric Power Authority (Prepa).

U.S. gov’t mulls whether to defend Promesa’s constitutionality

Both are questioning the constitutional validity of appointments to the island’s seven-member financial control board, under the Constitution’s appointments clause, which requires the Senate’s confirmation. Under Promesa, the members of the board are appointed by the U.S. president, six of them picked from lists of candidates presented by the majority and minority delegations of the House and Senate.

By seeking to declare the fiscal board as unconstitutional, Aurelius and Utier seek to void every action taken by the entity since it was established.

A hearing over the actions filed by Aurelius and Utier is expected to take place Jan. 10 in New York.

The U.S. government initially had until Oct. 6 to notify the court whether it would defend Promesa, but on Oct. 4, Judge Swain extended the deadline until Nov. 6.

Since the filing of the Aurelius and Utier actions, the commonwealth government, the Unsecured Creditors Committee, the Retirees Committee and holders of Sales Tax Financing Corp. (Cofina) senior bonds have opposed their move to dismiss the commonwealth’s Title III case on constitutional grounds.

Puerto Rico hit with 2 lawsuits challenging board’s power 

They argue that contrary to what Aurelius and Utier portray, the financial control board isn’t a federal entity, as it resides within the territorial government framework, thus it is not subject to the appointments clause as members of the board aren’t officials of the U.S. government.

“The Appointments Clause doesn’t limit Congress’s plenary power to fashion territorial offices,” such as that of the fiscal board, the Puerto Rico government argues.

For its part, the Ad Hoc Group of GO Bondholders recently filed a motion in support of the Aurelius’ action.

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