Friday, December 15, 2017

US Government supports Promesa, fiscal board in court filing

By on December 7, 2017

SAN JUAN – In a federal court filing Wednesday evening, the U.S. Government assured that the appointment of the members of the fiscal control board under the federal Promesa law were perfectly valid, contrary to what certain Puerto Rico creditors argue.

Justice Department attorneys asked Judge Laura Taylor Swain to confirm the constitutionality of the law signed in the summer of 2016 and reject two petitions to dismiss bankruptcy cases filed by the board under Title III of Promesa.

“The scheme is not subject to the Appointments Clause because the Oversight Board is a component of the territorial government. Congress enacted PROMESA pursuant to its plenary authority under the Territory Clause of Article IV of the Constitution,” reads the memorandum in support of the fiscal panel’s legality.

(Juan J. Rodríguez/CB)

According to the federal government, the Constitution’s appointments clause does not apply to the appointment of “territorial officers,” and this includes the eight members of the board established by Promesa. It also assures that creditors’ argument that the process of appointing members to the board was in violation of the principle of separation of powers is not valid. Under Article IV, Section 3, Clause 2 of the Constitution, known as the territorial clause, Congress has broad powers to legislate in this fashion over its territories and the District of Columbia, the filing adds.

In a statement sent 40 minutes after Justice’s filing, the executive director of the fiscal board, Natalie Jaresko, welcomed “the legal arguments in support of PROMESA and the Board’s constitutionality.” She added that, at the moment, following the passage of hurricanes Irma and María, the board’s role in the future of Puerto Rico becomes ever more important.

US government to defend Promesa’s constitutionality

The federal government’s action to support the validity of former President Barack Obama’s appointments to the board is in response to two separate claims filed in early August by Aurelius, a group of general obligation (GO) bondholders, and the Irrigation & Electrical Workers Union (Utier). Subsequently, the Ad Hoc Group of GO Bondholders filed a motion in support of the hedge fund’s action.

The creditors argue that the board member appointments are invalid because the Constitution’s appointments clause requires Senate confirmation of federal government officials. Promesa states that board members are appointed by the president of the United States, six of them chosen from lists of candidates presented by the majority and minority delegations of Congress. Only if the president decides to appoint someone who is not on the congressional lists, would Senate confirmation be needed.

The creditors argue that, given that the members’ appointment is invalid, all their actions would be void, including its initiation of debt restructuring proceedings under Title III of Promesa.

The government of Puerto Rico and the federal government both assure that the board is a territorial entity and its members are not federal officials, as the creditors claim.

“A finding that the Appointments Clause applies to territorial officers would not only fly in the face of this historical practice, but also call into question the current governmental structures of the territories and the District of Columbia that have been in place for decades,” the filing states,” the federal government contends in its memorandum.

After receiving the parties’ arguments, Judge Swain, who is in charge of the Puerto Rico bankruptcy proceedings, will hold a hearing on Jan. 10 in New York to address the actions of Aurelius and Utier.

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