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Court gives Trump, Senate 90 days to validate Puerto Rico fiscal board

By on February 15, 2019

SAN JUAN – The U.S. Court of Appeals for the First Circuit held Friday that members of Puerto Rico’s Financial Oversight and Management Board were not appointed according to the U.S. Constitution’s appointments clause, which calls for the U.S. president to seek Senate advice and consent to confirm an official.

Judge Juan R. Torruella said in his opinion that fiscal board members must be selected in a manner consistent with the clause. The ruling was made in an appeal brought by Aurelius Investment LLC, Assured Guaranty Corp. and the Irrigation & Electrical Workers Union (Utier by its Spanish acronym) against the constitutionality of the board.

The Boston court affirmed the district court’s ruling against Aurelius and Utier, rejecting their motions to dismiss the board’s bankruptcy-like petitions under Title III of the Puerto Rico Oversight, Management and Economic Stability Act (Promesa) and ratified all of the board’s past actions.

The fiscal board can remain for 90 days with their authority unchallenged while the U.S. president and the Senate either validate or reconstitute the board according to the appointments clause. The current board’s appointments expire in September.

Under Promesa, the members of the board were chosen by former President Obama from lists provided by congressional leaders. The governor of Puerto Rico sits on the board as a nonvoting ex officio member.

Promesa stipulates that the president select members of the “territorial control board” from lists supplied by the speaker of the House (two appointees from separate lists); the Senate majority leader (two appointees); the Senate minority leader (one appointee); the House minority leader (one appointee) and one appointee from his own list.

“The decision of the First Circuit Court of Appeals, declaring illegal the way in which the members of the Fiscal Control Board were appointed, leaves us in the same state of colonial subjugation. That’s why we were against its approval. Today the court changes the composition of the board but not its power over the island, a further portrait of the colonial absurdity,” Resident Commissioner Jenniffer González said in a statement. “It is evident that Puerto Rico does not need a board, it needs its two senators and 5 representatives with voice and vote so that the economic model of equality can prosper.”

Judge Torruella said it was possible to separate the issue of the appointments of the board members from other clauses contained in Promesa because the law has a severability clause that states that any section deemed invalid will not invalidate the rest of the law.

In ruling that the board members should have been appointed according to the Appointments Clause, Torruella said the members meet the so-called Edmond and Morrison tests because they are answerable to and removable only by the president and are not directed or supervised by others who were appointed by the president with Senate confirmation.

Board members also have vast powers over the territory’s economy and its more than 3 million people, overpowering even the commonwealth’s own elected officials, the judge said.

Torruella, nonetheless, opposed dismissing the Title III petitions and cast a specter of invalidity over all of the board’s actions until the present day by applying the “de facto officer doctrine” that confers validity upon acts performed by persons acting under the color of official title.”

“Here, the Board Members were acting with the color of authority — namely, PROMESA — when, as an entity, they decided to file the Title III petitions on the Commonwealth’s behalf, a power squarely within their lawful toolkit,” the judge said.

Awarding to appellants the full extent of their requested relief will have “negative consequences for the many, if not thousands, of innocent third parties who have relied on the Board’s actions until now,” Torruella said, adding it would throw back the board’s years of work because it would cancel out any progress made toward Promesa’s aim of helping Puerto Rico achieve fiscal responsibility.

“Our ruling, as such, does not eliminate any otherwise valid actions of the Board prior to the issuance of our mandate in this case,” Torruella said.

“In sum, we hold that the Board Members (other than the ex officio Member) must be, and were not, appointed in compliance with the Appointments Clause. Accordingly, the district court’s conclusion to the contrary is reversed. We direct the district court to enter a declaratory judgment to the effect that PROMESA’s protocol for the appointment of Board Members is unconstitutional and must be severed. We affirm, however, the district court’s denial of appellants’ motions to dismiss the Title III proceedings. Each party shall bear its own costs.

“So ordered,” the judges’ conclusion reads.

Aurelius hedge fund: Puerto Rico fiscal board is unconstitutional

Assured challenges constitutionality of Puerto Rico fiscal board appointments

Judge says Puerto Rico fiscal board is territorial entity and not subject to Appointments Clause

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