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

By on August 16, 2017

SAN JUAN – On or before Oct. 6, the U.S. government will notify federal Judge Laura Taylor Swain if it will defend the constitutionality of the Puerto Rico Oversight, Management & Economic Stability Act, or Promesa, as part of the commonwealth’s bankruptcy process.

On Tuesday, counsel of the federal Department of Justice (DOJ) appeared in Puerto Rico’s bankruptcy cases under Title III of Promesa, in response to a legal action recently filed by Aurelius—a creditor group that questions the constitutional validity of appointments to the island’s financial control board.

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“By seeking to have the oversight board declared unconstitutional, Aurelius seeks to void any action taken by the board since its inception and to end what it characterizes as ‘the largest and most complicated bankruptcy proceeding in the nation’s history,'” the document reads.

It adds that the federal government has the right to intervene in any constitutional claim against any act approved by Congress, and that it has 60 days to do so after the claim is filed. Thus, the DOJ says it has until Oct. 6 to decide whether it will answer Aurelius’ challenge.

If acting U.S. Solicitor General Jeffrey Wall decides that Promesa’s constitutionality should be defended against Aurelius’s claims, the federal government will present a full brief in support of the law within the next 30 days.

Aurelius, which owns more than $470 million in general obligation bonds, filed its action on Aug. 7 alleging that the process established by Promesa for the appointment of board members is unconstitutional since it does not include the Senate’s confirmation, violating the appointment clause and the separation of powers promulgated in the U.S. Constitution.

The New York-based hedge fund known for its role in Argentina’s debt crisis also holds about $2.5 million in Puerto Rico Highways & Transportation Authority bonds.

Under Promesa, the seven 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.

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On Aug. 7, the Irrigation & Electrical Workers Union (Utier by its Spanish acronym) also filed a similar action to that of Aurelius, challenging the validity of the appointments to the board.

However, it was not until Wednesday that the union filed its notice of constitutional challenge to the federal government.

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