Sunday, November 17, 2019

U.S. Supreme Court Holds Oral Arguments on FOMB Appointments

By on October 16, 2019

(Mark Thomas from Pixabay)

Board, U.S.: Promesa Doesn’t Involve U.S. Powers; Utier Says Federal Law Should Apply

Editor’s note: This report first appeared in the Oct. 17 issue of Caribbean Business.

The U.S. Supreme Court listened to oral arguments Tuesday in a lawsuit headed by Aurelius Investment LLC—which had been consolidated with other cases—seeking to declare that the appointments to the federally established Financial Oversight & Management Board under the Puerto Rico Oversight, Management & Economic Stability Act (Promesa) were not made in accordance to the appointments clause of the U.S. Constitution.

Others that joined the lawsuit are bond insurer Assured Guaranty, the Official Committee of Unsecured Creditors and the Irrigation & Electrical Workers Union Inc. (Utier by its Spanish acronym).

Earlier this year, the U.S. First Circuit Court of Appeals declared that the board was not constitutionally formed because, although its members were appointed by President Obama, they were not confirmed by the Senate. The U.S. Court of Appeals for the First Circuit, however, validated the board’s actions under Promesa’s Title III bankruptcy case and gave Congress time to fix its constitutional problem.

In June, President Trump sent the nominations of the seven members to Congress, which had until July 15—the deadline established by the circuit court—to act. Even with Senate confirmation, the board members’ terms expired Aug. 30. Nevertheless, the board members were to continue in their roles until they were replaced with new appointments.

The court listened to arguments on whether the board members were named to the board in accordance to the appointments clause, which requires the president to nominate the board members, who are then confirmed by the Senate. The arguments focused on whether the appointments clause applies to Puerto Rico as an unincorporated territory.

Utier Attorney Rolando Emanuelli told Caribbean Business that the justices had the opportunity to clear up any doubts they may have had after receiving thousands of pages of allegations that were filed in court.

The oral arguments lasted some 80 minutes.

“The position of the board and the United States is in the sense that this law is specific to the territory of Puerto Rico, and doesn’t involve federal powers,” Emanuelli said. “And the position of Utier, obviously, was that the board’s federal powers are ample and so, in that sense, the appointments clause should apply.”

Emanuelli said that although the court does not have a deadline to issue a ruling, it tends to issue rulings in June.

“Since Promesa states that these cases have to be resolved quickly, we might have a ruling by the end of the year or by early next year,” the attorney stressed.

In a copy of the transcript sent to Caribbean Business, fiscal board attorney Donald Verrilli said, “The Constitution’s text, structure and history, and this court’s precedents, all make clear that the proper focus in answering that question is the nature of the authority that the board exercises.”

“It comes down to whether Congress has vested the board with the executive power of the national government or, instead, vested the board with the territorial executive power,” Verrilli said. “The statute that created the board, Promesa, answers that question in a straightforward way. It—it sets up an entity within the territorial government.”

Verrilli further noted that Promesa gives the board only territory-specific authority and instructs the board to pursue only territory-specific objectives.

“The board acts on behalf of Puerto Rico as its representative in judicial proceedings to restructure the territory’s debts,” Verrilli said. “It pursues only Puerto Rico’s interests in those proceedings…. Congress also instructed the board to implement a method for restoring fiscal stability. That, too, is territorial authority. It reaches only Puerto Rico’s budgeting and fiscal planning, and the board must exercise that authority in a manner that protects Puerto Rico’s vital—vital interests.”

In a brief filed with the Supreme Court Oct. 4, Utier stated that the question presented was “whether the appointments clause governs the appointment of members of the Financial Oversight & Management Board for Puerto Rico and whether the de facto officer doctrine allows for unconstitutionally appointed principal officers of the United States to validate their previous actions and also allow them to continue acting, leaving the party that challenges their appointment with an ongoing injury and without an appropriate relief.”

Verrilli said the board is in the “territorial government.”

“It’s been given statutory directives to advance the interests of Puerto Rico, and it’s insulated from federal control; it’s clear that board members are territorial officials,” Verrilli said.

Justice Sonia Sotomayor told Verrilli: “It seems to me that your very argument, that it is independent, is suggesting it can’t belong to the territory and that there is a serious problem that the federal government is creating an entity that no one can control.

“Neither Congress nor the president can remove this entity for anything but cause,” Sotomayor told Verrilli. “Tell me how this differs from a U.S. attorney. A U.S. attorney is an officer of the United States. I think you accept that. A U.S. attorney is enforcing federal law in Puerto Rico, the U.S. attorney of Puerto Rico, just the way Promesa is. And a U.S. attorney doesn’t have jurisdiction outside of Puerto Rico. So, how is the U.S. attorney different?”

Verrilli answered by saying, “The general point, I think it’s important to make clear, we don’t say, contrary to our friends on the other side, that the appointments clause doesn’t apply in Puerto Rico.

“It applies in Puerto Rico just like it applies in a state, in that federal officials, officials who are part of the federal government, have to be appointed in conformity with the appointments clause,” Verrilli said.

The oral arguments took place some three weeks after the board filed its proposed plan of adjustment in U.S. District Court. Fiscal board Chairman José Carrión III said when announcing the plan that it would reduce $35 billion in central government liabilities, or by about 65 percent, and restructure $50 billion in pension obligations.

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