High Court Mixed on Puerto Rico Bankruptcy Case
SAN JUAN – The Commonwealth of Puerto Rico appeared to get mixed reviews on its arguments in favor of the constitutionality of the Debt Enforcement and Recovery Act.
While liberal justices on Tuesday signaled support for Puerto Rico, Chief Justice John Roberts’ comments appeared to show he was not convinced.
Puerto Rico is defending the legality of a law that could let the U.S. territory restructure the debt of some of its public corporations.
The 2014 law was invalidated by the local federal court and the appeals court, which contended that it conflicts with federal bankruptcy law. The island faces a $70 billion debt and may go into insolvency as early as next month.
Seven justices heard the arguments in the case. Justice Antonin Scalia died in February and has not yet been replaced. Justice Samuel Alito recused himself.
In 1984, Congress took Puerto Rico out of the U.S. bankruptcy law, but the federal bankruptcy also says no state can pass local debt-restructuring laws, and in one provision Puerto Rico is defined as a state.
“Why would Congress put Puerto Rico in this never-never land?” liberal Justice Ruth Bader Ginsburg asked in what appeared as a show of of support.
Another justice who showed support was Sonia Sotomayor.
Justice Elena Kagan, one of the liberals of the court, said before the oral argument that she favored the creditors’ position, but after the arguments said she found the territory’s arguments to be equally compelling.
“Both of you have stories…. It’s just not clear which one is right,” Kagan said.
But Roberts reportedly said he was not sure the territory’s argument “carries much weight.”
The question before the Supreme Court was whether the island should be allowed to restructure certain debts under a court-supervised regime similar to Chapter 9 bankruptcy laws. Opponents of the Recovery Act said the legislation was much more detrimental to creditors than the bankruptcy law.
Popular Democratic Party Rep. Luis Vega Ramos said the hearings show that the position of the hedge funds to prevent Puerto Rico from accessing bankruptcy protections is unsustainable. Vega Ramos said it is certain the government will run out of money on May 1. In that regard, he supported Popular Democratic Party gubernatorial candidate David Bernier’s call for a debt moratorium. “If Congress does not act, we have to act,” he said.
Resident Commissioner Pedro Pierluisi issued a statement after attending the court’s oral argument, saying, “There is no way to predict whether the seven Justices that heard today’s case will affirm or reverse the July 2015 decision of the U.S. Court of Appeals for the First Circuit,” adding that “even if the Court does reverse the First Circuit’s decision, that does not mean that the Recovery Act can be immediately utilized, because creditors have also challenged the law on the grounds that it violates the Contracts Clause and the Takings Clause of the Constitution.
“Therefore, it continues to be my view that the most responsible course of action is not to wait for the Court to rule, but rather for Congress to swiftly enact legislation that, on the one hand, authorizes Puerto Rico to restructure a meaningful portion of its debt and, on the other hand, establishes a temporary and independent board that enables the Puerto Rico government to engage in more disciplined fiscal policymaking, to publish transparent and timely financial information, and to regain access to the credit markets on reasonable terms. The board can also play a role in the restructuring process, working to mediate consensual agreements between debt-issuing entities and their creditors and serving as a gatekeeper before any debt-issuing entity can ask a federal judge to make a restructuring agreement binding on all creditors.”
The Supreme Court Building in Washington. (AP Photo/Carolyn Kaster)