Justices Tackle Bid to Invalidate Puerto Rican Oversight Board

WASHINGTON (CN) — In June of 2016, in response to one of the worst financial crises in Puerto Rican history, President Barack Obama tapped seven people for an oversight board tasked with consolidating debt and pension liabilities that had ballooned to $120 billion.

A demonstrator with a Puerto Rican flag reacts during clashes in San Juan, Puerto Rico, on July 17, 2019. (AP Photo/Dennis M. Rivera Pichardo)

Federal law requires Senate confirmation for U.S. officers who are presidentially appointed, but for the Financial Oversight & Management Board, Senate consent was never sought.

On Tuesday, the U.S. Supreme Court confronted the question of whether the appointees are more accurately thought of as officers of Puerto Rico, skirting the requirements of the Appointments Clause.

Arguing for the board this morning, Munger, Tolles & Olson attorney Donald Verrilli called it crucial to look at the motivation of Congress when it created the board. Verrilli said Congress made the board on behalf of Puerto Rico and not the United States, making clear its power was meant to be territorial.

Justice Sonya Sotomayor asked Verrilli how the board’s role differed from that of a U.S. attorney, who enforces federal law in Puerto Rico without jurisdiction and is a United States officer. Verrilli said the board does not implement nationwide application, only rules specific to the territory.

“I think the key difference between a U.S. attorney and the board is that the U.S. attorney is executing laws of nationwide application,” Verrilli said. “I do think it’s different in a fundamental way, your honor. It is territory specific. It applies only to the territory of Puerto Rico.”

Sotomayor pressed the Department of Justice meanwhile to reconcile its position that there is federal power over territories while dispensing of that federal control here. The government cannot “have it both ways,” she said.

Principal Deputy U.S. Solicitor General Jeffrey Wall emphasized that the board should be deemed acceptable under Article IV of the U.S. Constitution, as it is an exclusively local entity, providing another local, territorial form of government.

“I think my point was just that, where Congress is acting with respect to something federal, it’s exercising national legislative power and it’s creating national executive offices. That’s not what it’s doing here,” Wall said. “It put a board inside the Puerto Rican government. Now yes, it wanted it independent from other Puerto Rican actors that it thought had played a role in this debt crisis. But that’s a very different thing from putting it in the federal government and exercising federal power.”

Leading the bid to invalidate the board is Aurelius Investment LLC, which holds nearly $500 million in Puerto Rican bonds. The fund run by Republican donor Mark Brodsky is no stranger to buying the distressed debt of poor nations for pennies on the dollar and then suing for the full amount. During a years-long dispute with the Argentinian government, then-President Cristina Fernandez de Kirchner pilloried such entities as “vultures” pecking apart at Argentina’s struggling economy.

Gibson Dunn & Crutcher attorney Theodore Olson argued on Aurelius Investment’s behalf Tuesday that the financial oversight board must be considered a federal entity, saying its members obey the direction of the U.S. president and creates reports over which the federal government can exercise oversight.

Olson pushed back when Justice Brent Kavanaugh asked if his argument would be invalidated if justices conclude the powers of the board are local.

“I think that it can’t conceivably be thought of as primarily local given the scope of the authority, but I’m imagining a hypothetical situation where you might have a small unit of government, a subdivision of Puerto Rico that was purely a municipal problem, yes, that could not invoke the Appointments Clause,” Olson said.

Jessica Mendez-Colberg, who argued on behalf of a Puerto Rican workers union, talked about whether Puerto Rican citizens and their local governments should have the same constitutional rights as other American citizens.

Chief Justice John Roberts said he felt the issue before the court had to deal with the Appointments Clause and didn’t see any other party relying on insular cases in any way.

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