The Board said in court that they are in conversations with creditors to reach agreements under mediation. (semisquare-x3)
The Board said in court that they are in conversations with creditors to reach agreements under mediation. (GFR Media)

Boston – Yesterday, judges of the US First Circuit Court of Appeals expressed concerns about the consequences of deciding that PROMESA violates the Appointments Clause of the Constitution may have on the progress of the Puerto Rico´s debt-restructuring process.

The three judges - led by Puerto Rican Juan R. Torruella - also questioned the persistent theory of the United States government that deciding that the seven members of the Oversight Board are federal officials with significant authority, and that therefore must be appointed directly by the President with the consent of the US Senate, then the structure of the elected government of the island could also be questioned.

Investment funds headed by Aurelius, the municipal insurer Assured Guaranty and the Electric and Irrigation Industry Workers Union (Utier, Spanish acronym), in independent cases that were consolidated and that appealed a territorial bankruptcy decision made by Judge Laura Taylor Swain, agreed in their claims that PROMESA violates the constitutional power of the president to make appointments with the advice and consent of the Senate.

They argue that under PROMESA, the President was practically forced to choose six of the seven appointments of the Board - which controls the finances of the elected government of Puerto Rico - from lists submitted by the four Congress main leaders.

In her ruling - which dismissed Aurelius's lawsuit - Judge Swain stated that the plenary powers of Congress over Puerto Rico have enacted the creation of the Board, declare it a territorial entity and not complying with the Appointments Clause.

“Turning to Puerto Rico, Congress has long exercised its Article IV plenary power to structure and define governmental entities for the island,” said Swain on July 13.

Theodore Olson, former Solicitor General under the George W. Bush administration and attorney for Aurelius and Assured Guaranty, sought to convince the Appeals panel that, since the seven members of the Board have a Congress-created position and exercise significant power under a federal law, they are federal officials.

Rolando Emmanuelli, Utier lawyer, agreed with that approach. Like Aurelius, the union alleges that the Board is a federal entity, that its members are federal officials subject to federal oversight and that they base their power on the US law, not on a Puerto Rican statute.

Although the President of the United States has the authority to appoint people to positions -within the federal government- without approval of the Senate, Utier maintained that even if the members were in this group of officials, the constitutional order –which states that the President can unilaterally make appointments- is violated.

But Emmanuelli based his claim on the anachronism of the Insular Cases doctrine, that dates back to the slavery period and treats Puerto Rico as United States property.

Judge Torruella, who has become a critic of the Insular Cases, warned Emmanuelli that the argument would not be echoed in this stage, since the First Circuit Court of Appeals has to follow that jurisprudence established by the U.S. Supreme Court.

"He destroyed my argument," acknowledged Emmanuelli, but made it clear that it is a point to be raised if the case comes before the US Supreme Court.

Possible consequences

Judges Torruella and O. Rogerrie Thompson asked what about the future of the Board´s decisions if appointments are ruled unconstitutional. Thompson asked how would the members work if appointments violated the Constitution.

Torruella asked if there was a precedent in the revocation of federal appointment -due to unconstitutional appointment- but that could continue temporarily.

The Board has a fiscal plan for the government of Puerto Rico and has proposed the restructuring of nearly $ 50 billion of the island's public debt, which is around $ 72 billion.

Utier demands the Board´s decisions to be declared void.

Olson proposed that a favorable decision allow the current members of the Board - even with unconstitutional appointments - to continue holding office, subject to a "new board" being able to review the decisions.

The Board said in court that they are in conversations with creditors to reach agreements under mediation.

Jeffrey Wall, Principal Deputy Solicitor General of the United States and Donald Verrilli, the Board´s legal advisor, insisted that since the Board was created under the territorial clause of the U.S. Constitution - which grants plenary powers to Congress over the island - it was not a requirement that the President directly appoint the seven members of the entity subject to the consent of the Senate.

However, Wall argued that, according to the creditors argument, it could be questioned whether the governments of the territories would also require consent of the federal Senate.

Torruella answered that governors and lawmakers in Puerto Rico “are not appointed”. “Don´t you see a difference?” asked the judge on several ocassions. William Kayatta made similar questions.

Meanwhile, Wall pictured a scenario where the structure of the territorial governments could be endangered.

José Alfredo Hernández Mayoral, on behalf of the Popular Democratic Party (PPD), and Jorge Martínez Luciano, legal advisor of a group of 33 PPD elected officials, headed by the House minority spokesman, Rafael "Tatito" Hernández Montañez, also argued in court as “amicus curiae”.

Hernández Mayoral asked the court to focus on determining whether the members of the Board are federal officials or not, and to avoid the decision getting into the "complex" relationship between Puerto Rico and the mainland.

When Judge Thompson asked him if PROMESA was constitutional, Hernández Mayoral - who told El Nuevo Día that he based his argument on that submitted under the presidency of Héctor Ferrer - noted that the PPD did not take a position and that he could not elaborate on areas not authorized by the client.

Minutes later, Martínez Luciano maintained that the Appointments Clause defines the separation of powers and that it is “the antidote to tyranny."

 After leaving the hearing, both Hernández Montañez and former Governor Aníbal Acevedo Vilá were surprised by Hernández Mayoral arguments.

"Last weekend, the PPD unanimously approved a resolution repudiating the Board and deciding to fight it in court and in Congress," said Hernández Montañez.

Acevedo Vilá said Hernández Mayoral's refusal to take a position on the constitutionality of the Board on behalf of the PPD made him "feel embarrassed".

Acevedo Vilá was there as part of the team of lawyers representing PPD elected officials. In his opinion, the debate reflected that "it is a complicated case". "They are very afraid of what could happen if they declared the Board is unconstitutional, what would happen with the debt and the self-government of the territories," he added.

David Skeel, member of the Board and Jaime El Koury, legal advisor to the federal entity were at the hearing as well as several PPD lawmakers and the president of Utier, Ángel Figueroa Jaramillo.

The appointments of the Board expire in August 2019. By then, the First Circuit Court of Appeals must have made a decision -which is expected early in 2019- and the US Supreme Court might have ordered or denied a review.

Although in different processes, last July, while Judge Swain defended the "territorial" nature of the Board, in the Court of Federal Claims, in Washington D.C., judge Susan Braden refused to dismiss a lawsuit filed by hedge funds considering that the Board is a federal government entity.

In that lawsuit, hedge funds claim that the US government is also responsible for the debt of Puerto Rico.

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