Today, the US First Circuit Court of Appeals in Boston will have a new opportunity to pass judgment on the Insular Cases doctrine, when considering the arguments of the of Electric and Irrigation Industry Workers Union (Utier, Spanish acrnoym), which alleges that this jurisprudence gave way to an unconstitutional law that has affected Puerto Ricans for over two years: Promesa.
Today, Utier and several investment funds that hold General Obligation (GO) bonds, headed by Aurelius Investment, LLC and the municipal insurer Assured Guaranty, will try to convince the panel chaired by Judge Juan R. Torruella - and also judges O. Rogeriee Thompson and William J. Kayatta- that Congress legislated in violation of the Constitution of the United States. This, when approving the federal law that enabled Puerto Rico the bankruptcy remedy and, in turn, created a mechanism to appoint the members of the Oversight Board that is contrary to the Appointments Clause of the Constitution.
Broadly speaking, Aurelius and Assured seek to defeat Promesa because, from they believe, the actions of the Board have been contrary to the federal law.
In particular, bondholders have argued that the Board has not respected their rights as creditors of the Puerto Rican government and that all of the Oversight Board’s prior acts are void and its members are unconstitutionally holding office since they were not appointed as per the Appointments Clause that requires calls for consent of the Senate.
The Board and the administration of Ricardo Rosselló Nevares, as well as the government of the United States, oppose to these arguments.
A human rights issue
In contrast, and although the court has recognized that cause in monetary terms, Utier, according to its lawyer - Rolando Emmanuelli - believes that Promesa constitutes an affront to the human rights of US citizens living on the island. This for perpetuating the "unequal and immoral” treatment “based only on racial and discriminatory considerations" that were established against Puerto Rico and the other territories since 1901, with Insular Cases.
"Promesa is not the only way out. We had Chapter 9 (of the Bankruptcy Code) and they took it from us. Any law to restructure the debt could have been developed without a fiscal oversight board," said Emmanuelli, about the Insular Cases.
The Insular Cases doctrine states that the territories belong but are not part of the United States. Therefore, only some of the fundamental rights recognized in the Constitution of the United States apply to the territories.
To questions from El Nuevo Día about a possible flood of lawsuits against Puerto Rico if the Appeals Court concludes that PROMESA is unconstitutional, Emmanuelli explained that such a ruling would set the grounds for Congress to amend the statute and give a new opportunity to rethink how to address the island´s fiscal crisis.
In addition to Utier and Aurelius and Assured, the Popular Democratic Party (PPD) legislative minority- which filed a friend of the court or “amicus curiae” motion in the case - will have its turn to present arguments.
Utier's claim to the Appeals Court arises after, Judge Laura Taylor Swain dismissed its lawsuit under Title III cases in August.
For Utier, although Promesa describes the Board with "the label" of territorial entity of Puerto Rico, it is a federal entity. This, because among other things, the members of the Board can make decisions "at their discretion" without being judged by a court and the agency is the only one authorized to renegotiate the debt of Puerto Rico, which impacts the rights of creditors outside the island and even internationally, and affects the "flow of capital between possessions of the United States and the rest of the United States."
Arguments regarding the "federal" identity of the Board before the First Circuit Court of Appeals take place after the Federal Claims Court ruling, which in August concluded that the Board is part of the federal government for Constitutional purposes and its members are "federal civil officials."
In contrast, for the Board, the Fiscal Agency and Financial Advisory Authority (FAFAA) and the government of the United States the Appointments Clause of the Constitution does not apply in the case of the Board because it is an entity that operates in a territory and territories are not sovereign states.
For the Board and for FAFAA, accepting Aurelius' position would threaten the constitutionality of Puerto Rico's long-established system of self-government, such as that of other territories and the District of Columbia.
In similar terms, the United States government defended this position. In written statements, Assistant Attorney General Joseph H. Hunt and Deputy Assistant Attorney General Thomas G. Ward reminded the Appeals Court that Promesa was established to address the humanitarian crisis in Puerto Rico.
For the federal Justice Department, the Appointments Clause has never restricted the authority of Congress to establish territorial governments, adding that the Supreme Court has clearly established that the standard separation of powers does not apply to the territories.