Without success, the city of San Juan, Puerto Rico, attempted to oust the Oversight Board from control over the city’s finances under the Puerto Rico Oversight, Management, and Economic Stability Act, or PROMESA (48 U.S.C. §§ 2161 et. seq.).
In an opinion on December 5, District Judge Laura Taylor Swain found no constitutional or common law infirmities in the Oversight Board’s fiscal control over municipalities. While dismissing two of San Juan’s three claims, she put a third claim on hold until the Supreme Court decides whether the Oversight Board was appointed in contravention of the Appointments Clause of the U.S. Constitution.
After the Supreme Court ruled in June 2016 that Puerto Rico was ineligible for chapter 9 municipal bankruptcy, Congress quickly adopted PROMESA so the island commonwealth could restructure its unsupportable debt. PROMESA created the Oversight Board with power to initiate debt adjustment proceedings under title III of PROMESA.
The Oversight Board commenced debt adjustment proceedings in May 2017 for the commonwealth and 78 of its municipalities in district court in Puerto Rico. As Judge Swain explained in her opinion, PROMESA effectively gives the Oversight Board control over the budgets of the commonwealth and its municipalities.
In May, San Juan filed suit in the PROMESA court, seeking a declaration that PROMESA did not authorize the Oversight Board to commence debt adjustment proceedings for municipalities. The complaint alleged violations of the Constitution and federal common law.
San Juan argued that the initiation of proceedings for all 78 municipalities was an arbitrary and capricious violation of federal common law governing agency determinations. Judge Swain rejected this contention, saying that the city’s “narrow reading of the Oversight Board’s scope of responsibility is inconsistent with the plain language and with the structure of PROMESA.”
San Juan also alleged violation of federal common law by saying there was no explicit, contemporaneous and rational basis for commencing proceedings for Puerto Rico’s municipalities. Judge Swain disagreed, saying that Section 108 of PROMESA precluded San Juan from challenging the Oversight Board’s authority over municipalities.
Alternatively, San Juan argued that PROMESA is unconstitutional because it violates the so-called non-delegation doctrine by giving the Oversight Board power to initiate proceedings “without a rational basis consistent with PROMESA’s purpose.”
Even assuming that the doctrine is applicable to territories, Judge Swain said that the statute passes constitutional muster because it supplies “an intelligible principle to guide the Oversight Board’s exercise of delegated authority in the plain text of PROMESA.”
Judge Swain observed that San Juan’s “unsupportably narrow thesis” would mean that the powers of the Oversight Board would cover only the commonwealth but “not reach fiscal issues of political subdivisions and other instrumentalities.”
For failure to state a claim, Judge Swain therefore dismissed the first two claims for relief in the complaint. She then addressed the third claim: The Oversight Board’s appointment allegedly in contravention of the Appointments Clause of the Constitution precluded the initiation of proceedings governing San Juan.
San Juan’s argument is ostensibly on sound footing because the First Circuit held in February that members of the board should have been nominated by the President and confirmed by the Senate. Aurelius Investment LLC v. Commonwealth of Puerto Rico, 915 F.3d 838 (1st Cir. Feb. 15, 2019). For ABI’s report on the First Circuit opinion, click here.
The Oversight Board appealed, and the Supreme Court heard oral argument on October 15 in Financial Oversight and Management Board for Puerto Rico v. Aurelius Investment LLC, 18-1334 (Sup. Ct.). To read ABI’s coverage of the argument, click here.
While awaiting a decision from the Supreme Court, Judge Swain acceded to the parties’ request to stay the suit regarding the remaining claim concerning the Appointments Clause.
Should the Supreme Court decide that there was an Appointments Clause violation, the justices might rule that actions already taken by the Oversight Board, such as the commencement of proceedings for municipalities, will be allowed to stand under the so-called de facto officer doctrine.
Without success, the city of San Juan, Puerto Rico, attempted to oust the Oversight Board from control over the city’s finances under the Puerto Rico Oversight, Management, and Economic Stability Act, or PROMESA (48 U.S.C. §§ 2161 et. seq.).
In an opinion on December 5, District Judge Laura Taylor Swain found no constitutional or common law infirmities in the Oversight Board’s fiscal control over municipalities. While dismissing two of San Juan’s three claims, she put a third claim on hold until the Supreme Court decides whether the Oversight Board was appointed in contravention of the Appointments Clause of the U.S. Constitution.
After the Supreme Court ruled in June 2016 that Puerto Rico was ineligible for chapter 9 municipal bankruptcy, Congress quickly adopted PROMESA so the island commonwealth could restructure its unsupportable debt. PROMESA created the Oversight Board with power to initiate debt adjustment proceedings under title III of PROMESA.
The Oversight Board commenced debt adjustment proceedings in May 2017 for the commonwealth and 78 of its municipalities in district court in Puerto Rico. As Judge Swain explained in her opinion, PROMESA effectively gives the Oversight Board control over the budgets of the commonwealth and its municipalities.
In May, San Juan filed suit in the PROMESA court, seeking a declaration that PROMESA did not authorize the Oversight Board to commence debt adjustment proceedings for municipalities. The complaint alleged violations of the Constitution and federal common law.