“All of the federal authority that these territorial officers and D.C. officers exercise flows from federal law,” said Deputy Solicitor General Jeffrey B. Wall, defending creation of the Financial Oversight and Management Board, which is intended to steer Puerto Rico out of record bankruptcy.
If you take the challengers’ argument to its natural conclusion, Wall told Justice Brett M. Kavanaugh, “it will threaten to undermine, indeed I think it would condemn in its entirety, home rule.”
Bondholders led by Aurelius Investment LLC and a public employees union want to undo the board’s work and seek more favorable results from a new board.
They are challenging how Congress set up the board when it passed the Puerto Rico Oversight, Management and Economic Stability Act in 2016. It called for the president to choose seven of the eight members, and if they were mostly chosen from lists provided by congressional leaders, Senate confirmation was unnecessary. President Barack Obama did so, with the eighth member chosen by the Puerto Rico government.
The board went to work trying to restructure the island’s debt, and the bondholders sued. They said the board members were officers of the United States, subject to the Constitution’s appointments clause, and as such required Senate confirmation.
The U.S. Court of Appeals for the 1st Circuit agreed with the challengers that board members require Senate confirmation. But the court approved the board’s previous work under the de facto officer doctrine, which validates decisions made by officials who believe their appointments are legal.
That would protect the board’s previous work, Wall told the court, but not the work ahead.
The legal wrangling has profound consequences, and the Supreme Court took the case on an expedited basis. Donald B. Verrilli Jr., solicitor general under Obama, represented the oversight board, and Theodore B. Olson, solicitor general under President George W. Bush, argued for Aurelius.
Verrilli said Congress was careful in creating the board and it recognized the board members were territorial, not federal officers.
The congressional act “sets up an entity within the territorial government,” Verrilli said. “It gives the board only territory-specific authority and instructs the board to pursue only territory-specific objectives. The board acts on behalf of Puerto Rico as its representative in judicial proceedings to restructure the territory’s debts. It pursues only Puerto Rico’s interests in those proceedings.”
Justice Ruth Bader Ginsburg was skeptical that the board was part of the local government.
“It’s above the Puerto Rican government, and it’s above the legislature and the governor,” Ginsburg said.
Justice Sonia Sotomayor, whose parents were born on the island and who has been a frequent visitor there, agreed.
“It seems to me that your very argument that it’s independent is suggesting it can’t belong to the territory and that there’s a serious problem that the federal government is creating an entity that no one can control,” Sotomayor told Verrilli. “Neither Congress nor the president can remove this entity for anything but cause.”
But Olson seem to get the tougher questions, and Justice Samuel A. Alito Jr. wondered what the challenge was really about.
“Mr. Olson, are you and your client here just to defend the integrity of the Constitution, or would one be excessively cynical to think that something else is involved here involving money?” Alito asked.
Olson said that of course money was at stake, but that his clients deserved to have their claims heard by constitutionally appointed officers.
Several justices seemed to be in rough agreement that if they thought the board performed a primarily local function, Olson would lose. But Olson reiterated that Congress created the board because the island’s debt was a national crisis and concern.
Olson also disputed Wall’s contention that any of the tests challengers proposed for declaring whether someone is a federal officer would result in a loss of home rule.
Jessica Mendez-Colbert, representing a Puerto Rican labor union, urged the court to use the case to overturn the “Insular Cases,” a group of cases in which the Supreme Court found that Americans in territories do not have the same constitutional rights.
“The court-made doctrine of territorial incorporation means that when my client, and even myself, return to Puerto Rico, we will have a lesser set of constitutional rights than what we have standing here today,” she said.
There was sympathy from Justice Stephen G. Breyer, but the court did not seem particularly interested in taking on yet another issue.
“I just don’t see the pertinence of the Insular Cases
” to the case at hand, said Chief Justice John G. Roberts Jr.