SCOTUS Considers Constitutionality of Law That Pulls Rico Out of Debt

By Ayana Byrd Oct 16, 2019

In 2016, Congress passed the Puerto Rico Oversight, Management and Economic Stability Act (PROMESA), which provided the commonwealth with relief from its then-$72 billion in debt and created a seven-member board to oversee creditor and court negotiations.

On Tuesday (October 15), the Supreme Court of the United States (SCOTUS) heard arguments in Aurelius Investment, LLC v. Puerto Rico, which challenges the constitutionality of PROMESA. Reports The New York Times:


The Supreme Court argument, which lasted 80 minutes instead of the usual hour, concerned a question of constitutional law: whether members of a government board created by Congress in 2016 to clean up the financial mess had been properly appointed. The court’s answer to that question could undo years of work on restructuring the commonwealth’s debts and help resolve deep questions about its place in the federal system.

Since its creation, the oversight board has attempted to resolve about 165,000 claims from creditors. In July, it reached the final stages of a plan to restructure the territory’s debt, which ballooned to $124 billion after the devastation of 2017’s Hurricane Maria. 

At the heart of the lawsuit is a challenge to how Congress set up the board when it passed PROMESA. Then-President Barack Obama chose seven of the eight members, six of whom didn’t require Senate confirmation because they had already been cleared by congressional leaders, per the government’s interpretation of the law. The Puerto Rico government appointed the eighth member.

Plaintiffs in the lawsuit, Aurelius Investment and other hedge funds that invested in Puerto Rican bonds, argue that the board members are officers of the United States and therefore subject to the Constitution’s appointments clause, which requires Senate confirmation. Per The Times:


Justice Samuel A. Alito Jr. said that vindicating the appointment process in the Constitution might not be the hedge fund’s only goal.


“Mr. Olson,” the justice asked, “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?”


Mr. Olson allowed that the case concerned “over $100 billion of indebtedness being adjudicated in various procedures.”

In February, the United States Court of Appeals For the First Circuit upheld the idea that board members require Senate confirmation. According to various reports from the SCOTUS hearing, the justices seem hesitant to declare PROMESA unconstitutional.