The Supreme Court in a 9-0 ruling Monday upheld the constitutionality of a financial oversight board that Congress set up to manage the restructuring of Puerto Rico's nearly $125 billion bond and pension debt.
The unanimous decision rejects a claim by a group of bondholders that the oversight board was unconstitutional. Bondholders argued the board’s members should have been appointed by the president and confirmed by the Senate, as required by the Appointments Clause.
But the court's opinion, written by Justice Stephen Breyer, held that the board's duties were local, rather than national, in nature.
“The Board’s statutory responsibilities consist of primarily local duties, namely, representing Puerto Rico in bankruptcy proceedings and supervising aspects of Puerto Rico’s fiscal and budgetary policies,” Breyer wrote. “We therefore find that the Board members are not ‘Officers of the United States.’”
“For that reason,” he continued, “the Appointments Clause does not dictate how the Board’s members must be selected.”
Justice Clarence Thomas joined the majority ruling but issued a concurring opinion to express a differing view of how the Appointments Clause applies to U.S. territories like Puerto Rico. Justice Sonia Sotomayor wrote a separate concurring opinion.
A ruling against the board would have created more fiscal turmoil for Puerto Rico as it continues to recover from a financial crisis that began in 2014 and proved to be the worst in its history, swelling to some $74 billion debt through bonds and $49 billion in unpaid pensions.
Anthony Casey, a law professor at the University of Chicago, said the stakes of unwinding the board’s progress would have been enormous for Puerto Rico, which has faced repeated setbacks while trying to get its fiscal house in order.
“We are talking about hundreds of billions of dollars in debt restructuring and three years of complicated procedures,” Casey said. “The Puerto Rico debt crisis was bad and got worse after Hurricane Maria. And things are likely getting worse because of the current economic downturn related to COVID-19.”
Congress passed a law in 2016 to respond to the crisis by establishing the oversight board.
The bondholders who challenged the board, led by Aurelius Capital Management, sought larger returns on their bonds than what the board offered.
The opinion in the case, Financial Oversight and Management Board of Puerto Rico v. Aurelius Investment, LLC, reverses a decision by the U.S. Court of Appeals for the 1st Circuit that sided with the investors.
