Highlights from Oral Arguments at U.S. Supreme Court on Constitutionality of Puerto Rico’s Oversight Board

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Map of Puerto Rico

By: Donald L Swanson

The case before the U.S. Supreme Court is Financial Oversight and Management Board for Puerto Rico v. Aurelius Investment, LLC (Case No. 18-1334). Oral arguments occurred on October 15, 2019. Here is a link to the official transcript.

An Oddly Important Case

This is an oddly important case:

  • it’s resolution turns on the application of a rarely-used and little-understood provision of the U.S. Constitution; yet
  • the practical effect of an affirmance (i.e., if the government loses) is likely to be huge and far-reaching and unpredictable and is likely to produce further litigation without end.

The Question

The legal Question before the Supreme Court is this: Are members of the Financial Oversight and Management Board “Officers of the United States” under the Appointments Clause of the U.S. Constitution? [Fn. 1]

Practically, that means:

  • If Board members are such “Officers,” they must be appointed by the President with Senate advice and consent, but if not, Presidential appointment and Senate confirmation are not required;
  • Presidential appointment with Senate approval did not happen here, so people unhappy with the Board’s actions want different people on the Board—and they are using the Appointments Clause as their tool to achieve that goal; and
  • Actions by the Board, thus far, are extensive and complex and would be difficult to unwind—so, the remedy for any violation of the Appointments Clause is of huge significance.

The Test and Its Application

The Justices, in oral arguments, grapple with what the legal test should be for deciding whether a position is an “Officer of the United States” under the Appointments Clause.

–Appellant’s Test

In oral arguments, the United States says the test is this: whether the “Board’s focus” was “primarily local” or not.

Under that test, the United States says, the Board’s “primarily local” focus is obvious. For example, (i) the Board budgets and restructures debt only for Puerto Rico and acts in the territory under a territory-specific statute, and (ii) the powers in question could have been exercised by the assembly and the governor of Puerto Rico.

–Appellee’s Test

Appellees say the ability of Board members to “exercise substantial federal power” makes them “Officers of the United States,” as does the fact that only the President of the United States has authority to remove them.

–Both Tests Are the Same?

Some of the Justices see the two tests as the same:

JUSTICE KAGAN: So that does sound like the test that is being used by [Appellants] . . . You said significant federal authority pursuant to the laws of the United States. . . . when you say significant federal authority, you’re coming pretty close to what [Appellants] have proposed.

JUSTICE GORSUCH: . . . I’m confused. I honestly don’t understand what the difference between your test and the government’s test is in this case. If you could articulate that in a few sentences, I’d be grateful.

[Some back-and-forth discussions ensue.]

JUSTICE GORSUCH: So then we do agree on the test, right, whether the Board was acting primarily locally or primarily nationally?

JUSTICE SOTOMAYOR: . . . there’s this nuance between you and your adversaries on are you dealing primarily with a local matter? And they would say dealing with a budget, dealing with running the government, that’s all local. You are attempting to say something different, but I’m not sure what that difference is.

Some Justices Don’t Like the “Primarily” Test

A couple Justices express reservation with the primarily local v. primarily federal test.

CHIEF JUSTICE ROBERTS: . . . every sentence you just said there, it’s of Puerto Rico. Its focus is on Puerto Rico. . . . I think it’s very artificial to look at this and say, is this local or is this national? It obviously is some of each, or even the local aspects certainly have national implications.

JUSTICE KAVANAUGH: Well, I think it highlights the difficulty, as Justice Kagan said, at the primarily local [test] . . . I’m not sure how we’re supposed to figure that out.

Justices Push Back on Appellee’s Position

Appellee argues that the role of the Board and its members is primarily federal—not local. But Justices don’t seem to be buying that view:

JUSTICE GINSBURG: . . . The Board is instructed to act not on behalf of the United States but on behalf of Puerto Rico in pressing these claims?

JUSTICE GORSUCH: . . . I think the question is . . . but for this statute . . . who would be doing these activities? And if it would be the governor of Puerto Rico . . . then doesn’t that tell us something?

JUSTICE BREYER: . . . Look at all the powers that the Board has. Aren’t they powers that the Puerto Rican government could exercise if it had the legislative and gubernatorial will?

JUSTICE SOTOMAYOR: . . . couldn’t the governor of Puerto Rico and the legislature have created their own fiscal rescue plan? Yes. Correct?

Several Zingers Against Appellee’s Arguments

Here are several exchanges of zinger-quality during Appellee’s arguments.

–From Justice Alito

Here’s an exchange between Justice Alito and Appellee’s counsel:

JUSTICE ALITO: . . . 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? And, if so, what is it? What did the Board do that hurt your client? . . . are you and Aurelius here just as amici to defend the Constitution, or do you have some kind of a concrete grievance?

MR. OLSON: . . . My client is being subjected to a process that is governed by officials that were appointed in violation of the separation of powers. . . . We can’t describe the degree to which someone might have been hurt. . . .

JUSTICE ALITO: . . . there is no money issue involved here? (Laughter.)

MR. OLSON: Of course, there –

JUSTICE ALITO: Well, what is it? I’d just like to know . . . what’s really going on here.

MR. OLSON: Well, there’s over 100 billion dollars of indebtedness being adjudicated in various procedures, a lot of which is –

JUSTICE ALITO: Right, and your client wants more of it and somebody else you think is getting too much.

–From Justice Ginsburg

Here’s an exchange between Justice Ginsburg and Appellee’s counsel:

JUSTICE GINSBURG: One thing that confuses me about your presentation, because you start out very strongly that the evil here is Congress aggrandizing itself at the executive’s expense. How about the member of the Board that’s appointed by the President alone? There can’t be any question of Congress aggrandizing itself. Congress has given the President alone that authority. . . .

MR. OLSON: . . . these are principal officers of the United States, not inferior officers. Therefore, principal officers under the Constitution must be appointed, nominated by the President –

JUSTICE GINSBURG: But what does that have to do with Congress aggrandizing itself at the executive’s expense?

–From Chief Justice Roberts

Here’s an exchange between Chief Justice Roberts and Appellee’s counsel:

MR. OLSON: . . . in the Freytag case, the deputy solicitor general was asked a question about what if the governor of Puerto Rico was appointed by Congress or a federal official? And the response from the federal government was that would invoke in every case the Appointments Clause.

CHIEF JUSTICE ROBERTS: Did that deputy solicitor general prevail on that position? (Laughter.)

MR. OLSON: That deputy solicitor general made a beautiful argument, Mr. Chief Justice. (Laughter.) . . .

CHIEF JUSTICE ROBERTS: A beautiful losing argument.

–From Justice Kavanaugh

Here’s an exchange between Justice Kavanaugh and Appellee’s counsel:

JUSTICE KAVANAUGH: . . . If we conclude it’s primarily local, do you have an alternative argument or do you lose?

MR. OLSON: Well, . . . it can’t conceivably be thought of as primarily local.

Justices Push Back on the Government’s Position

The following Justices’ comments seem contrary to the government’s position.

JUSTICE KAGAN: . . . If PROMESA had, instead of setting it up the way it did, just amended Chapter 9 of the federal bankruptcy laws and said Puerto Rico instrumentalities get to use Chapter 9 the way everybody else does, then creates the Board to do that. What of that? . . . Because there would be a uniform national law. . . . Essentially what PROMESA does is it replicates all the procedures of Chapter 9.

JUSTICE SOTOMAYOR: . . . But that’s what the Territory Clause, read your way, would say, that Puerto Rico is federal property. . . . you have to be disposing of federal control over federal property, because that’s what a territory is.

JUSTICE KAGAN: Let’s say that the crux of this statute . . . is that it sets up a scheme for restructuring the debt of a bankrupt territory and with the backdrop that that could not have been done under pre-PROMESA federal law by local officials themselves. Why is it primarily local?

Remedy Discussions

I’m no good at making predictions based on judicial comments from the bench. But the remedy portion of oral arguments seems insubstantial, when compared with the magnitude of upheaval an affirmance might mean. Here are some illustrations:

JUSTICE BREYER: . . . If you lost, would they appoint the same people? . . . if we were to follow Judge Terrea and say the de facto officer doctrine, what difference would it make?  . . .  what you’re talking about is a delay of possibly days while the Senate gets its act together to confirm the people that they already recommended to the President with one exception. I mean, are we talking — is that what we’re talking about? You win, and there’s no delay; you lose, . . . and there’s a slight delay?

JUSTICE SOTOMAYOR: Mr. Wall, do you have to still litigate that here? You’re making an assumption that the de facto doctrine does go as far as you say, which is to deprive a winning party of any remedy whatsoever.

JUSTICE KAVANAUGH: I thought your argument would be that if you lost, there would also be a lot of legal ramifications in terms of calling into question the status of elected governors, judges, territorial judges, and the like. Is that not the case?

JUSTICE KAVANAUGH: Suppose Congress invokes Article IV and puts it in the territorial government, as it’s done here, but assigns some matters that . . . are more national than local. Is the remedy for that problem to say that that officer can’t perform the more national duties, or is the remedy for that to say that the office is invalid because it’s appointed in violation of the Appointments Clause? . . . Wouldn’t the officer still be a valid territorial officer but perhaps exercising some duties that he or she cannot exercise?

And then there is a lengthy set of questions and answers on whether the de facto doctrine applies equally to both legislative and adjudicative functions and how that distinction might apply to this case.

All-told, the remedies portion of oral arguments seems insubstantial.

Conclusion

In light of the foregoing, I’d consider wagering a single U.S. dollar on the following proposition:

  • The Supreme Court will find a way to uphold the validity of the Board’s appointment.

—————————-

Footnote 1: The Appointments Clause of the U.S. Constitution is contained in Article II, Section 2, Clause 2, and reads as follows:

“ . . . and [the President] shall nominate, and by and with the Advice and Consent of the Senate, shall appoint . . . Officers of the United States, whose Appointments are not herein otherwise provided for, and which shall be established by Law: but the Congress may by Law vest the Appointment of such inferior Officers, as they think proper, in the President alone, in the Courts of Law, or in the Heads of Departments.”

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