By: Donald L Swanson
Mediation is playing a central role in Puerto Rico’s bankruptcy. But mediating parties could not resolve an Appointments Clause dispute under the U.S. Constitution. So, the U.S. Supreme Court recently resolved it for them.
And the Supreme Court’s decision is a welcome affirmation of the legitimacy of actions taken in the bankruptcy proceeding.
The practical issue is this: limited funds are available to divide among very large claims. Some creditors want to receive more, so they raise an Appointments Clause argument.
Here’s an enlightening exchange on practicalities, during oral arguments at the U.S. Supreme Court:
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? . . .
COUNSEL: 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.
The legal issue is set up like this. The Constitution’s Appointments Clause says that the U.S. President:
- “shall nominate, and by and with the Advice and Consent of the Senate, shall appoint Ambassadors, . . . and all other Officers of the United States . . . .” Art. II, §2, cl. 2 (emphasis added).
In 2016, Congress enacts the Puerto Rico Oversight, Management, and Economic Stability Act (“PROMESA”), which:
- creates a Financial Oversight and Management Board (“Board”); and
- authorizes the U.S. President to appoint the Board’s seven members, from a list created by Congress, without Senate confirmation.
So, the legal question before the Supreme Court is this:
- Does the President’s appointment of Board members, without Senate confirmation, violate the Constitution’s Appointments Clause.
The U.S. Supreme Court answers the legal question in Financial Oversight and Management Board for Puerto Rico v. Aurelius Investment, LLC (Case No. 18-1334, Decided June 1, 2020).
And here is the Supreme Court’s answer:
- The term “Officers of the United States,” in the Appointments Clause, does not include officers “whose powers and duties are primarily local in nature”;
- The Board’s responsibilities consist of “primarily local duties,” such as “representing Puerto Rico in bankruptcy proceedings” and “supervising aspects of Puerto Rico’s fiscal and budgetary policies”; and
- Therefore, “the Board members are not ‘Officers of the United States,’ so the Appointments Clause does not dictate how the Board’s members must be selected.”
In supporting its answer, the Supreme Court offers a civics lesson.
–Separation of Power
Congress created the Board, using its power under Article IV of the Constitution to “make all needful Rules and Regulations respecting the Territory . . . belonging to the United States.”
The Constitution separates the three basic powers of Government—legislative, executive, and judicial—with each branch serving different functions.
But the Constitution requires cooperation among the three branches. To become law, for example, proposed legislation (i) requires the agreement of both Congress and the President (or, a supermajority to override a veto), and (ii) must be consistent with constitutional constraints, of which the Judiciary is the interpreter.
–History of Appointments Clause
The Appointments Clause reflects a similar allocation of responsibility, between President and Senate, in cases involving appointments to high federal office.
The Appointments Clause reflects the Founders’ reaction to one of their generation’s greatest grievances against pre-Revolutionary executive power: namely, the manipulation of appointments.
The Founders addressed such grievance by both concentrating and distributing power under the Appointments Clause:
- Concentrating power—the primary responsibility for nominations falls on the President, because the “sole and undivided responsibility of one man will naturally beget a livelier sense of duty and a more exact regard to reputation” than with a group; and
- Distributing power—the Senate’s advice and consent provides “an excellent check upon a spirit of favoritism in the President and a guard against the appointment of unfit characters.”
The result is this: (i) “The blame of a bad nomination would fall upon the president singly and absolutely,” while (i) “the censure of rejecting a good one would lie entirely at the door of the senate.”
Officers of the United States
So, the Appointments Clause question becomes this:
- Are Board members “Officers of the United States,” so that Senate confirmation is required.
The answer to this question, the Supreme Court declares, “turns on whether the Board members have primarily local powers and duties.” That’s because the Constitution:
- envisions a federalist structure, with the National Government exercising limited federal power and local governments (usually state governments) exercising more expansive power; and
- recognizes that Congress provides local governments for the District of Columbia and the territories—which are not States—staffed by local officials, who themselves have made and enforced local law.
So, when Congress creates local offices, the local officials exercise power of the local government, not of the Federal Government.
History confirms this. For example:
- When the First Congress legislated for the Northwest Territories, it created (i) a House of Representatives for the Territory with members selected by election, (ii) an upper house of the territorial legislature, whose members were appointed by the President (without Senate confirmation) from lists provided by the elected, lower house, and (iii) magistrates appointed by the Governor.
- This practice (of federal law creating local offices for the territories and District of Columbia, filled through election or local executive appointment) has continued unabated for more than two centuries.
Puerto Rico’s History
Puerto Rico’s history is no different. For example:
- In 1898, at the end of the Spanish-American War and under the Treaty of Paris, the U.S. President appointed (with Senate confirmation) Puerto Rico’s Governor, the heads of six departments, the legislature’s upper house, and the justices of its Court;
- In 1898, U.S. laws also provided for selection, through popular Puerto Rican election, of a lower legislative house with power to “alter, amend, modify, and repeal any and all laws . . . of every character”—and no one thought such members of the lower house were “Officers of the United States”;
- Beginning in 1917, (i) Puerto Rico citizens elected a local Senate, (ii) the Governor of Puerto Rico nominated four cabinet members, confirmed by the Senate of Puerto Rico, and (iii) the locally elected legislature retained “all local legislative powers,” including the power to appropriate funds—none of these satisfied Appointments Clause criteria; and
- Puerto Rico now has a popularly ratified Constitution, which (i) omits the U.S. President and Senate from appointment processes for local officials, (ii) provides for local elections of Puerto Rico’s Governor and legislators, and (iii) provides for gubernatorial appointment (and Puerto Rican Senate confirmation) of cabinet officers.
The upshot is that Puerto Rico’s history reflects a longstanding use of various methods for selecting officials with primarily local responsibilities. This history:
- is consistent with the history of other territories governed by Article IV of the U.S. Constitution, including the District of Columbia;
- comports with U.S. Supreme Court precedents, which recognize that local governments created by Congress can, like governments of the States, “dispense with protections deemed inherent in a separation of governmental powers”; and
- is devoid of any case “endorsing an Appointments Clause challenge to such selection methods.”
Making Puerto Rican officials with primarily local duties subject to the Appointments Clause “would work havoc with Puerto Rico’s (federally ratified) democratic methods for selecting many of its officials.”
Primarily Local Powers and Duties
The final question the Supreme Court addresses is this:
- Do the Board members have primarily local powers and duties?
“Yes,” is the Supreme Court’s emphatic answer.
Here’s why: Congress declared that the Board is part of Puerto Rico’s government and gave the Board a structure, a set of duties, and related powers consistent with such declaration. For example:
- The government of Puerto Rico pays the Board’s expenses, including the salaries of its employees (the members serve without pay);
- The Board possesses investigatory powers—it can hold hearings, issue subpoenas, and enforce those subpoenas in Puerto Rico’s courts and under Puerto Rico’s laws;
- The Board works with elected Puerto Rican officials to develop a fiscal plan for achieving “fiscal responsibility and access to the capital markets”;
- The Board controls the issuance of new debt for Puerto Rico;
- The Board may initiate bankruptcy proceedings for Puerto Rico or its instrumentalities; and
- The Board, in all its actions, serves as “the representative of” Puerto Rico or its instrumentalities.
In other words, the Board acts as a local government.
Nationwide Consequences of Local Actions
Some Board actions may have nationwide consequences. But the same can be said of many actions taken by many Governors or other local officials. And actions with nationwide consequences do not automatically transform a local official into an Officer of the United States.
While the Board possesses considerable power—including authority to substitute its own judgment for the considered judgment of the Governor and other elected officials—such power primarily concerns local matters.
The U.S. Supreme Court’s decision, on the Appointments Clause and PROMESA’s Board members, is a welcome affirmation of the legitimacy of the Board and its members.
As a bonus, the decision offers a civics lesson on separation of powers considerations within the U.S. Constitution.
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