Puerto Rico union petitions court to invalidate Oversight Board's actions

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The chief union for the Puerto Rico Electric Power Authority on Friday petitioned the United State Court of Appeals for the First Circuit to consider invalidating the actions the Puerto Rico Oversight Board has taken since August 2017.

In mid-February a three-judge panel ruled that the current board members were unconstitutionally appointed and gave the U.S. president and Senate 90 days to make new appointments to the panel. The court didn’t invalidate the board’s actions. Instead, they invoked the de facto officer doctrine which they said allowed them to declare the board’s actions legally valid even though the board members hadn’t been properly selected.

Since its formation in 2016, the Oversight Board has put PREPA, Puerto Rico's central government, sales tax financing corp. highway authority, and employees retirement system into bankruptcy, affecting more than $40 billion of debt.

The panel's ruling on appointments came in related cases led by three different appellants: Assured Guaranty Corp., Aurelius Investments, and Unión de Trabajadores de la Industria Eléctrical y Riego – the PREPA union.

On Monday the union filed a “Petition for panel rehearing or rehearing en banc,” meaning that all six of the district court's judges would hear the arguments, rather than just the three-judge panel. The union said that for the de facto doctrine to be relevant the board members had to have a good-faith belief that they were the legitimate board members. The union said that from the time the union filed its original constitutional challenge to the board on Aug. 7, 2017, the board members couldn’t have this good-faith belief.

The union asked the First Circuit to rule that the board’s actions going back to that date are illegitimate and void.

To prevail, the union will need a majority of the court’s six active judges to side with them. Since the original three-judge panel ruled unanimously, the union would have to get a change in opinion from one of the original judges.

Before this happens, at least one of the First Circuit Court judges would have to agree that there is merit to hearing the union’s petition to trigger the whole court’s consideration.

UTIER is “going to have a very uphill battle,” said James Spiotto, Chapman Strategic Advisors managing director.

Spiotto said that it is difficult to argue the board members didn’t have reason to believe they were rightfully appointed and thus operating in good faith. He noted that the District Court judge considered the arguments of the appellants and concluded they were wrong and that the board had been appointed legally.

Further, if the full panel of Circuit Court judges were to side with the union, “it would be hard to unscramble the egg” of all the actions that have taken place since August 2017.

The Oversight Board has said it will petition the U.S. Supreme Court to review the Circuit Court’s decision. Spiotto said the union’s action may delay this petition because the Circuit Court must reach a final decision before the board acts.

In the meantime, as things stand the U.S. Senate and president have until mid-May to appoint a new board membership or to reappoint the current board.

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PROMESA Commonwealth of Puerto Rico Puerto Rico Sales Tax Financing Corp (COFINA) Puerto Rico Electric Power Authority Puerto Rico Highway & Transportation Authority Puerto Rico Industrial Development Co Puerto Rico