A U.S. Appeals Court ruled that the current Puerto Rico Oversight 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 or the parts of the Puerto Rico Oversight, Management, and Economic Stability Act not addressing the board appointment process.
The court ruled that the current seven members of the board can continue in that role for up to 90 days while the president and the Senate name their successors or choose to reappoint them. Aurelius Investments, the plaintiff in the lawsuit, had sought to have the board overseeing the restructuring of Puerto Rico bonds declared unconstitutional.
The ruling overturns an earlier decision by U.S. District Court Judge Laura Taylor Swain upholding the constitutionality of the appointment of the board. Swain has been at least partially overruled on all five appeals of her Puerto Rico Title III bankruptcy decisions appealed to the First Circuit Court in Boston.
As a practical matter, the new decision will mean that a Republican, Donald Trump, will nominate all seven members of the board and that a Republican majority body, the Senate, will appoint the board. When the board was named in late summer of 2016, three board members were named by Democrats and four members were named by Republicans.
The Republican Senate president and House of Representatives speaker each named two members. The minority leaders in these bodies and then President Barack Obama chose one each.
The circuit court found that PROMESA’s appointment procedure for the board was unconstitutional as it didn’t follow the so-called Appointments Clause. They found that PROMESA could survive because of a severability clause in it allowing it to do so even if part of it was found invalid.
The circuit court said that the “de facto officer doctrine is especially appropriate in this case,” and that it allows the board’s actions up to the present and for the next 90 days to be considered valid.
The circuit court wrote: “An ancient tool of equity, the de facto officer doctrine ‘confers validity upon acts performed by a person acting under the color of official tile even though it is later discovered that the legality of that person’s appointment … to office is deficient.’ Ryder v. United States, 515 U.S. 179, 180 (1995).”
The circuit judges also said, “We fear that awarding to appellants the full extent of their requested relief will have negative consequences for the many, if not thousands, of innocent third parties who have relied on the board’s action until now.” This was another factor in invoking the de facto officer doctrine.
A board spokesperson said, “We are reviewing the First Circuit’s decision and are considering our legal options.”
A spokeswoman for the U.S. House Natural Resources Committee and a lawyer for the plaintiffs didn’t respond to a request for a comment.
According to PROMESA the board members' tenure was to have ended in the late summer of 2019, three years after their appointment. The federal government would have had to either name new members or reappoint them at that time.
The case is Aurelius Investments, LLC, et al. v. Commonwealth of Puerto Rico, et al.
