Supreme Court Decides Financial Oversight and Management Board for Puerto Rico v. Aurelius Investment, LLC

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On June 1, 2020, the U.S. Supreme Court decided Financial Oversight and Management Board for Puerto Rico v. Aurelius Investment, LLC, holding that the Appointments Clause of the Constitution does not restrict the appointment or selection of members of the Puerto Rico’s Financial Oversight and Management Board because they exercise only local powers and duties and do not exercise the power of the National Government.

In 2016, Congress enacted the Puerto Rico Oversight, Management, and Economic Stability Act (the Act). The Act created a Financial Oversight and Management Board (the Board) for Puerto Rico, and allowed the President to appoint the seven members of the Board without the advice and consent of the Senate.

Shortly after the Board members were appointed, they filed bankruptcy petitions on behalf of the Commonwealth of Puerto Rico and five Commonwealth entities. Several creditors in the bankruptcy cases moved to dismiss all proceedings on the ground that the selection of the Board’s members violated the Appointments Clause because it was done without Senate confirmation. The court denied the motions, but the First Circuit reversed, holding that the selection of the Board’s members violated the Appointments Clause, but that the Board’s actions taken prior to the First Circuit’s decision were valid under the “de facto officer” doctrine.

The Supreme Court reversed the First Circuit’s decision, holding that the selection of the Board members did not violate the Appointments Clause. The Court began by holding that the Appointments Clause restricts the appointment of all “officers of the United States,” even when those officers’ duties relate to Puerto Rico or any other “Article IV entity” such as a U.S. Territory. The Court then turned to the central question whether the Appointments Clause required Senate confirmation of the appointments of the Board members. The Court held that the answer to that question turned on whether the Board members had primarily local, not federal, powers and duties. The Court concluded that the Board members were acting in a local, not federal, capacity. Their powers are backed by Puerto Rican, not federal, law. The Court noted that at various times, Congress has created bodies to govern localities that have no state government capable of exercising local power—for example, the District of Columbia and U.S. Territories. In those cases, the officers exercise the power of the local government, not the national government, and thus are not “Officers of the United States.” This described the members of the Board, so the Court concluded that they were not “Officers of the United States” whose selection had to comport with the Appointments Clause.

Justice Breyer delivered the opinion of the Court, in which Chief Justice Roberts and Justices Ginsburg, Alito, Kagan, Gorsuch, and Kavanaugh joined. Justices Thomas and Sotomayor filed opinions concurring in the judgment.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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