The Supreme Court added another argument to its calendar for the fall. In an unusual Thursday order, the justices announced that they would take up a group of cases involving the constitutionality of President Barack Obama’s appointments to the oversight board created to get Puerto Rico back on its financial feet. The cases will be fast-tracked so that they can be argued when the justices return from their summer recess in October.
In 2016, Puerto Rico was in the middle of a serious financial crisis. It owed over $110 billion in debt and unfunded pension liabilities and, as a result, was struggling to provide basic services to its residents. Congress responded by creating an independent board, the Financial Oversight and Management Board, to oversee the restructuring of the commonwealth’s massive debt and to make fiscal, legal and governance reforms to bring financial stability back to Puerto Rico.
Aurelius Investment, a hedge fund that invested in distressed Puerto Rico bonds, challenged the appointment of the board members, as did (among others) a labor organization that represents employees of Puerto Rico’s electric utility. The U.S. Court of Appeals for the 1st Circuit ruled that the provision of the federal law that allowed members of the board to be appointed without being confirmed by the Senate was unconstitutional. However, the appeals court declined to invalidate the actions that the board had already taken. Relying on a doctrine known as the “de facto officer doctrine,” it reasoned that reversing the board’s actions would have “negative consequences for the many, if not thousands, of innocent third parties who have relied on the Board’s actions until now” and would “likely introduce further delay into a historic debt restructuring process that was already turned upside down” by “the ravage of hurricanes.”
The board asked the Supreme Court to review the 1st Circuit’s decision on the appointments question, as did the federal government and a committee of unsecured creditors, while Aurelius and the labor organization asked the justices to weigh in on whether the de facto officer doctrine should apply. The justices will consider all these questions in October.
Additional orders from today’s conference are expected on Monday at 9:30 a.m.
This post was also published on SCOTUSblog.
An earlier version of this post described one of the groups asking the justices to review the lower court’s decision on the appointments question as a committee of unsecured debtors, not of unsecured creditors.