Puerto Rico oversight board to fight for its authority at Supreme Court

Puerto Rico's federally appointed oversight board plans to ask the U.S. Supreme Court to review an appeals court ruling that its members were not properly appointed.

On Feb. 15, the 1st U.S. Circuit Court of Appeals in Boston ruled that members of the Financial Oversight and Management Board for Puerto Rico were not constitutionally appointed.

The board was created by the Puerto Rico Oversight, Management, and Economic Stability Act in 2016 to help Puerto Rico achieve fiscal responsibility and gain access to the capital markets, and it gave board members a central role in the commonwealth's Title III bankruptcy proceedings. The judge overseeing those proceedings, U.S. District Court Judge Laura Taylor Swain, ruled in July that the board was properly formed.

On Feb. 5, Ms. Swain approved the commonwealth's first restructuring agreement, for bondholders of debt issued by Puerto Rico's Sales Tax Financing Corp., known as COFINA

The case challenging the board's authority was brought by Aurelius Capital Management and Assured Guaranty Corp. in a bid to dismiss Puerto Rico's bankruptcy cases involving bondholders and other creditors.

The appeals court did not dismiss the claims but allowed 90 days for the White House and Senate to constitutionally validate the board or reconstitute it, and said that board actions taken in the meantime are proper.

Current board members were appointed in 2016 by President Barack Obama on the recommendation of Congress and were not subject to Senate confirmation. The appeals court said they should have been appointed "with the advice and consent of the Senate," under the appointments clause of the U.S. Constitution covering federal officers.

Oversight board officials will petition the Supreme Court to stay the appeals court decision while it decides whether to take the case on the constitutional issue. The officials contend that PROMESA set up the board as an entity within the government of Puerto Rico, not the U.S., so the appointments clause does not apply.

Another panel in the same federal appeals court on Feb. 22 denied a bid by Puerto Rico's Legislative Assembly to challenge the board's authority.