The Financial Oversight and Management Board overseeing Puerto Rico's bankruptcy and fiscal recovery plans was properly appointed, the Supreme Court ruled unanimously Monday.
Congress created the oversight board in 2016 to help restore financial stability, including restructuring $74 billion in bond debt and $50 billion in unfunded pension liabilities. Board members were appointed by then-President Barack Obama from a list compiled by members of Congress but were not confirmed by the Senate.
After bankruptcy proceedings started in May 2017, the process for appointing the board members was challenged by bondholder Aurelius Investment and a labor union representing electric utility employees. The challenge was upheld by the 1st U.S. Circuit Court of Appeals in Boston, before winding up at the Supreme Court for expedited review. The challenge to the board's authority centered on the Constitution's appointments clause and whether the board's nominations required Senate approval.
The oversight board's position was supported by a retired employees group, some unsecured creditors and the U.S., which argued successfully that the appointments clause does not extend to the local government of a territory such as Puerto Rico.
"The appointments clause does not restrict the appointment or selection of the board members," Associate Justice Stephen Breyer wrote in the opinion.
It "reflects an allocation of responsibility, between president and Senate, in cases involving appointment to high federal office. Concerned about possible manipulation of appointments, the founders both concentrated the appointment power and distributed it, ensuring that primary responsibility for important nominations would fall on the president, while also ensuring that the Senate's advice and consent power would provide a check on that power," he wrote.