Opinion analysis: After a long wait, a unanimous court upholds Puerto Rico oversight board

In 2016, Congress passed the Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA). The law created a seven-member board tasked with bringing financial stability back to the island. But when the board began proceedings in federal court to restructure Puerto Rico’s massive debt, a hedge fund that had invested in distressed Puerto Rico bonds and a local labor union went to court to challenge the method by which the board’s members had been appointed. They argued that under the Constitution’s appointments clause, the board members should have been nominated by the president and confirmed by the Senate. Because they were not, the challengers contended, the board’s actions could not be valid.

Today the Supreme Court unanimously rejected that argument. In an opinion by Justice Stephen Breyer, the court agreed that the appointments clause applies to all “Officers of the United States,” including high-level officials whose duties relate to Puerto Rico. But, the court continued, the clause’s use of the phrase “of the United States” indicates that the drafters of the Constitution intended to distinguish between federal officials, on the one hand, and officials exercising state or local power, on the other. Moreover, the court noted, two provisions of the Constitution give Congress authority to legislate for the District of Columbia and U.S. territories; both the text and structure of the Constitution and history indicate that when Congress has created local offices using this power, those officials have been regarded as exercising local government power, rather than federal power. “Indeed,” the court observed, “to read Appointments Clause constraints as binding Puerto Rican officials with primarily local duties would work havoc with Puerto Rico’s (federally ratified) democratic methods for selecting many of its officials.” Therefore, the court concluded, the appointments clause “does not restrict the appointment of local officers that Congress vests with primarily local duties.”

The next question for the court, then, was whether members of the oversight board have “primarily local powers and duties.” The answer, the court said, is yes. Although the board has “broad investigatory powers,” the court reasoned, those powers “are backed by Puerto Rican, not federal, law.” The board’s other powers – developing Puerto Rico’s budget and issuing new debt – are also “quintessentially local.” And the board’s power to initiate bankruptcy proceedings, the court explained, is an authority that it has “on behalf of, and in the interests of, Puerto Rico” – even if those proceedings may have nationwide consequences.

The court explained that the cases on which the lower court relied in determining that the board members’ appointments violated the appointments clause all involved duties “that were indisputably federal or national in nature” – involving members of the Federal Election Commission and federal judges on tax courts, for example. Although the law creating the board and its duties is a federal law, the court emphasized, it is also important to look at the nature of the board members’ duties – that is, “whether they are primarily local versus primarily federal.” Otherwise, the court cautioned, courts could interfere with democratic elections or local appointment processes in the District of Columbia or U.S. territories, such as the election of the mayor of Washington or the governor of Guam.

Because it concluded that the board members were not required to be nominated by the president and confirmed by the Senate, the court explained, it did not need to consider whether the “de facto officer” doctrine, which blesses an official’s actions even when his appointment is later determined to be invalid, applies to the board’s decisions. It also declined to weigh in on the request to overrule the “Insular Cases,” a series of cases dating back to the early 20th century in which the court ruled that U.S. territories do not automatically receive all of the protections of the Constitution.

Justice Clarence Thomas filed an opinion in which he agreed with the court’s conclusion that the board members’ appointment did not violate the Constitution, but he rejected what he described as the “ill-defined path that the Court takes to reach this result.” Instead, he argued, the court should look simply to the meaning of the phrase “Officers of the United States”: Officials, like the board members, who are performing territorial duties do not fall within this definition.

Thomas criticized the court’s “amorphous” test to distinguish between “officers with ‘primarily local versus primarily federal’ duties,” noting that the court “fails to provide any explanation for what makes an officer’s duties ‘primarily local.’” Moreover, he added, the court’s focus on whether an officer’s duties are “primarily local” creates a loophole for Congress to circumvent the appointments clause “by supplementing an officer’s federal duties with sufficient” local duties.

Justice Sonia Sotomayor, whose parents were both born in Puerto Rico, also agreed with the court’s judgment but wrote separately to emphasize the extent to which “Puerto Rico, like a State, is an autonomous political entity.” Despite that autonomous status, she continued, the board has “wide-ranging, veto-free authority over Puerto Rico,” with Puerto Rico’s governor limited to a nonvoting role on the board. As a result, she concluded, the court’s ruling “seems anomalous”: The board exists “in a twilight zone of accountability, neither selected by Puerto Rico itself nor subject to the strictures of the Appointments Clause.” Sotomayor wrote that she is “skeptical that the Constitution countenances this freewheeling exercise of control over a population that the Federal Government has explicitly agreed to recognize as operating under a government of their own choosing,” but – stressing that “these issues are not properly presented in these cases” – she “reluctantly” concurred in the court’s judgment.

Today’s ruling sends the case back to the lower court for further proceedings, but it is a decisive victory for the board and a defeat for the hedge fund and labor union that had challenged the appointments.

This post was originally published at Howe on the Court.