Monday Update – January 8, 2018

Welcome to your weekly Title III update for January 8, 2018. After a short vacation, we are back to discuss the happenings in PROMESA. While not much happened, much will happen soon.

Foremost for this week, and even for this year, is the oral argument of the Aurelius and Utier constitutional challenge to the appointment of the members of the Board. Aurelius’s Objection and Motion to Dismiss presents a single yet fundamental question: Whether the members of the Board should be secretly hand-picked by four members of Congress or selected by the President and publicly confirmed by the Senate.

After a lengthy delay, the US Office of the Solicitor General informed the Court that it would defend the PROMESA appointments’ clause. Nothing surprising there since the office of the Solicitor General defends the overwhelming majority of constitutional challenges to acts of Congress. The last time I remember the Solicitor General deciding not to defend a law was when President Obama changed his mind about the Defense of Marriage Act.

The US Solicitor General wisely steered as far away as it could from the “Insular Cases,” especially the racist piece of resistance, Downes v. Bidwell, deciding instead in concentrating on cases before the 1898 dawn of the Imperial American Age.

The Board and AFFAF, however, in their motions reinforced the Territorial Clause of the US Constitution and Downes, which is the basis for Congressional discrimination against Puerto Rico in most federal programs. The Board claimed in its opposition to Aurelius motion that “[i]n a series of cases, the Court recognized that the U.S. Constitution applies ‘only in part in unincorporated Territories.’” The reference ends with a footnote citing Downes for the proposition that the Appointments Clause of the US Constitution does not apply to PR as an unincorporated territory. This probably explains why AFFAF did not argue in its brief that PR is an incorporated territory as Judge Gelpí decided in Consejo de Salud de Playa de Ponce v. Rullan. It seems that “[i]n the eyes of the Board and Governor Rosselló, it is better to have 100 more years of colonialism and discrimination than to have to pay the island’s debt.” See my Caribbean Business column, Interestingly, Aurelius’ argument did not make any mention of the Territorial Clause.

Contrary to what some commentators believe, this challenge is important enough for the Board to have hired Donald Verrilli, President Obama´s former Solicitor General to argue its case and even used a reply to the US Solicitor General’s brief to further snipe at Aurelius, forcing the Court to allow the latter for file an unusual sur-reply. Anticipating the importance of the case, Aurelius hired Ted Olsen, George W. Bush’s Solicitor General and Matthew McGill, who successfully argued the Franklin California challenge to the Puerto Rico Recovery Act.

In addition, some of the same commentators that argued that the Aurelius challenge was not to be taken serious now claim that to grant the bondholder’s request would mean the dismissal of the Title III cases. In its reply to the Board’s motion to dismiss, Aurelius made clear how it envisioned the result of its successful challenge:

“In fact, the Opposing Parties agree with Aurelius that the proper remedy here is narrow andeminently practical: The Court should simply sever the offending portions of Section 2121(e). Board Opp. 34–35. That would cure the constitutional problem by allowing the President to decide for himself, with the Senate’s consent, who is best suited to serve on the Board. The parties also agree that the Court has procedural tools to ensure an orderly transition from the current Board to one that complies with the Appointments Clause. See, e.g., Dkt. 1627 (“GO Bondholders’ Stmt.”) at 2–3; see also Board Opp. 34; Dkt. 1629 (“Retiree Comm. Opp.”) at 35; Dkt. 1640 (“AAFAF Opp.”) at 31; Dkt. 1631 (“Unsecured Creditors Opp.”) at 28. In particular, this Court could simply stay its order of dismissal pending appeal, and the First Circuit, following appellate review, could stay its mandate pending the nomination and confirmation of a new Board. The Opposing Parties’ prophecies of disaster are belied by their own view of the remedies. They are also revealing. The Opposing Parties presuppose that the President would not select, or the Senate would not confirm, the same people who currently occupy the Board’s seats—even if that were necessary to prevent the sky from falling in Puerto Rico. If the President did determine that the current members are unworthy of their offices or not capable of discharging the Board’s important responsibilities in the wake of the hurricanes, and the Senate did not disagree, that would be to the good. There is no legitimate reason to shield the Board from this public scrutiny.”

The oral argument is going to be epic and lengthy. Judge Swain has allotted 90 minutes for each side. Argument starts at 11 am AST and 10 am EST in New York. Given the importance of the issue, I have no doubt Judge Swain will decide quickly and any appeal to the First Circuit will be expedited

The Aurelius constitutional challenge, however, is not the only thing in the agenda. At 3 pm AST and 2 pm EST, there will be the consideration of the UCC’s request for reconsideration on Judge Swain’s dismissal of some of its causes of action for allegedly going beyond the scope of its appointment in the Commonwealth v. COFINA case. Specifically, the UCC, quite correctly, points out that although its causes of action challenging the constitutionality of the COFINA structure were struck down, similar causes of action presented by the Ad Hoc Group of GO bondholders and Bettina Whyte as COFINA agent were not. Let’s see what Judge Swain decides.

In addition, several bondholders had filed requests for Rule 2004 discovery and the Court signaled its agreement to it subject to specific objections. The parties filed a report informing the Court where they agree and where (surprise surprise) they did not and subsequently, the Ad Hoc GO Group filed a motion objecting to following:

“Some of these Fiscal Plan Development Materials—such as the live model that underlies the Commonwealth Fiscal Plan, certified in March 2017—were provided to Movants in the “data room.” Those data room materials are subject to the strict constraints of an NDA (or in some cases, the mediation agreement), which prohibits their use in any way in the litigation. Among other things, they cannot be used as evidence-in-chief or for impeachment purposes, nor can they ever be shown to the Court. As for the rest of the Fiscal Plan Development Materials—such as versions of the new fiscal plan submitted to (but not certified by) the Oversight Board—Respondents refuse to produce them at all. Joint Rpt. at 3. Either way, Respondents, who continue to tout their “commitment to transparency” (Dkt. 1928 at 1), insist that these Fiscal Plan Development Materials must never see the light of day.”

As I have mentioned many times before, the Board is anything but transparent and will fight to the end to continue obfuscating the truth. Some Supervisory Board!

Also this past week, Gregorio Igartua, who has filed many cases to get Puerto Rico to vote for President, filed a petition for permission to file a brief of amicus curiae and included it with his pleading. In essence, it requests:

“As it can be seen, for Federal Courts to follow the Insular Cases, the case of Balzac, and/or the case of Harris v Rosario to legally support Puerto Rico’s special relation with the U.S. as a non-incorporated territory is today legally unfounded and incorrect. The practice of treating Puerto Rico as a non-incorporated territory where constitutional dispositions do not apply, and as an incorporated for others, must end.”

Finally someone arguing what the Government of Puerto Rico should have argued, for example, that Puerto Rico is an incorporated territory and the full power of the Constitution applies to it. Too bad that this is too little, too late.

This summary is merely what I believe are the more salient motions and decisions in the cases. I receive an average of 20 filings each day so it would be impossible to summarize everything. If you have legal interest in these cases, I urge you to hire an attorney to represent you.