The Hearing on the Constitutional Challenge to the Board’s Appointment

On Wednesday January 10, 2018, Judge Swain heard arguments on the constitutional challenge by Aurelius and Utier to the appointment of the Board. The first to argue was Ted Olson, former Solicitor General of the United States, presenting Aurelius’ position. Mr. Olson started by stressing the necessity of having this issue decided quickly. Olson argued that the Appointments Clause of the US Constitution, like the other structural protections of the Constitution, exists to safeguard individual liberty.

Judge Swain weighed in with the first questions: The Board is a territorial entity according to PROMESA, what is your take on this?

Mr. Olson answered that under Metro. Wash. Airports Auth. v. Citizens for Abatement of Aircraft Noise, Inc. and Buckley v. Valeo, the Board was subject to the Appointments Clause since it exercised significant federal authority under federal law. He enumerated the powers of the Board and compared them to the Board in the Metro case and argued that the name of the thing does not make it whatever Congress says.

This brought up another question: Metro Airport was about separation of powers? Why do you cite it?

Mr. Olson explaining that the exercise of legislative power by that Board was a different constitutional violation but the case shows that Congress is subject to the structural requirements of the Constitution even when it acts regarding federal property or territories.  He noted the fact that clerks of the Territorial Courts were federal officials according to Supreme Court precedent. He also mentioned that in Marbury v. Madison, the issue was the appointment of a justice of the peace for DC, and because he was a federal officer, he needed a federal commission and thus brought suit.  Mr. Olson mentioned footnote 15 at page 34 of the US brief where he believes the Government was conceding that future members of the Board would have to be appointed as per the Appointments Clause.

The US denied that was the case but when we examine it, I believe Mr. Olson is right. The footnote states:

PROMESA also provides that if any of the seven members had not been appointed by September 1, 2016, then the President would have to appoint an individual from the list associated with the vacant position by September 15, 2016. See 48 U.S.C. § 2121(e)(2)(G). That provision, however, never came into play, and will not have any constraining effect on the President’s authority going forward. PROMESA provides that future vacancies will be filled “in the same manner in which the original member was appointed.” Id. § 2121(e)(2). That provision is most naturally read to mean that the President can choose future candidates off a congressional list (supplemented, as needed, by additional names) or select his own candidates subject to Senate confirmation. This reading is consistent with the text and the well-settled doctrine of constitutional avoidance. See Edward J. DeBartolo Corp. v. Florida Gulf Coast Building & Constr. Trades Council, 485 U.S. 568, 575 (2009) (“The so-called canon of constitutional avoidance is an interpretive tool, counseling that ambiguous statutory language be construed to avoid serious constitutional doubts.”).

Why mention the constitutional avoidance principle if you don’t mean that doing so will comply with the Constitution? The footnote thus presumes that the Appointments Clause applies to Puerto Rico.

In any event, Judge Swain asked another question: Is the fundamental power of Congress discussed in Sánchez Valle limited to criminal law? Does that power come from Congress or do you argue it comes from the people?

This is a good question, the implication being, does Sánchez Valle require the appointment of the Governor of Puerto Rico? Olson answered cleverly by saying the Governor of Puerto Rico does not wield significant federal authority and that the Governor is accountable to the people of Puerto Rico but the Board is not. He cited as precedent the case of Free Enter. Fund v. Pub. Co. Accounting Oversight Bd. and Freytag v. C.I.R.

Mr. Olson also argued that the Appointments Clause was a fundamental right but the other side argued that not all states have adopted its requirements so it can’t be an essential right. The USA gave several examples where that was not the case. It is unlikely this argument will be adopted since this would force the states to adopt the Appointments Clause. As he finished, Mr. Olson again urged a quick decision and stated that if the Court agreed with Aurelius’s position, they would consent to a stay during appeal, citing Marathon Pipeline as precedent.

Mr. Rolando Emmanuelli argued on the same side of Aurelius and at one point expressly adopted its submissions and arguments. He is representing UTIER, the principal union of PREPA. He argued that the Insular cases should be reversed, although but these cases can only be reversed by the Supreme Court, and also said the Court should not extend their holdings.

Judge Swain asked: If I recommend the repudiation of the Insular cases, would Puerto Rico have all the rights in the Constitution?

Mr. Emmanuelli sidestepped the answer saying that Congress would have to act. The right answer, however, would be that it would have the same rights of all territories, meaning no discrimination by Congress on assignment of funds for federal programs but that there would not be a right to send representatives to Congress or send electors to the Electoral College. Mr. Emmanuelli is not a statehooder.

Judge Swain asked another good question: As to exclusive federal powers, the debtor in a Chapter 9 or a Chapter 11 is allowed by Federal law to file a plan. Is that exercise of substantial federal power?

Emmanuelli said it is not. The answer, however, is much more complex since an isolated exercise of federal power does not make one into a federal official.

After Mr. Emmanuelli, the issue turned to Aurelius arguing as to its motion of lifting of the stay, which took about five minutes.

Donald Verrilli, Solicitor General under President Obama, argued for the Board insisting on the power of Congress to legislate as to territories, pushing Downes as good law.  Predictably, he disagreed with Mr. Olson and suggested a different test from Buckley, to wit, the structural relationship between the Board and Puerto Rico and the Board and the Federal Government. He stressed the Board was funded by Puerto Rico, it would not receive a penny from the USA, that several federal laws did not apply to the Board and that the statute says it is part of the Puerto Rican government. He continued mentioning that there was no territorial case cited in Aurelius brief and that Congress had broad authority when it legislate as to territories.

Then came the only question to him from the Judge: Congress can create agencies that carry Constitutional limitations outside the Territorial Clause? Where do you draw the line?

Verrilli answered that Congress has to follow the Constitution when legislating for Puerto Rico. Judge Swain then said your opponent will say that Territorial Courts are not Article III Courts. Verrilli countered that Congress allowed popular election in 1947. If in 1946, the governor was an official of the US, what changed? Congress retained the fundamental role which it delegated to the people but the ultimate source of the authority of Puerto Rico was Congressional Authority.

Mr. Verrilli continued defending the appointment by saying that President Obama had options in the appointment of the Board, contrary to Mr. Olson’s reading from the Congressional Record that the purpose was for a Republican Congress to select the members of the Board. President Obama, he argued, could have asked for more names also. He ended by claiming an independent Board was imbedded in the Government of Puerto Rico and the President was given removal powers to put some control on it. That begs the question, why place the power in the President if it is a Puerto Rico agency?

In a telling manner, the USA argued briefly, telling the Judge that if she adopted Aurelius’s argument, the Government of Puerto Rico would be unconstitutional, that Sánchez Valle and the Insular cases (and of course, Downes) all agree that territorial governments all owe their existence to Congressional Authority. Moreover, Mr. Ward surprised Judge Swain by saying that the USA would not necessarily agree to a stay if she granted Aurelius’s motion. The Government would want a time to brief the Court on the consequences of this action. Judge Swain was clearly dumbfounded by what the USA told her.

Walter Dellinger, acting Solicitor General under President Clinton, argued for AFFAF, surprisingly saying very little. He denounced the Insular cases, contrary to what he did in his brief where he cited Downes as good law, but said that the Appointments Clause exception was not dependent on them. He repeated the argument of what the Board could do in the name of the US. Unbelievably, he stated that the power of the Board, if it disappeared, would revert to PR. How it is that the power to file for Title III or to file the Plan of adjustment would revert to Puerto Rico is beyond my ken.

Other parties argued their points, but mostly in less than five minutes and not adding any significant points to the discussion, some rejecting the Insular cases, some arguing the UTIER did not have standing.  Martin Bienenstock briefly argued against the lifting of the stay saying Aurelius wanted to dismiss the Title III proceeding and rush to Court.  That’s not what the Aurelius brief says, but such comments from Bienenstock are par for the course in these proceedings.

In rebuttal, Mr. Emmanuelli discussed the standing issue, but the question still remains in my mind if, at this time, vis-à-vis, when the Plan of Adjustment is filed, the union has a cause of action.

Mr. Olson started his rebuttal by restating the question of the argument: Whether the Board members were officers of the US.

Judge Swain asked: Why do you think Congress said the Board is part of the Government of PR?

Olson answered probably because it was worried about the Appointments Clause.

Judge Swain asked: What if the President had a list of Board members and submitted them to the people of Puerto Rico for an election, would that make them a local or federal Board?

Olson said that it would be federal since it wields substantial federal authority.

She then asked: In 1947, there was a change on how the governor was selected, how does this change the authority?

He answered that this was done in all other territories and discussed the Northwest Ordnance.

Judge Swain changed the question to: Do you have any specific case law that says that elections obviate the Appointments Clause?

Olson answered that it all hinged on whether the party wielded federal authority.

Next Judge Swain asked: If Congress requires the President to make a list for governor and for the people to elect them?

Olson stated this creates constitutional problems and that that her hypothetical did not include what type of authority was wielded.

She finally asked: The president had time to appoint other persons to the Board but decided not to object?

Olsen answered that Congress had not given him time if n the Senate would not act.

After this, Judge Swain said she was taking the controversy under advisement. Although I think movants’ Constitutional argument is quite correct, given the many questions to Mr. Olsen and only one to those opposing him, I doubt Judge Swain will find in favor of Aurelius. That said, Judge Swain asked the parties about the stay of proceedings in case she decided in favor of Aurelius and was genuinely disturbed and dumbfounded by the USA’s refusal to go with the stay agreement, which could tip the scales. I don’t see the opinion coming out before February or March since Judge Swain knows the loser will take the issue to the US Supreme Court.

Later in the afternoon, Judge Swain heard argument on a motion for reconsideration of her dismissal of the UCC’s constitutional challenge to COFINA. I agree with the UCC that the stipulation does provide for constitutional challenges and only Ambac took exception to it. Judge Swain again took it under advisement and on January 11, 2018, issued an order denying the motion. However, she allowed the UCC the following:

“[The UCC] may file an urgent motion seeking leave to file a revised proposed Second Amended Complaint, with a redlined copy of the new proposal and a memorandum of law explaining the consistency of the proposal with the Court’s Scope ruling, by 6:00 p.m. (Atlantic Standard Time) on Thursday January 11, 2018. Any opposition to that urgent motion must be filed by 1:00 p.m (Atlantic Standard Time) on Friday January 12, 2018. Any reply must be filed by 10:00 p.m. (Atlantic Standard Time) on Friday January 12, 2018.”

Hence, the issue is still alive but the UCC has to very fine tune its averments.