Aurelius Oral Arguments Update – December 5, 2018

Yesterday, Judges Torruella, Kayatta and Thompson heard oral arguments on Aurelius’ appeal on the Board’s appointment. In terms of prior issue exposure, Torruella and Thompson heard oral arguments on two other appeals on November 5 and Judge Kayatta actually authored a couple of PROMESA opinions.

Former Solicitor General Ted Olson argued for Aurelius. Judge Torruella inquired about the appointment of the DC Board and Olson said that they were minor officials, unlike the PR Board members. Judge Kayatta asked if it would be a problem if Congress gave the Governor of PR the power to put the island into bankruptcy. Olson explained that it would. Olson explained that the issue was not so much where the power came from, but what type of power was exercised: state or federal.

In regards to PROMESA stating that the Board is a local entity, Olson stressed that it was not important. Torruella then asked about what the Judges should look at to determine if the Board was a state or federal entity. Olson kind of skirted the answer but Aurelius’ brief discusses the factors and he cited all the pertinent Supreme Court tests.

When Utier, who also claims the Board’s appointment was unconstitutional, began its argument, it was obvious it was arguing for the reversal of the insular cases, to the extent that Judge Torruella reminded the lead counsel that the First Circuit did not have the power to do so, and Judge Thompson joined in this point. Clearly, Utier’s arguments had no impact on the Judges.

Former Solicitor General Verrilli argued for the Board. Torruella quickly challenged him on the argument that governors of the territories are appointed without Congressional approval, saying the statute was clear that this was temporary. Verrilli’s theme was that Congress’ actions showed it was not concerned with the Appointments Clause or the separation of powers. Torruella, who has written extensively on the Constitutional history of PR, challenged him again on the appointment of federal officials in PR before 1917. Clearly, Judge Torruella is not buying the argument that Congress was never concerned about the Appointments Clause in the territories.

Judge Kayatta mentioned that the appointment of the Board and their removal was under federal, not PR law. It is important to note that during the Federal Government’s oral argument, Judge Kayatta told Mr. Wall that if a person is elected, he can be removed by the electors. However, if he is appointed by the President, he can only be removed by him. More on this later.

Judge Torruella asked Mr. Verrilli if DC is covered by the same constitutional provisions (it is not) as PR. Verrilli said they are different but Congress’ power is the same. Torruella then discussed the appointment of territorial judges, which prompted Judge Kayatta to mention that territorial judges for the most part interpret territorial law, but here federal law is involved. Judge Thompson chimed in mentioning that this is bankruptcy law, not territorial law.

Torruella then asked an important question, whether the Governors of Guam and Virgin Islands were appointments. Verrilli made a point to say yes to bolster his argument of inapplicability of the Appointments Clause to the territories.

Judge Torruella then asked whether Altair was the test for a federal/territorial Board and Verrilli said no, but Judge Torruella insisted. Verrilli answered that he had to ignore Altair. Kayatta asked Verrilli whether his argument was that Congress’ compliance with the Appointments Clause in certain territorial cases meant it had to be followed in all cases for the territories? Verrilli answered yes. It is important to note that at the end of Mr. Verrilli’s argument, he became more strident in his argument. More on this later.

Mr. Jeffrey Wall, Principal Deputy Solicitor General of the United States (shows you that the Administration put a lot of effort in this case) argued that the separation of powers does not apply to the territories in the same way as other parts of the Constitution (same old argument). Mr. Wall emphasized, as he did during his entire argument, that otherwise, home rule (electing governors and legislators) would be unconstitutional. Argument clearly intended to scare the Judges.

Judge Torruella then threw in the clincher, asking whether elections were different. This has been Aurelius’ argument from the beginning to forestall the home rule issue. Wall skirted the issue but Judge Thompson came back to it asking the same question. Wall then argued that elections did not change governor’s duties. Judge Kayatta interjected a different but related statement, by stating that Congress says elections are pursuant to state law but the finances are dealt with by our guys. He also mentioned the elections exemption. Very telling. Mr. Wall said that nothing in the cases made such a distinction. This begs the question, why not make the distinction here?

Mr. Wall continued his argument citing Sánchez Valle, which prompted Torruella to comment that the Supreme Court said the case was about double jeopardy. Wall said no, it was about a lot more. Torruella jokingly said, “I read a different case.”

Judge Thompson interjected a loaded question, “could Congress appoint the Board?” Judge Kayatta joined the question. Wall meekly said that would bring other complicated questions. Mr. Wall, hit from several sides with negative comments on his arguments, did what we all do, quoted cases, essentially telling the Judges their view were wrong. He then went into an impassioned plea that there be a stay of the Board’s mandate if the case is reversed, that the Board’s work cannot stop and that bondholders were poised to take the money the Federal Government had earmarked for PR and that (not legally possible in my opinion, rhetoric more than anything else)  they did not care about funding essential services (he did not mention that neither the Board nor PR Government have defined what those are). The end of his argument sounded desperate. Judge Thompson then asked: in the case that the Appointment’s clause had been violated, what authority would the Board have to act? Very important question. Wall insisted that before that is done, further briefing would be needed.

As previously mentioned, Judge Kayatta also asked whether Congress could appoint the Board, saying that Congress had come very close to actually doing so. Wall discussed other instances where the President would appoint from a list from Congress. Judge Torruella then asked whether the separation of powers applied or not to the cases in territories, Wall had to admit no. He also insisted on Altair not being applicable.

Judge Kayatta again discussed that one thing is the power of Congress and quite another how it can exercise that power in the territories. Kayatta said the question pivots on substance v. procedure.

Then came the PDP, represented by Hernández-Mayoral, who stated the party had no position as to the constitutionality of the Board (his party had passed a resolution on Sunday against the Board, go figure), even when Judge Thompson asked the question. He was there to tell them that SCOTUS and First Circuit had stated that Congress had relinquished its power over the internal affairs of PR and any statement to the contrary would be wrong. No use to the case, though.

The PPD legislature, however, by voice of Mr. Martínez Luciano, joined the voices that said that the Board was unconstitutionally appointed. He did a good job. Judge Thompson asked whether Congress could repeal the PR home rule. Martínez Luciano skirted by saying that if that happened, the officials would be federal officials.

Olson had reserved 5 minutes for rebuttal and was asked by Judge Kayatta whether USVI and Guam would survive a ruling using Aurelius’ standard of whether the Board was federal. Olson said that the answer to that was elections exemption. Kayatta was not comforted by the answer—there had been no mention of elections exemption up to that point. Judge Torruella asked about the Federal Government’s argument of chaos if they decided in Aurelius’ favor. Olson mentioned that a stay could be implemented and the Board could act but knowing that the new Board would review all of its decisions.

From my experience in the First Circuit, the questions posed by the Judges and the answers to the questions, I would say that Aurelius has a good chance of having Judge Swain reversed, although of course I may be mistaken. This would result in grinding halt of the Title III proceedings and the Board’s authority over the PR Government, who actually would be the only winner since no action could be enforced against it. Given that President Trump is not happy with PR and that the Senate controlled by the Republicans would have to confirm the new Board, there is a chance of not having the same members again. What would be the result is anyone’s guess.

Having said that, the Board’s actions yesterday confirm my suspicion. The oral argument went from 3-4 pm PR time, and at 5:19 pm, I received an alert of a letter from the Board to PR saying it had not been complying with the requirement of sending an impact report on the dozens of laws it had passed in the last few months. Shortly thereafter, it sent a tweet saying that it expected the First Circuit to confirm the well-reasoned opinion by Judge Swain. The Board had never sent a tweet on the previous appeals. Seems to me the Board’s lawyers saw the same thing I saw, a likelihood of reversal and are preparing for it.

It’s all quite ironic though, because before yesterday’s oral arguments, the FOMB counsel must have been feeling pretty confident about the enforcement of Judge Swain’s decision.  Au contraire, Mr. Bienenstock. He and his team might be in for a rude awakening. I am sure the Board’s lobbyists are working hard in the Senate and federal government at this time. Good luck. Again, I may be wrong, Verrilli and Wall did a good job but it was clear at the end of their arguments that they knew the Judges were not buying their claims.

Irrespective of this, the loser in the case will immediately request certiorari from SCOTUS, who sees less than 1% of the requests. With a judgment by January, it is totally possible to have briefing, oral arguments and a decision no later than June 30. Let’s see what happens.

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.