The United States government will notify the Financial Oversight and Management Board by Oct. 6 if it will defend the constitutionality of the Puerto Rico Oversight, Management and Economic Stability Act of 2016 (PROMESA), the U.S. Department of Justice confirmed.
In a statement filed under the PROMESA Title III bankruptcy case, the agency acknowledges receipt of Notice of Constitutional Challenge dated Aug. 7, filed by Aurelius Investment, LLC, Aurelius Opportunities Fund, LLC, and Lex Claims, LLC in which they notify the U.S. Attorney General of its constitutional challenge of PROMESA.
The bondholders claim that the appointment of the Oversight Board members violates the Appointment Clause and separation-of-powers principle of the U.S. Constitution.
“The United States has a statutory right to intervene in any federal court action in which the constitutionality of an Act of Congress is drawn into question,” according to the document signed by Puerto Rico U.S. Attorney Rosa Emilia Vélez.
The U.S. government may intervene within 60 days after a notice has been filed, unless the court handling the case sets a later date. Before that time period, the court may reject the constitutional challenge, but may not enter a final judgment holding the statute unconstitutional, the filing stated.
“The United States will notify the Court by [Oct. 6] whether it will defend the constitutionality of PROMESA, and if the United States does intend to do so, it will file its brief in support of the constitutionality of PROMESA within 30 days thereafter,” the notice stated.
Aurelius has submitted a proposed order asking the court to shorten the U.S. government’s deadline to respond, citing the Oversight Board “is already a party to this proceeding and, further, that several other federal agencies, such as the Environmental Protection Agency and the Internal Revenue Service, are either creditors or interested parties in this proceeding.”
However, the Puerto Rico U.S. Attorney’s office contended that the U.S. District Court for Puerto Rico — which is handling the historic case — should reject the petition to shorten the time period for several reasons.
“As the Court is aware, PROMESA was enacted against the backdrop of the worst fiscal crisis in Puerto Rico’s history and the Oversight Board, created under that statute, is charged with enormous responsibilities to tackle Puerto Rico’s debt crisis. By seeking to have the Oversight Board declared unconstitutional, Aurelius seeks to void any action taken by the Board since its inception and to end what it characterizes as ‘the largest and most complicated bankruptcy proceeding in the nation’s history’,” the document states.
Puerto Rico filed for bankruptcy under PROMESA in May at the U.S. District Court for Puerto Rico, looking to restructure some $70 billion in public debt with a staggering list of creditors.
“The magnitude of the relief sought by Aurelius cannot be overstated and, thus, the United States should be allowed sufficient time to determine its position on the constitutional issue Aurelius has raised,” the U.S. government further argued.
The Solicitor General of the United States is responsible for determining whether the government should defend the constitutionality of an act of Congress.