The Puerto Rico Department of Justice has petitioned the U.S. Supreme Court for certiorari, ruling the constitutional validity of the Public Corporation Debt Restructuring Act, which would allow the island’s public corporations to restructure their debts through an orderly process.
Justice Secretary César Miranda said Monday through this petition, the government sought to reaffirm the need for public corporations to be able to restructure their debts while guaranteeing essential services to residents.
“As announced a few weeks ago, we are petitioning the federal court of last resort to acknowledge Puerto Rico’s authority to enact laws that would allow public corporations to restructure their debts,” he said.
The petition states that, given the fact that Puerto Rico was excluded from Chapter 9 of the U.S. Bankruptcy Code in 1984, the field is not preempted; therefore, the local Act is constitutional.
“As we have stated before, to allow Puerto Rico to remain in a state of defenselessness in matters of fiscal law is unacceptable. It is with this conviction that we firmly defend our right to pass laws regulating the orderly processes that both the government and its creditors need in order to deal with the present debt load,” Miranda said.
He noted that the U.S. Supreme Court should grant the petition, which would recognize Puerto Rico’s authority to enact a law that would allow the fiscal restructuring of public corporations.
“The time has come to dispel any unfounded doubts that have been cast on our authority to conduct our own affairs in matters of fiscal law. There is no constitutional impediment to enforcing Law 71, which we believe is constitutional. It is necessary and it is time to address our obligations in a fair and orderly fashion,” Miranda said.
Puerto Rico’s trip to the highest court began with the complaint brought by Puerto Rico Electric Power Authority (PREPA) bondholders before the U.S. District Court for the District of Puerto Rico in June 2014, right after Law 71 was passed.
In February 2015, Judge Francisco Besosa ruled the mandate to be unconstitutional and issued an injunction against its enforcement. The Commonwealth went on appeal to the U. S. Court of Appeals for the First Circuit in Boston, On July 7, 2015, the appellate court upheld the district court decision, concluding that Law 71 is preempted by section 903(1) of Chapter 9 of the U.S. Bankruptcy Code, which prevents Puerto Rico from passing legislation that would allow public corporations to restructure their debt. The appellate court also interpreted that the U.S. Congress reserved the right to amend Chapter 9 to include Puerto Rico.
In its current petition, the Commonwealth argues that by excluding Puerto Rico from Chapter 9 in 1984, Congress did not express any intent to prevent Puerto Rico from enacting a local law for debt restructuring. Other arguments stated in the petition include: that there is no conflict between the federal act and the local act, that the authority of states to enact debt restructuring laws has been validated through history, that the legal limbo where the lower federal courts have put Puerto Rico is not proper at law, and that the First Circuit’s interpretation on preemption in this case is an affront to Puerto Rico’s autonomy to approve legislation on its internal affairs in times of crisis.
The U.S. Supreme Court should notify whether it grants or denies the petition, given that this certiorari is of a discretionary nature. Should the Court grant the petition, the Court would then release the schedule for the parties to submit briefs, scheduling hearings and other proceedings, the agency noted.
“The U.S. Supreme Court’s intervention is urgently needed. The Court should reverse the dissimilar treatment afforded to Puerto Rico by virtue of the First Circuit’s decision which arbitrarily prevents Puerto Rico from taking advantage of the benefits of Chapter 9 and which annuls the Commonwealth of Puerto Rico’s pressing interest of addressing a crisis situation that has put Puerto Ricans at the mercy of its creditors without a legal mechanism that will help us,” said Solicitor General Margarita Mercado-Echegaray, who filed the petition late Friday on behalf of the Commonwealth.