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Op-Ed: P.R. Financial Oversight Board was unconstitutionally appointed

By 2016, Puerto Rico’s government was in dire financial straits. To avoid bankruptcy, Congress enacted the Puerto Rico Oversight, Management, and Economic Stability Act (“PROMESA”), creating a board responsible for restructuring the island territory’s substantial public debts.

But there are serious questions regarding the constitutionality of this Financial Oversight and Management Board for Puerto Rico (the “Board”).

Under PROMESA, the president chooses six of the seven members of the Board from “secret lists submitted to [him] by the House and Senate leaders.”

But in view of the Board members’ selection process and responsibilities, the U.S. Court of Appeals for the First Circuit held that they are “principal federal officers” who must be nominated by the president and confirmed by the Senate, rather than “inferior officers” whose appointment does not go through the same constitutional rigmarole.

Under the Constitution’s Appointments Clause, the president “shall nominate” principal federal officers, “and by and with the Advice and Consent of the Senate, shall appoint” them. But that is not what happened here.

PROMESA’s appointment scheme raises serious separation-of-powers concerns because it positions the legislative branch to assume a role the Constitution exclusively reserves to the executive.

The First Circuit did not see it this way. Although it deemed the Board members “principal federal officers,” it applied an archaic doctrine to uphold their appointments. Under the “de facto officer” doctrine, acts performed by an officer that has assumed official duties without having been properly appointed to an office are valid even though it is later discovered that the officer’s appointment is legally deficient.

But this ancient doctrine is inapplicable to this case. Here, it is not the appointment of individual Board members against a valid appointment process that is in question. By all accounts, the appointment of each Board member did not violate any of PROMESA’s express prescriptions. Instead, it is PROMESA’s appointment process itself that is constitutionally suspect. In such case, the “de facto officer” doctrine has no real bearing, because no officer can be validly appointed in the first place.

Supreme Court precedent confirms, again and again, that the Board members are indeed “principal federal officers” who must be nominated by the president, and only then Senate-confirmed for appointment. That’s because they (1) occupy a “continuing” position established by federal law, and (2) “exercise significant authority pursuant to the laws of the United States.” While (1) is obvious, perhaps (2) is less so. And so it bears emphasizing that the Board, under PROMESA, has ultimate authority over the fiscal future of a U.S. territory of more than three million inhabitants. If that authority is not “significant,” we don’t know what is.

Cato has thus filed an amicus brief supporting several of Puerto Rico’s creditors before the Supreme Court, in their argument to overturn the decisions of the Board and invalidate its statutory authority. If PROMESA is allowed to stand, and the Board’s decisions are upheld, this will signal to the executive and legislative branches — both complicit in this perilous scheme —that anything goes, that they are free to strike at the heart of our constitutional structure without any pushback from the one branch left to preserve the ever-fragile separation of powers.

The Supreme Court will hear argument in Financial Oversight & Management Board for Puerto Rico v. Aurelius Investment, LLC on Oct. 15.

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This story was written by our staff based on a press release.

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