Puerto Rico Fiscal Oversight Board Ruled Constitutional

Munger, Tolles & Olson represented the Financial Oversight and Management Board for Puerto Rico in obtaining dismissal of a challenge brought by Aurelius Investment, LLC, a hedge fund alleging that the board was appointed in violation of the Constitution’s Appointments Clause.

The board was appointed in 2016 after Congress passed the Puerto Rico Oversight, Management and Economic Stability Act (PROMESA) in the midst of Puerto Rico’s massive fiscal crisis. On July 13, 2018, the U.S. District Court for the District of Puerto Rico concluded that PROMESA’s mechanism for appointing the board was constitutional because Congress has plenary power over the territories under Article IV of the Constitution. The court also concluded that, when creating the board, Congress was acting pursuant to its Article IV powers and, as result, Congress need not comply with the requirements of the Appointments Clause because the board members are not “officers of the United States” within the meaning of that clause.

Rejecting each of Aurelius’ arguments, the court concluded: “Given that the oversight board is a territorial entity and its members are territorial officers, Congress had broad discretion to determine the manner of selection for members of the oversight board. Congress exercised that discretion in empowering the president with the ability to both appoint and remove members from the oversight board.”

The court’s decision enables the board to continue its vital efforts to stabilize Puerto Rico’s financial condition and facilitate its economic recovery.

The Munger, Tolles & Olson lawyers representing the board include Donald B. Verrilli, Chad Golder, Ginger D. Anders, Sarah G. Boyce, Adele M. El-Khouri and Rachel Miller-Ziegler.