SCOTUS Rejects Appointments Clause Challenge to Puerto Rico Oversight Board

In Financial Oversight and Management Board for Puerto Rico v. Aurelius Investment, LLC, 590 U. S. ____ (2020), the U.S. Supreme Court held that the Constitution’s Appointments Clause does not restrict the appointment or selection of members of Puerto Rico’s Financial Oversight and Management Board. The Court’s decision was unanimous.

Appointments Claus

Facts of the Case

In 2016, in response to a fiscal crisis in Puerto Rico, Congress invoked its Article IV power to “make all needful Rules and Regulations respecting the Territory . . . belonging to the United States,” to enact the Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA). PROMESA created a Financial Oversight and Management Board (Board), whose seven voting members are to be appointed by the President without the Senate’s advice and consent. Congress authorized the Board to file for bankruptcy on behalf of Puerto Rico or its instrumentalities, to supervise and modify Puerto Rico’s laws and budget, and to gather evidence and conduct investigations in support of these efforts.

After President Barak Obama selected its members, the Board filed bankruptcy petitions on behalf of the Commonwealth and five of its entities. Both court and Board had decided a number of matters when several creditors moved to dismiss the proceedings on the ground that the Board members’ selection violated the Constitution’s Appointments Clause. It provides that the President: “Shall nominate, and by and with the Advice and Consent of the Senate, shall appoint Ambassadors, other public Ministers and Consuls, Judges of the supreme Court, and all other Officers of the United States…”

The court denied the motions, but the First Circuit Court of Appeals reversed. It held that the Board members’ selection violated the Appointments Clause but also concluded that any Board actions taken prior to its decision were valid under the “de facto officer” doctrine.

Supreme Court’s Decision

The Court unanimously held that the Appointments Clause does not dictate how the Board’s members must be selected. As Justice Stephen Breyer wrote on behalf of the Court:

In our view, the Appointments Clause governs the appointments of all officers of the United States, including those located in Puerto Rico. Yet two provisions of the Constitution empower Congress to create local offices for the District of Columbia and for Puerto Rico and the Territories. And the Clause’s term “Officers of the United States” has never been understood to cover those whose powers and duties are primarily local in nature and derive from these two constitutional provisions. The Board’s statutory responsibilities consist of primarily local duties, namely, representing Puerto Rico in bankruptcy proceedings and supervising aspects of Puerto Rico’s fiscal and budgetary policies. We therefore find that the Board members are not “Officers of the United States.” For that reason, the Appointments Clause does not dictate how the Board’s members must be selected.

In reaching its decision, the Court first determined that the Appointments Clause constrains the appointments power as to all officers of the United States, even those who exercise power in or in relation to Puerto Rico. In support, it cited the structure of the Constitution and its goal of distributing the power of appointment. The Court also noted that history supported its conclusion, noting that Congress’ longstanding practice of requiring the Senate’s advice and consent for territorial Governors with important federal duties supports the inference that Congress expected the Appointments Clause to apply to at least some officials with supervisory authority over the Territories.

 The Court next turned to whether the Board members are “Officers of the United States” such that the Appointments Clause requires Senate confirmation. The Court first found that while the Appointments Clause does restrict the appointment of “Officers of the United States” with duties in or related to the District of Columbia or an Article IV entity, it does not restrict the appointment of local officers that Congress vests with primarily local duties under Article IV, §3, or Article I, §8, cl. 17. “Indeed, to read Appointments Clause constraints as binding Puerto Rican officials with primarily local duties would work havoc with Puerto Rico’s (federally ratified) democratic methods for selecting many of its officials,” Justice Breyer wrote.

Finally, the Court concluded that the Board members here have primarily local powers and duties. Justice Breyer wrote:

In short, the Board possesses considerable power—including the authority to substitute its own judgment for the considered judgment of the Governor and other elected officials. But this power primarily concerns local matters. Congress’ law thus substitutes a different process for deter- mining certain local policies (related to local fiscal responsibility) in respect to local matters. And that is the critical point for current purposes. The local nature of the legislation’s expressed purposes, the representation of local interests in bankruptcy proceedings, the focus of the Board’s powers upon local expenditures, the local logistical support, the reliance on local laws in aid of the Board’s procedural powers—all these features when taken together and judged in the light of Puerto Rico’s history (and that of the Territories and the District of Columbia)—make clear that the Board’s members have primarily local duties, such that their selection is not subject to the constraints of the Appointments Clause.

In light of its conclusion, the Court did not address additional issues raised on appeal, such as whether to overrule the “Insular Cases” and their progeny or to consider the application of the de facto officer doctrine.