Hedge Fund Sues to Have Puerto Rico’s Bankruptcy Case Thrown Out
The board members were instead “handpicked by individual members of Congress,” it said, through “an intricate
system of Balkanized lists, designed to severely constrain the president’s appointment powers.”
No Senate confirmation proceedings occurred, although senators of both parties were among the members
of Congress who made recommendations last year to President Barack Obama for the board.
Title III of Promesa, which is similar to Chapter 9 municipal bankruptcy, gives Puerto Rico the power to abrogate contracts unilaterally —
but it has no access to Title III without the oversight board’s authorization.
In a lawsuit filed in United States District Court in San Juan, the hedge fund, Aurelius Capital, cited the “appointments clause” of the United States
Constitution, which calls for all principal officers of the federal government to be appointed by the president, and then confirmed by the Senate.
That did not happen when the seven members of the Financial Oversight
and Management Board for Puerto Rico were selected, Aurelius said in its motion to dismiss the bankruptcy-like proceedings.
After a number of hearings, and even expedited arguments before the United States Supreme Court, Congress last year enacted
a law called Promesa, which gives insolvent territories a way to seek court protection from their creditors.
Work then began on a five-year fiscal reform plan, and Puerto Rico’s Title III proceedings began last May.