Financial Oversight and Management Board for Puerto Rico v. Aurelius Investment, LLC

No. 18-1334 - Argued October 15, 2019
At Issue

Whether the Appointments Clause governs the appointment of members of the Financial Oversight and Management Board for Puerto Rico (“the Board”), which Congress created through the Puerto Rico Oversight, Management and Economic Stability Act of 2016 (“PROMESA”).

Whether the de facto officer doctrine allows courts to deny meaningful relief to successful separation-of-powers challengers who are suffering ongoing injury at the hands of unconstitutionally appointed principal officers.

  • Donald B. Verrilli, Jr., for the petitioner in No. 18-1334 and the respondent in No. 18-1521
  • Jeffrey B. Wall, for the United States, the petitioner in No. 18-1514
  • Theodore B. Olson, for the respondent in No. 18-1334, No. 18-1496, and No. 18-1514 and the petitioner in No. 18-1475
Background and Case Commentary

The Petitioner argued that the Appointments Clause does not apply to the Board’s members because the Board is a territorial agency that Congress created using its Article IV authority. The Respondent countered that the Appointments Clause applies to the Board’s members because the Board is a federal agency that Congress created using its Article I authority.

Below, I provide alternate answers for two questions: one for Petitioner and one for Respondent. 



The Petitioner’s proposed test (the Palmore test) involves looking at whether an agency focuses on nationwide or territorial issues to see if the agency is federal or territorial. To challenge this test, Justice Kagan (at 5:11) gave the Petitioner a hypothetical about an agency Congress set up to deal with a state problem. The Petitioner conceded that such an agency would be federal, in spite of its focus on one state’s localized issues rather than nationwide issues. Justice Kagan then asked the Petitioner what makes that agency different from the Board. My answer points to the fact that Congress has dual powers with respect to territories but not states. 



Multiple Justices, starting with Justice Kavanaugh (at 42:47), asked the Respondent whether PROMESA gives the Board duties that the territorial governor or legislature would otherwise perform. They asked this question to suggest that the Board’s duties are territorial in nature, making the Board a territorial agency. My answer explains why the Board’s duties are not territorial duties that the territorial government would perform in PROMESA’s absence.

Financial Oversight and Management Board for Puerto Rico v. Aurelius Investment, LLC on Oyez:

Key Questions from Oral Argument

Justice Kagan (5:11): Well, Mr. Verrilli, I mean, suppose that Congress looks at Florida and it says that there are a lot of hurricanes there and the waters are rising, and we have a terrible Florida problem. And Congress passes the Florida Reclamation Act, and it's supposed to deal with, you know, the Florida problem that it perceives but uses federal law to do so. Would you say that -- I think the -- your -- your phrase was the executive power of the national government. Would the head of the agency that the Florida Reclamation Act sets up be exercising the executive power of the national government? . . . [W]hat is the difference, Mr. Verrilli?

Grace Brosofsky (for Petitioner): Justice Kagan, the difference is that Congress doesn’t have the power to act as a state legislature, so any valid law Congress passes to address state problems must be an exercise of Congress’s federal legislative power. If Congress wants to set up an agency to address a “Florida problem,” it needs to use one of its Article I affirmative powers to set up a federal agency. It doesn’t have the option of setting up a state agency because the Constitution doesn’t give it the authority to do that. So in your example, we don’t have to ask, “Is this federal or state?” It has to be federal. That means the agency head would be exercising the executive power of the national government.

With territories, we have a different situation. Congress has dual authority with respect to the territories. It can either act under Article I to pass federal laws and set up federal agencies, or it can act as a territorial legislature under Article IV to pass territorial laws and set up territorial agencies. So when we have an agency like the Board, we have to ask, “Is this federal, or is this territorial?” Answering that question involves looking at whether the agency focuses on nationwide issues or territorial issues. It also involves looking at whether Congress said it was using Article I or Article IV when it passed the law creating the agency.

Justice Kavanaugh (42:47): But I think the response on the other side is that they've taken some of the powers and responsibilities that belonged to the governor and to the legislature and given them to the Board, and the governor, as you acknowledged, is elected, not appointed consistent with the Appointments Clause. So is that wrong that they've taken the powers from the governor and legislature and given them to the Board?

Grace Brosofsky (for Respondent): Justice Kavanaugh, prior to PROMESA’s passage, Puerto Rico’s governor and legislature actually didn’t have the core powers that Congress gave the Board. So these aren’t territorial powers; they’re federal powers. In 2014, the Puerto Rican legislature tried to pass its own bankruptcy law, the Puerto Rico Corporation Debt Enforcement and Recovery Act (the “PR Recovery Act”). But this Court found that it couldn’t do that in Puerto Rico v. Franklin Cal. Tax-Free Trust, et al., 136 S. Ct. 1938 (2016). Why? Because the federal Bankruptcy Code preempts state and territorial bankruptcy laws that enable insolvent municipalities to restructure their debts over the objections of creditors. That’s what the PR Recovery Act tried to do, and that’s exactly what PROMESA does.

When the territorial legislature doesn’t have the power to enact a law like PROMESA, it doesn’t make sense to say that Congress was acting as the territorial legislature and created a territorial agency through PROMESA. PROMESA must be a federal law passed using Congress’s Article I powers (specifically the Bankruptcy Clause). And the Board it created must be a federal agency exercising federal powers.