APPEALS FROM THE UNITED STATES DISTRICT COURT FOR THE
DISTRICT OF PUERTO RICO [Hon. Laura Taylor Swain,
U.S. District Judge]
Theodore B. Olson, with whom Matthew D. McGill, Helgi C.
Walker, Lucas C. Townsend, Lochlan F. Shelfer, Jeremy M.
Christiansen, and Gibson, Dunn & Crutcher LLP were on
brief, for appellants Aurelius Investment, LLC and Assured
Rolando Emmanuelli-Jiménez, with whom Jessica E.
Colón-Colón, and Bufete Emmanuelli, C.S.P. were
on brief, for appellant UTIER.
B. Verrilli, Jr., with whom Ginger D. Anders, Chad I. Golder,
Sarah G. Boyce, Rachel G. Miller-Ziegler, Munger, Tolles
& Olson LLP, Martin J. Bienenstock, Stephen L. Ratner,
Timothy W. Mungovan, Mark D. Harris, Chantel L. Febus,
Proskauer Rose LLP, Hermann D. Bauer, Ubaldo M.
Fernández, and O'Neill & Borges LLC were on
brief, for appellee The Financial Oversight and Management
Board for Puerto Rico.
Dellinger, Peter Friedman, John J. Rapisardi, William J.
Sushon, and O'Melveny & Myers LLP on brief, for The
Puerto Rico Fiscal Agency and Financial Advisory Authority.
Jeffrey B. Wall, with whom Laura E. Myron, Attorney,
Appellate Staff, Civil Division, U.S. Department of Justice,
Joseph H. Hunt, Assistant Attorney General, Thomas G. Ward,
Deputy Assistant Attorney General, Mark R. Freeman, Michael
S. Raab, and Michael Shih, Attorneys, Appellate Staff, Civil
Division, were on brief, for appellee the United States.
José A. Hernández-Mayoral, with whom Rafael
Hernández-Colón, and Héctor
Ferrer-Ríos, were on brief, as amicus curiae, for the
Popular Democratic Party of Puerto Rico and its President.
Martínez-Luciano, with whom Emil
Rodríguez-Escudero, M.L. & R.E. Law Firm,
Aníbal Acevedo-Vilá and Law Office
Aníbal Acevedo-Vilá were on brief, as amici
Despins and Paul Hastings LLP on brief, for The Official
Committee of Unsecured Creditors of All Puerto Rico Title III
Heath Gershengorn, Lindsay C. Harrison, William K. Dreher,
Catherine Steege, Melissa Root, Robert Gordon, Richard Levin,
A.J. Bennazar-Zequeira, and Bennazar, García, &
Milián, C.S.P. on brief, for The Official Committee of
Retired Employees of the Commonwealth of Puerto Rico.
Charles J. Cooper, Michael W. Kirk, Howard C. Nielson, Jr.,
John D. Ohlendorf, Haley N. Proctor, Cooper & Kirk, PLLC,
Rafael Escalera, Carlos R. Rivera-Ortiz, Sylvia M.
Arizmendi-López de Victoria, and Reichard &
Escalera on brief, for Creditors-Appellees the Cofina Senior
A. Rodríguez-Banchs, and Matthew S. Blumin, on brief,
for appellee American Federal of State, County &
Torruella, Thompson, and Kayatta, Circuit Judges.
TORRUELLA, CIRCUIT JUDGE.
matter before us arises from the restructuring of Puerto
Rico's public debt under the 2016 Puerto Rico Oversight,
Management, and Economic Stability Act ("PROMESA").
This time, however, we are not tasked with delving into the
intricacies of bankruptcy proceedings. Instead, we are
required to square off with a single question of
constitutional magnitude: whether members of the Financial
Oversight and Management Board created by PROMESA
("Board Members") are "Officers of the United
States" subject to the U.S. Constitution's
Appointments Clause. Title III of PROMESA authorizes the
Board to initiate debt adjustment proceedings on behalf of
the Puerto Rico government, and the Board exercised this
authority in May 2017. Appellants seek to dismiss the Title
III proceedings, claiming the Board lacked authority to
initiate them given that the Board Members were allegedly
appointed in contravention of the Appointments Clause.
we can determine whether the Board Members are subject to the
Appointments Clause, we must first consider two antecedent
questions that need be answered in sequence, with the answer
to each deciding whether we proceed to the next item of
inquiry. The first question is whether, as decided by the
district court and claimed by appellees, the Territorial
Clause displaces the Appointments Clause in an unincorporated
territory such as Puerto Rico. If the answer to this first
question is "no," our second area of discussion
turns to determining whether the Board Members are
"Officers of the United States," as only officers
of the federal government fall under the purview of the
Appointments Clause. If the answer to this second question is
"yes," we must then determine whether the Board
Members are "principal" or "inferior"
United States officers, as that classification will dictate
how they must be appointed pursuant to the Appointments
Clause. But before we enter fully into these matters, it is
appropriate that we take notice of the developments that led
to the present appeal.
centerpieces of the present appeals are two provisions of the
Constitution of the United States. The first is Article II,
Section 2, Clause 2, commonly referred to as the
"Appointments Clause," which establishes that:
[The President] . . . shall nominate, and by and with the
Advice and Consent of the Senate, shall appoint . . . all
other Officers of the United States, whose Appointments are
not herein otherwise provided for, and which shall be
established by Law: but the Congress may by Law vest the
Appointment of such inferior Officers, as they think proper,
in the President alone, in the Courts of Law, or in the Heads
U.S. Const. art. II, § 2, cl. 2.
second is Article IV, Section 3, Clause 2, or the
"Territorial Clause," providing Congress with the
"power to dispose of and make all needful Rules and
Regulations respecting the Territory . . . belonging to the
United States." U.S. Const. art. IV, § 3, cl. 2.
Puerto Rico's Financial Crisis
interaction between these two clauses comes into focus
because of events resulting from the serious economic
downfall that has ailed the Commonwealth of Puerto Rico since
the turn of the 21st Century, see Center for Puerto
Rican Studies, Puerto Rico in Crisis Timeline,
Hunter College (2017),
generally Juan R. Torruella, Why Puerto Rico Does
Not Need Further Experimentation with Its Future: A Reply to
the Notion of "Territorial Federalism", 131
Harv. L. Rev. F. 65 (2018), and its Governor's
declaration in the summer of 2015 that the Commonwealth was
unable to meet its estimated $72 billion public debt
obligation, see Michael Corkery & Mary Williams
Walsh, Puerto Rico's Governor Says Island's Debts
Are "Not Payable", N.Y. Times (June 28, 2015),
This obligation developed, in substantial part, from the
triple tax-exempt bonds issued and sold to a large variety of
individual and institutional investors, not only in Puerto
Rico but also throughout the United States.Given the
unprecedented expansiveness of the default in terms of total
debt, the number of creditors affected, and the
creditors' geographic diversity, it became self-evident
that the Commonwealth's insolvency necessitated a
national response from Congress. Puerto Rico's default
was of particular detriment to the municipal bond market
where Commonwealth bonds are traded and upon which state and
local governments across the United States rely to finance
many of their capital projects. See Nat'l Assoc.
of Bond Lawyers, Tax-Exempt Bonds: Their Importance to
the National Economy and to State and Local Governments
5 (Sept. 2012),
1938 until 1984, Puerto Rico was able, like all other U.S.
jurisdictions, to seek the protection of Chapter 9 of the
U.S. Bankruptcy Code when its municipal instrumentalities ran
into financial difficulties. See Franklin Cal. Tax-Free
Trust v. Puerto Rico, 805 F.3d 322,
345-50 (1st Cir. 2015) (Torruella, J., concurring). But
without any known or documented explanation, in 1984,
Congress extirpated from the Bankruptcy Code the availability
of this relief for the Island. Id. at 350. In an
attempt to seek self-help, and amidst the Commonwealth's
deepening financial crisis, the Puerto Rico Legislature
passed its own municipal bankruptcy legislation in 2014.
See Puerto Rico Public Corporation Debt Enforcement
and Recovery Act of 2014, 2014 P.R. Laws Act No. 71; see
generally Lorraine S. McGowen, Puerto Rico Adopts a
Debt Recovery Act for Its Public Corporations, 10
Pratt's J. Bankr. L. 453 (2014). The Commonwealth's
self-help journey, however, was cut short by the Supreme
Court in Puerto Rico v. Franklin Cal.
Tax-Free Tr., 136 S.Ct. 1938 (2016), which invalidated
the Puerto Rico bankruptcy statute. Coincidentally, the
Supreme Court decided Franklin Cal. on June 13, 2016
-- seven days before the following congressional intervention
into this sequence of luckless events.
Congress Enacts PROMESA
30, 2016, Congress's next incursion into Puerto
Rico's economic fortunes took place in the form of Public
Law 114-187, the Puerto Rico Oversight, Management, and
Economic Stability Act (PROMESA),  48 U.S.C. § 2101 et
seq., which Congress found necessary to deal with Puerto
Rico's "fiscal emergency" and to help mitigate
the Island's "severe economic decline." See
id. § 2194(m)(1). Congress identified the
Territorial Clause as the source of its authority to enact
this law. See id. § 2121(b)(2).
To implement PROMESA, Congress created the Financial
Oversight and Management Board of Puerto Rico (the
"Board"). Congress charged the Board with providing
independent supervision and control over Puerto Rico's
financial affairs and helping the Island "achieve fiscal
responsibility and access to the capital markets."
Id. § 2121(a). In so proceeding, Congress
stipulated that the Board was "an entity [created]
within the territorial government" of Puerto Rico,
id. § 2121(c)(1), which "shall not be
considered to be a department, agency, establishment, or
instrumentality of the Federal Government," id.
§ 2121(c)(2), and that it was to be funded entirely from
Commonwealth resources, id. §
PROMESA places the Board "within" the Puerto Rico
territorial government, Section 108 of PROMESA, which is
labeled "Autonomy of Oversight Board," id.
§ 2128, precludes the Puerto Rico Governor and
Legislature from exercising any power or authority over the
so-called "territorial entity" that PROMESA
creates. Instead, it subordinates the Puerto Rico territorial
government to the Board, as it unambiguously pronounces that:
(a) . . . Neither the Governor nor the Legislature may --
(1) exercise any control, supervision, oversight, or review
over the . . . Board or its activities; or
(2)enact, implement, or enforce any statute, resolution,
policy, or rule that would impair or defeat the purposes of
this chapter, as determined by the . . . Board.
Id. § 2128(a).
also provides additional authority and powers to the Board
with similarly unfettered discretion. For example, Section
101(d)(1)(A) grants the Board, "in its sole discretion
at such time as the . . . Board determines to be
appropriate," the designation of "any territorial
instrumentality as a covered territorial instrumentality that
is subject to the requirements of [PROMESA]."
Id. § 2121(d)(1)(A). Under Section
101(d)(1)(B), the Board, "in its sole discretion,"
may require the Governor of Puerto Rico to submit "such
budgets and monthly or quarterly reports regarding a covered
territorial instrumentality as the . . . Board determines to
be necessary . . ." Id. § 2121(d)(1)(B).
Pursuant to Section 101(d)(1)(C), the Board is allowed,
"in its sole discretion," to require separate
budgets and reports for covered territorial instrumentalities
apart from the Commonwealth's budget, and to require the
Governor to develop said separate documents. Id.
§ 2121(d)(1)(C). Per Section 101(d)(1)(D), the
"Board may require, in its sole discretion," that
the Governor "include a covered territorial
instrumentality in the applicable Territory Fiscal
Plan." Id. § 2121(d)(1)(D). Further, as
provided in Section 101(d)(1)(E), the Board may, "in its
sole discretion," designate "a covered territorial
instrumentality to be the subject of [a separate]
Instrumentality Fiscal Plan." Id. §
2121(d)(1)(E). Finally, Section 101(d)(2)(A) bestows upon the
Board, again "in its sole discretion, at such time as
the . . . Board determines to be appropriate," the
authority to "exclude any territorial instrumentality
from the requirements of [PROMESA]." Id. §
also requires the Board to have an office in Puerto Rico and
elsewhere as it deems necessary, and that at any time the
United States may provide the Board with use of federal
facilities and equipment on a reimbursable or
non-reimbursable basis. Id. § 2122.
Additionally, Section 103(c) waives the application of Puerto
Rico procurement laws to the Board, id. §
2123(c), while Section 104(c) authorizes the Board to acquire
information directly from both the federal and Puerto Rico
governments without the usual bureaucratic hurdles,
id. § 2124(c). Moreover, the Board's power
to issue and enforce compliance with subpoenas is to be
carried out in accordance with Puerto Rico law. Id.
§ 2124(f). Finally, PROMESA directs the Board to
ensure that any laws prohibiting public employees from
striking or engaging in lockouts be strictly enforced.
Id. § 2124(h).
come to PROMESA's Title III, the central provision of
this statute, which creates a special bankruptcy regime
allowing the territories and their instrumentalities to
adjust their debt. Id. §§ 2161-77. This
new bankruptcy safe haven applies to territories more broadly
than Chapter 9 applies to states because it covers not just
the subordinate instrumentalities of the territory, but also
the territory itself. Id. § 2162.
important provision of PROMESA's bankruptcy regime is
that the Board serves as the sole representative of Puerto
Rico's government in Title III debtor-related
proceedings, id. § 2175(b), and that the Board
is empowered to "take any action necessary on behalf of
the debtor" -- whether the Commonwealth government or
any of its instrumentalities -- "to prosecute the case
of the debtor," id. § 2175(a).
Appointment of Members to PROMESA's Board
establishes that the "Board shall consist of seven
members appointed by the President," who must comply
with federal conflict of interest statutes. Id.
§ 2121(e)(1)(A). The Board's membership is divided into
six categories, labelled A through F, with one member for
Categories A, B, D, E, and F, and two members for Category C.
Id. § 2121(e)(1)(B). The Governor of Puerto Rico,
or his designee, also serves on the Board, but in an ex
officio, non-voting capacity. Id. §
2121(e)(3). The Board's duration is for an indefinite
period, at a minimum four years and likely more, given the
certifications that Section 209 of PROMESA
to Section 101(f) of PROMESA, individuals are eligible for
appointment to the Board only if they:
(1) ha[ve] knowledge and expertise in finance, municipal bond
markets, management, law, or the organization or operation of
business or government; and
(2)prior to appointment, [they are] not an officer, elected
official, or employee of the territorial government, a
candidate for elected office of the territorial government,
or a former elected official of the territorial government.
Id. § 2121(f). In addition, there are certain
primary residency or primary business place requirements that
must be met by some of the Board Members. Id. §
2121(e)(2)(B)(i), (D) (requiring that the Category A Board
Member "maintain a primary residence in the territory or
have a primary place of business in the territory").
particular importance to our task at hand is Section
101(e)(2)(A), which outlines the procedure for ...