Aurelius Investment, LLC v. Commonwealth of Puerto Rico, 021519 FED1, 18-1671

Docket Nº:18-1671, 18-1746, 18-1787
Opinion Judge:TORRUELLA, CIRCUIT JUDGE.
Party Name:AURELIUS INVESTMENT, LLC, ET AL., Appellants, v. COMMONWEALTH OF PUERTO RICO, ET AL., Appellees. ASSURED GUARANTY CORPORATION, ET AL., Appellants, v. FINANCIAL OVERSIGHT AND MANAGEMENT BOARD, ET AL., Appellees. UNIÓN DE TRABAJADORES DE LA INDUSTRIA ELÉCTRICA Y RIEGO (UTIER), Appellant, v. PUERTO RICO ELECTRIC POWER AUTHORITY, ET AL., Appellees.
Attorney: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 Guaranty Corporation. Rolando Emmanuelli-Jiménez, with whom Jessica E....
Judge Panel:Before Torruella, Thompson, and Kayatta, Circuit Judges.
Case Date:February 15, 2019
Court:United States Courts of Appeals, Court of Appeals for the First Circuit
 
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AURELIUS INVESTMENT, LLC, ET AL., Appellants,

v.

COMMONWEALTH OF PUERTO RICO, ET AL., Appellees.

ASSURED GUARANTY CORPORATION, ET AL., Appellants,

v.

FINANCIAL OVERSIGHT AND MANAGEMENT BOARD, ET AL., Appellees.

UNIÓN DE TRABAJADORES DE LA INDUSTRIA ELÉCTRICA Y RIEGO (UTIER), Appellant,

v.

PUERTO RICO ELECTRIC POWER AUTHORITY, ET AL., Appellees.

Nos. 18-1671, 18-1746, 18-1787

United States Court of Appeals, First Circuit

February 15, 2019

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 Guaranty Corporation.

Rolando Emmanuelli-Jiménez, with whom Jessica E. Méndez-Colberg, Yasmín Colón-Colón, and Bufete Emmanuelli, C.S.P. were on brief, for appellant UTIER.

Donald 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.

Walter 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.

Jorge 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 curiae.

Luc A. Despins and Paul Hastings LLP on brief, for The Official Committee of Unsecured Creditors of All Puerto Rico Title III Debtors.

Ian 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 Bondholders' Coalition.

Manuel A. Rodríguez-Banchs, and Matthew S. Blumin, on brief, for appellee American Federal of State, County & Municipal Employees.

Before Torruella, Thompson, and Kayatta, Circuit Judges.

TORRUELLA, CIRCUIT JUDGE.

The 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.

Before 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.

BACKGROUND

The 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 of Departments.

U.S. Const. art. II, § 2, cl. 2.

The 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.

A. Puerto Rico's Financial Crisis

The 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), https://centropr.hunter.cuny.edu/sites/default/files/PDF_Publica tions/Puerto-Rico-Crisis-Timeline-2017.pdf; see 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), https://www.nytimes .com/2015/06/29/business/dealbook/puerto-ricos-governor-says-islands-debts-are-not-payable.html. 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.[1]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), https://www.nabl.org/portals/0/documents/NABL_White_Paper.pdf.

From 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...

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