WASHINGTON (Reuters) - The U.S. Supreme Court on Thursday agreed to decide whether members of Puerto Rico’s federally created financial oversight board were lawfully appointed in a dispute that could disrupt the panel’s restructuring of about $120 billion of the bankrupt U.S. commonwealth’s debt.
The justices will hear an appeal by the board after a lower court ruled in February that the 2016 appointments of its seven members violated the U.S. Constitution’s “appointments clause” because they were not confirmed by the Senate.
Creditors challenging the appointments filed appeals separately, asking the Supreme Court to find that the decisions made by the board are invalid because its members were unlawfully installed. The justices also agreed to hear that part of the dispute.
The court scheduled oral arguments for October in a bid to resolve the issue quickly. The board is overseeing the restructuring of debt and pension obligations through a form of bankruptcy.
The board welcomed the court’s decision to hear the case and said in a statement that its members “look forward to continuing their service.”
The legal challenge to the board’s composition was brought in 2017 by Puerto Rico creditors including Aurelius Investment, LLC, a hedge fund that holds Puerto Rico bonds, and Unión de Trabajadores de la Industria Eléctrica y Riego, Inc, a labor group that represents workers at Puerto Rico’s government-owned electricity utility.
Bondholders face losses as a result of debt restructuring while the labor group has said that the board’s proposed restructuring of the utility’s debt would lead to its members having worse working conditions.
In an effort to resolve the dispute, the White House on June 18 officially sent nominations for the board’s current members to the Senate. The Trump administration filed its own appeal to the Supreme Court defending the appointments.
In the meantime, the oversight board has asked an appeals court to extend a July 15 deadline it set for the board’s seven members to be reappointed or replaced.
While the Boston-based 1st U.S. Circuit Court of Appeals declined in its February ruling to void actions taken by the board, the decision created uncertainty as the panel continues its efforts to restructure Puerto Rico’s debt and pension obligations.
Congress created the board in 2016 to address Puerto Rico’s fiscal crisis. The law stated that the board is part of the U.S. territory’s government, not a separate federal agency, and that the president can appoint members without Senate approval from a list approved by lawmakers.
The appeals court said that members are federal officers and therefore must be confirmed by the Senate. The board argues that because Puerto Rico is a territory not a state, the appointments clause does not apply.
Reporting by Lawrence Hurley; additional reporting by Karen Pierog; editing by Grant McCool