On Friday, February 15, the First Circuit Court of Appeals issued its ruling on Judge Laura Swain’s prior decision that had affirmed the PROMESA Board as constitutional.
In a surprise finding, the Court of Appeals overruled Judge Swain, finding that the PROMESA Board members were not appropriately appointed.
The issue in dispute is whether the members of the PROMESA Board are required to receive the consent of the U.S. Senate. In particular, under PROMESA, President Obama appointed the seven members of the PROMESA Board by using a list of board members the U.S. Congress recommended. At the time, since all stakeholders appeared to have been given a vote in the appointment process, there was little objection to the PROMESA Board members. Then, in May 2017, the PROMESA Board placed Puerto Rico in a bankruptcy-like proceeding under Title III of the Act. Prior to the enactment of PROMESA, many investors – both retail and institutional – had relied on the fact that Puerto Rico could not file for Title 9 bankruptcy as insurance against ever receiving anything less than the par value of their bonds from Puerto Rico. PROMESA, with its Title III bankruptcy-like process, changed that insurance policy for many investors.