Supreme Court Upholds Puerto Rico’s Financial Oversight and Management Board

By: Brittany M. Clark

St. John’s University School of Law

American Bankruptcy Institute Law Review Staff


In 2016, President Barack Obama signed into law the Puerto Rico Oversight, Management, and Economic Stability Act (“PROMESA”), which established the Financial Oversight and Management Board (the “Board”) to supervise a reorganization process on behalf of the Commonwealth and five of its entities.[1] In accordance with PROMESA, President Obama selected the members of the Board without Senate approval. The Board subsequently filed Title III of PROMESA Petitions on behalf of Puerto Rico.[2] Several creditors moved to dismiss the petitions and Lift Stay Motion arguing that the Board members’ selection violated the Appointments Clause set forth in the US Constitution,[3] which provides that the President may nominate and, with the Senate's advice and consent, appoint public officials.[4] The United States District Court of Puerto Rico denied the motions, finding that the Board members were not “Officers of the United States” subject to the Appointments Clause and that neither Presidential nomination nor Senate confirmation of the Board members was necessary.[5] The First Circuit reversed the district court's decision, holding that the Board members' selection violated the Appointments Clause, but any Board actions taken beforehand were valid under the de facto officer doctrine. [6] The Supreme Court granted certiorari.

The Supreme Court concluded that the Appointments Clause governs the appointments of all officers of the United States, including those exercising power in or relation to Puerto Rico.[7] Furthermore, the Court interpreted the Appointments Clause as having a distinction between federal officers, who exercise the power of the national government, and nonfederal officers, who exercise the power of a state or territory.[8] The Constitution acknowledges nonstate governments – like Puerto Rico—that are capable of exercising local power.[9] Constitutional Article IV and Article I empowers Congress to create local offices for territories.[10] The  Court explained that these articles are a contemplated exercise of authority that has historically been utilized to create and fill government offices on behalf of territories, including Puerto Rico.[11] Therefore, while the Appointments Clause restricts the appointment of "Officers of the United States," it does not limit local officers' appointments that Congress vests with primarily local duties under Article IV or Article I.[12]

According to the Supreme Court, the Board was the statutory representative of the Commonwealth and its entities, and the majority of its powers and responsibilities were imposed by Puerto Rican law.[13] Moreover, the Board carried out its duties simultaneously with Puerto Rican government officials.[14] Because the Board dealt primarily with local duties, the Court determined that the Board Members are not "Officers of the United States" and thus, the Appointments Clause does not dictate how the Board's members must be selected.[15] Therefore, the congressionally mandated process for selecting the Board members did not violate the Appointments Clause.[16]

Justice Clarence Thomas concurred in judgment, agreeing that the appointment process for the Board members did not violate the Appointments Clause. However, Justice Thomas disagreed with the majority’s conclusion that the Board’s duties were primarily local.[17] Instead, Justice Thomas would have resolved the issue based on the original public meaning of the phrase “Officers of the United States” in the Appointments Clause. Justice Sonya Sotomayor also concurred in judgment but discussed the decision’s potential shortcomings if the Court had considered Puerto Rico’s local government autonomy according to an irrevocable "compact" with the federal government, which Congress may not unilaterally amend or repeal.[18]

The Supreme Court held that the Appointments Clause does not restrict the appointment or selection of Puerto Rico's Financial Oversight and Management Board. Accordingly, the President may appoint members to the Board without the Senate's advice and consent. Indeed, President Donald Trump has announced his intent to appoint Justin M. Peterson, of the District of Columbia, to be a Board member.[19]


[1] Congress invoked its Article IV power to “make all needful Rules and Regulations respecting the Territory…belonging to the United States,” § 3, cl. 2. See 48 U.S.C.A. § 2121 (West 2016).

[2] See Title III Petition in No. 17–BK–3283 (PR); see also Order Pursuant to PROMESA Section 304(g), No. 17–BK–3283 (PR, Oct. 9, 2019), Doc. 8829 (consolidating petitions filed on behalf of the Commonwealth of Puerto Rico, the Puerto Rico Sales Tax Financing Corporation, the Puerto Rico Highways and Transportation Authority, the Employees Retirement Sys­tem of the Government of the Commonwealth of Puerto Rico, the Puerto Rico Electric Power Authority, and the Puerto Rico Public Buildings Authority).

[3] See In re Fin. Oversight and Mgmt. Bd. of Puerto Rico, 318 F. Supp. 3d 537, 556–57 (PR 2018).

[4] See U.S. Const. Art. II, § 2m cl. 2.

[5] See In re Fin. Oversight and Mgmt. Bd. of Puerto Rico, 318 F. Supp. 3d at 556­­­–57.

[6] See Financial Oversight and Management Bd. of Puerto Rico, 915 F. 3d 838, 861 (1st Cir. 2019).

[7] See Fin. Oversight and Mgmt. Bd. for Puerto Rico v. Aurelius Inv., LLC, 140 S.Ct. 1649, 6 (2020).

[8] See Id. at 13.

[9] Id.

[10] U.S. Const. Art. I, § 8, cl. 17 and Art. IV, § 3 cl. 2; Fin. Oversight and Mgmt. Bd. for Puerto Rico, 140 S.Ct. at 13 (2020) (citing Palmore v. United States, 411 U.S. 389, 398 (1973)). Article I and Article IV give Congress the power to legislate for the Commonwealth in ways "that would exceed its powers, or at least would be very unusual" in other contexts.

[11] See Fin. Oversight and Mgmt. Bd. for Puerto Rico, 140 S.Ct. at 10-13 (2020). Such history indicates that Congress has often used Article IV and Article I to create local offices filled in ways other than those specified in the Appointments Clause.

[12] Id.

[13] See id. at 15–16.

[14] Id.

[15] See id. at 17.

[16] See id. at 21.

[17] See id. at 2 (Thomas, J., concurring).

[18] See id. at 2 (Sotomayor, J., concurring).

[19] See Michelle Kaske, Trump Picks Ex-Puerto Rico Bondholder Rep for Oversight Board, BNA: Bankr. L. News (Oct. 7, 2020, 3:14 PM),