1

SOUTHERN DISTRICT REPORTERS, P.C.

(212) 805-0300

I1AYPRO1 

UNITED STATES DISTRICT COURT 

DISTRICT OF PUERTO RICO 

------------------------------x AMENDED 

IN RE: THE FINANCIAL OVERSIGHT PROMESA 

& MANAGEMENT BOARD FOR PUERTO 

RICO, TITLE III 

 as representative of 

 No. 17 BK 3283 (LTS) 

THE COMMONWEALTH OF PUERTO RICO, (Jointly Administered)

et al., 

 Debtors. 

------------------------------x 

UNIÓN DE TRABAJADORES DE LA INDUSTRIA 

ELÉCTRICA Y RIEGO (UTIER), 

 

 Plaintiff, Adv. Proc. No. 17-228 (LTS) 

 v. Filed in Case No. 

 17 BK 4780 (LTS)

PUERTO RICO ELECTRIC POWER AUTHORITY; 

THE FINANCIAL OVERSIGHT AND MANAGEMENT 

BOARD FOR PUERTO RICO; JOSÉ B. CARRIÓN III; 

ANDREW G. BIGGS; CARLOS M. GARCÍA; ARTHUR J. 

GONZÁLEZ; JOSÉ R. GONZÁLEZ; ANA J. MATOSANTOS; 

DAVID A. SKEEL, JR. and JOHN DOES 1-7, 

 Defendants. 

------------------------------x 

Motion Hearing 

 January 10, 2018 

 10:00 a.m.

Before: 

HON. LAURA TAYLOR SWAIN, 

 District Judge 

 

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case:17-03283-LTS Doc#:2251 Filed:01/16/18 Entered:01/16/18 19:10:52 Desc: Main

Document Page 1 of 118
 2

SOUTHERN DISTRICT REPORTERS, P.C.

(212) 805-0300

I1AYPRO1 

 APPEARANCES 

PROSKAUER ROSE LLP 

BY: MARK D. HARRIS 

 MARTIN J. BIENENSTOCK 

 -ANDMUNGER, TOLLES & OLSON LLP 

BY: DONALD B. VERRILLI, JR. 

 CHAD I. GOLDER 

 GINGER D. ANDERS 

 Attorneys for The Financial Oversight and Management Board 

for Puerto Rico and its related Title III debtors 

JENNER & BLOCK LLP 

 Attorneys for The Official Committee of Retired Employees 

BY: LINDSAY C. HARRISON 

GIBSON, DUNN & CRUTCHER LLP

 Attorneys for Aurelius 

BY: THEODORE B. OLSON

 MATTHEW D. McGILL 

ROBBINS, RUSSELL, ENGLERT, ORSECK, UNTEREINER & SAUBER LLP 

 Attorneys for GO Bondholders 

BY: MARK T. STANCIL 

 DONALD BURKE 

ROLANDO EMMANUELLI JIMINEZ 

 Attorney for UTIER 

O'MELVENY & MYERS LLP 

 Attorneys for AAFAF 

BY: WALTER DELLINGER 

 WILLIAM J. SUSHON 

U.S. DEPARTMENT OF JUSTICE CIVIL DIVISION, TORTS BRANCH 

 Attorneys for USA 

BY: THOMAS G. WARD 

 JEAN LIN 

 CESAR A. LOPEZ-MORALES 

 MATTHEW J. TROY 

PAUL HASTINGS LLP 

 Attorneys for Creditors' Committee 

BY: NEAL D. MOLLEN 

 LUC A. DESPINS 

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case:17-03283-LTS Doc#:2251 Filed:01/16/18 Entered:01/16/18 19:10:52 Desc: Main

Document Page 2 of 118
 3

SOUTHERN DISTRICT REPORTERS, P.C.

(212) 805-0300

I1AYPRO1 

APPEARANCES (Cont'd) 

COOPER & KIRK 

 Attorneys for COFINA Seniors 

BY: CHARLES J. COOPER 

 JOHN D. OHLENDORF 

MATTHEW STARK BLUMIN 

 Attorney for Associate General Counsel AFSCME 

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case:17-03283-LTS Doc#:2251 Filed:01/16/18 Entered:01/16/18 19:10:52 Desc: Main

Document Page 3 of 118
 4

SOUTHERN DISTRICT REPORTERS, P.C.

(212) 805-0300

I1AYPRO1 

(Case called)

THE COURT: Again, good morning and welcome to counsel

parties in interest members of the public, and members of the

press, those in San Juan, and those who are observing by

telephone.

We have the privilege this morning of being joined by

the clerk of the district court of the District of Puerto Rico,

Frances Moran, as representative of that court as well as the

assistant operations manager for the district court, Gretchen

Rodriguez. As always, our thoughts are with those who are

living in Puerto Rico.

I remind you that consistent with court and judicial

conference policies and the orders that have been issued, there

is to be no use of any electronic devices in the courtroom to

communicate with any person, source, or outside repository of

information, nor to record any part of the proceedings.

Thus, all electronic devices must be turned off unless

you are using a particular device to take notes or to refer to

notes or documents that are already loaded on the device. All

audible signals, including vibration features, must be turned

off.

As provided in the Court's standing order, no 

recording or retransmission of the hearing is permitted by any 

person, including, but not limited to, the parties or the 

press. 

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case:17-03283-LTS Doc#:2251 Filed:01/16/18 Entered:01/16/18 19:10:52 Desc: Main

Document Page 4 of 118
 5

SOUTHERN DISTRICT REPORTERS, P.C.

(212) 805-0300

I1AYPRO1 

Anyone who is observed or otherwise found to have been

texting, emailing, or otherwise communicating with a device

during the court proceeding will be subject to sanctions,

including, but not limited to, confiscation of the device and

denial of future requests to bring devices into the courtroom.

So this morning's agenda is oral argument in

connection with Aurelius' motion to dismiss the Commonwealth's

Title III petition, which is case 17 3283; Aurelius' motion for

relief from the automatic stay which was also filed in the

Commonwealth case, 17 3283; and defendant's motion to dismiss

the UTIER v. PREPA adversary proceeding, which is adversary 228

in the PREPA Title III case, which is 17 4780.

I'd like to express my gratitude to counsel for having

organized their argument time, both in terms of allocation and

in conceptual division. That should make everything go

smoothly.

Before we begin with arguments, I want to remind

counsel to speak from the podium and speak directly into the

microphone at all times so that you can be heard clearly, not

only here in the courtroom but also in the remote observation

facilities and by those who are listening on the telephone.

So, with that, I would invite Mr. Olson to the podium.

Good morning.

MR. OLSON: Good morning, your Honor. May it please

the Court. Thank you, Judge Swain.

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case:17-03283-LTS Doc#:2251 Filed:01/16/18 Entered:01/16/18 19:10:52 Desc: Main

Document Page 5 of 118
 6

SOUTHERN DISTRICT REPORTERS, P.C.

(212) 805-0300

I1AYPRO1 

My colleague will address the stay issue. I think

that allocation of time was already mentioned to your Honor.

THE COURT: Yes. We have you for 30 minutes.

MR. OLSON: Yes. Thank you, your Honor.

The issue before the Court today is exceedingly

important and its resolution cannot be abated or postponed.

Indeed, the earlier this issue, which has to do with the

constitutionality of the Oversight Board, the earlier that that

is resolved, the better for everyone concerned.

The Constitution's separation of powers of which the 

appointments clause is a fundamental structural component is a 

central and vital part of our Constitution and whose ultimate 

purpose the Supreme Court has repeatedly held is to protect 

liberty and security of the government. 

That clause, which is found in Article 2, Section 2,

Clause 2 of the Constitution provides for the appointment of

all officers of the United States. The members of PROMESA's

oversight Board are officers of the United States and not

appointed in the manner required by Article 2. Their

appointments are, therefore, void.

I will enumerate some of the provisions that apply to

the powers and authority of the Oversight Board in order to

articulate the fact that they are officers of the

United States.

THE COURT: Before you go to that particular point of

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case:17-03283-LTS Doc#:2251 Filed:01/16/18 Entered:01/16/18 19:10:52 Desc: Main

Document Page 6 of 118
 7

SOUTHERN DISTRICT REPORTERS, P.C.

(212) 805-0300

I1AYPRO1 

proof of officer of the United States status, I would like to

ask you to address another threshold issue, which is that here,

as everyone acknowledges, Congress purported to create the

Board as a territorial entity.

So, in your view, does Congress have the power under

Article 4 to create positions that are positions within

territorial entities at all? If so, does the appointments

clause always apply to those positions simply because they're

created by Congress?

MR. OLSON: I will address this at this point and also

amplify it a little bit later in my presentation.

The United States Supreme Court in a recent decision

of the Metropolitan Washington Airports Authority case directly

addressed the issue of the application of the appointments

clause of the Constitution to territories of the United States

and with respect to Congress' power under Article 4 to

legislate rules and regulations governing the territories of

the United States.

And the Supreme Court in the Metropolitan Washington

Airports Authority case squarely rejected the proposition that

was being urged by the parties that the Airports Authority,

which was property of the United States and, therefore, covered

by Article 4, did not mean that the appointments clause did not

apply in that case.

Similarly, in other situations, the Supreme Court has

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case:17-03283-LTS Doc#:2251 Filed:01/16/18 Entered:01/16/18 19:10:52 Desc: Main

Document Page 7 of 118
 8

SOUTHERN DISTRICT REPORTERS, P.C.

(212) 805-0300

I1AYPRO1 

held with respect to other provisions of the Constitution,

which purport to provide plenary authority to Congress to

legislate rules and regulations, the court has held that the

exercise of those authorities are still, nonetheless, subject

to the appointments clause, which, as I said, is an important

structural component of the United States Constitution so that

what happens with respect to the territories, yes, Congress has

what is said to be plenary authority there.

It is said to have plenary authority in the 

Constitution under Article 1 with respect to the 

District of Columbia. It is said to have plenary authority in 

other contexts as well. 

In the provision in the Buckley case, which had to do 

with the Federal Elections Commission, the argument was made 

there that the appointments clause did not apply to the 

creation of the Federal Elections Commission because Congress 

had plenary authority with respect to the regulation of 

elections. 

And the Supreme Court flatly and squarely rejected the

argument there and specifically said Congress cannot decide for

itself the rules and regulations with respect to the

application of fundamental provisions of the Constitution.

Congress can, if it wishes, create certain authorities

or official positions in territories or allow positions in

territories to be created by the territories themselves, under

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case:17-03283-LTS Doc#:2251 Filed:01/16/18 Entered:01/16/18 19:10:52 Desc: Main

Document Page 8 of 118
 9

SOUTHERN DISTRICT REPORTERS, P.C.

(212) 805-0300

I1AYPRO1 

for example, with respect to Puerto Rico, the governor of

Puerto Rico under the Constitution of Puerto Rico.

But here the fundamental test by the United States

Supreme Court is does the officer exercise significant

authority under the statutes of the United States. If so, that

person is an officer of the United States.

There is no territorial exception in the appointments 

clause itself, and there is no provision in the territorial 

language of Article 4 that excludes the presentment clause, the 

powers of vetoes of the president, other separation of powers 

issues which the Supreme Court specifically says are 

fundamental to our individual liberties and the structure of 

our government. 

The appointments under PROMESA involve the creation of

principal officers of the United States because they do

unquestionably, I would submit, exercise significant authority

pursuant to the laws of the United States.

This articulation of the standard, significant

authority under the statutes of the United States, appears in

many cases, including the Freytag case and the other cases

which we've cited in our brief. And I will enumerate some of

those provisions that make it clear, beyond any doubt I would

submit, that these individuals exercised significant authority

under the laws of the United States.

They were created -- the Board was created -- by a

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case:17-03283-LTS Doc#:2251 Filed:01/16/18 Entered:01/16/18 19:10:52 Desc: Main

Document Page 9 of 118
 10

SOUTHERN DISTRICT REPORTERS, P.C.

(212) 805-0300

I1AYPRO1 

federal statute. Its only function is to enforce federal law,

PROMESA. Its members were appointed by a federal official, the

President. Its members are supervised by and removable by a

federal official, the President of the United States. Its

members were presumably commissioned as federal officers.

I would suspect that each of the members of the Board

have in their offices someplace a commission which is required

under the Constitution with respect to officers of the

United States, and if they don't have such a commission, then

that's an additional problem for those individuals, and maybe

we will hear whether they do or not.

The President, under Article 2, Section 3, shall

commission all officers of the United States. Its members of

the Oversight Board are subject to federal ethics laws. Its

responsibility is to deal with the massive financial crisis

affecting millions of United States citizens, both within and

without the territory of Puerto Rico.

The Board has the power to approve Puerto Rican

government contracts, the issuance of Puerto Rican debt, and to

nullify Puerto Rican laws inconsistent with its

responsibilities. It enforces public rights, which is another

aspect of its responsibility that is very important.

Under the Buckley decision, the court was talking

about the Federal Election Commission, and it says it has

primary responsibility for conducting civil litigation in the

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case:17-03283-LTS Doc#:2251 Filed:01/16/18 Entered:01/16/18 19:10:52 Desc: Main

Document Page 10 of 118
 11

SOUTHERN DISTRICT REPORTERS, P.C.

(212) 805-0300

I1AYPRO1 

courts of the United States. Here the Board has the

responsibility exclusively to enforce the provisions of PROMESA

which, as the Buckley court said, is a hallmark of officers of

the United States.

It can administer oaths, hold hearings, take

testimony, receive evidence, and issue and enforce subpoenas --

all powers of officers of the United States.

The Board wields more power than the Board of review

that existed under the Metropolitan Washington Airports

Authority case. That case, as you know, discussed a board of

review for that agency which had responsibility to oversee the

management of two airports in the vicinity of Washington D.C.

Its powers were somewhat great but somewhat limited compared to

the powers of the PROMESA Oversight Board.

THE COURT: Mr. Olson, MWA wasn't a core element of

the Court's objection to that board. Its practical function as

an agency of Congress and its overstepping of the separation of

powers boundaries in putting members of Congress into an

executive oversight position -- quite honestly, I haven't

memorized all of the cases, but it's my recollection that that

was the main focus as opposed to officer of the United States

and appointments clause, but I could be completely wrong about

that.

MR. OLSON: Well, the fundamental question was the

application of the separation of powers and the appointments

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case:17-03283-LTS Doc#:2251 Filed:01/16/18 Entered:01/16/18 19:10:52 Desc: Main

Document Page 11 of 118
 12

SOUTHERN DISTRICT REPORTERS, P.C.

(212) 805-0300

I1AYPRO1 

clause. The violation in that case was that the Oversight

Board was designated to consist of members of Congress

themselves, which would have been a separate and independent

violation of the appointments clause, and indeed the court

found that to be unconstitutional.

The statute there specifically said, well, if these

members who are going to be members of Congress who function in

their individual capacity -- and that's an important aspect of

the case. Congress tried to avoid the appointments clause, the

Article 2 appointments clause problem, by saying that they're

functioning in their individual capacity, which would have

maybe solved the problem of the incompatibility clause which

precludes members of Congress from being an officer of the

United States.

But the fundamental issue was indeed, does the

appointments clause and the separation of powers of, which the

appointments clause is such an important provision, apply to

the property of the United States, the property of the

United States. "Territory" or "property" of the United States

are interchangeable terms.

So the court squarely held that that defense, that

because it was a property or territory of the United States the

appointment clause provisions did not apply -- the court

squarely rejected that.

As I said, that is not the only case where the court

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case:17-03283-LTS Doc#:2251 Filed:01/16/18 Entered:01/16/18 19:10:52 Desc: Main

Document Page 12 of 118
 13

SOUTHERN DISTRICT REPORTERS, P.C.

(212) 805-0300

I1AYPRO1 

has rejected issues such as that. We have examples of

territorial courts. We have clerks of territorial courts who

are officers of the United States.

So, in all of the cases -- and we've traced it all the 

way back to Marbury v. Madison. Marbury was appointed to be a 

justice of the peace for the District of Columbia, a property 

of the United States, and the United States Supreme Court in 

the famous Marbury v. Madison case, which involved judicial 

review, explicitly held that that was an officer of the 

United States. 

The whole fight there, aside from the judicial review 

issue, involved the question of whether he had to have 

delivered to him the commission issued by the President. The 

court held that he didn't have to, but the point was he was an 

officer of the United States, notwithstanding he was the 

justice of the peace of the District of Columbia. 

I will add that the court in the Metropolitan

Washington Airports case talked about the exercise of

significant power in violation of the separation of powers

principles, and those are the same things that we're talking

about here.

Furthermore, in addition to all of the other things

that I've said, which seems cumulatively overwhelming evidence

that these individuals are officers of the United States, the

Board is a federal entity under the test established in Lebron

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case:17-03283-LTS Doc#:2251 Filed:01/16/18 Entered:01/16/18 19:10:52 Desc: Main

Document Page 13 of 118
 14

SOUTHERN DISTRICT REPORTERS, P.C.

(212) 805-0300

I1AYPRO1 

v. The National Railroad Passenger Corp. because it is

established -- and I'm using the words of the court in that

decision -- established and organized under federal law,

pursues federal government objectives, and Congress may repeal,

alter, or amend its powers at any time, and its members are

directly appointed by the President. All is true in that case

making that a federal agency, and the same is true here.

PROMESA's language that the Board is a part of the

territorial government -- and you may have been referring to

that earlier because the statute itself says this is a Board

created under the territorial government -- carries little

weight because even when Congress acts under Article 4, under

that Metropolitan Washington Airports case, separation of power

analysis, the court said, does not turn on the labeling of an

activity. The activity itself is what is important. Where the

authority comes from, federal statute; is it the execution of

significant authority under federal law. Those are the tests,

not whatever label Congress decides to put on it.

The Board members are principal officers because only

the President can supervise them. They're answerable to no

other officer of the United States, not to a subordinate

officer of the United States.

That test has been repeatedly articulated most 

recently in the Free Enterprise Fund case. So the test of 

whether an individual who is an officer of the United States is 

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case:17-03283-LTS Doc#:2251 Filed:01/16/18 Entered:01/16/18 19:10:52 Desc: Main

Document Page 14 of 118
 15

SOUTHERN DISTRICT REPORTERS, P.C.

(212) 805-0300

I1AYPRO1 

a principal officer of the United States, requiring advice and 

consent and approval from the senate, is whether one -- and I'm 

quoting the Free Enterprise Fund case -- "whether one is an 

inferior officer depends upon whether his work is directed and 

supervised at some level by principal officers." 

These individuals in this Board are not supervised by

any other officer of the United States. Only the President has

the power to remove and to supervise them. In the case, Vagner

v. Sign Art case, the Supreme Court said it is the power of

removal. Where that power lies is what the official must obey,

fear, and, therefore, obey. That is the test, the removal

power. The only authority here is the President of the

United States.

Even if they were inferior officers, if they are 

principal officers, their appointments manifestly did not 

comply with the appointments clause because their positions 

weren't subject to advice and consent by the United States 

senate. 

If they're inferior officers, the appointments clause

still provides that the provisions for their appointment does

not comply with the appointments clause because the Congress

gave very little opportunity for the President to control who

would be appointed.

Between the time when the statute was passed and the 

time when the President had to act was just a matter of a 

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case:17-03283-LTS Doc#:2251 Filed:01/16/18 Entered:01/16/18 19:10:52 Desc: Main

Document Page 15 of 118
 16

SOUTHERN DISTRICT REPORTERS, P.C.

(212) 805-0300

I1AYPRO1 

couple of months, most of which time the senate was not in 

session. 

So there were only eight days when the senate was in 

session during which appointments could be submitted to the 

senate for advice and consent. There were only eight days 

there. There was no time for the President. 

If the President didn't act subject to using the

advice and consent provisions within that period of time, once

that window closed, the President must appoint from the list

submitted by Congress.

And Congress was very clear about this. The 

legislative history, which we've quoted in the briefs and I'm 

sure you've read, is that -- this is the words of the committee 

report -- "PROMESA's purpose was to ensure that a majority of 

the Board's members were effectively chosen by republican 

congressional leaders," not by the President of the

United States but by republican congressional leaders. 

So, even if they were inferior officers -- and they

most manifestly are not inferior officers -- those provisions,

the way it was set up, was designed to ensure that Congress

would make the appointments. The President had to choose from

the list, and Congress cannot put the President of the

United States in that kind of a box.

In a sense, in a very real sense, the United States

has conceded this point. If you look at their brief at page

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case:17-03283-LTS Doc#:2251 Filed:01/16/18 Entered:01/16/18 19:10:52 Desc: Main

Document Page 16 of 118
 17

SOUTHERN DISTRICT REPORTERS, P.C.

(212) 805-0300

I1AYPRO1 

34, the brief of the United States, note 15, the United States

says that PROMESA's provisions for future appointees in case of

vacancies can essentially be ignored. The President can go

ahead and make these appointments with the advice and consent

of the senate, despite what the provision says.

What the United States says at that point is to avoid 

serious constitutional problems. There wouldn't be any serious 

constitutional problems if the appointments clause did not 

apply to these individuals as officers of the United States. 

So, in a sense, the United States has said, well,

don't worry about that because in the future, we'll just ignore

those provisions in order to construe the statute as ignoring

those provisions and avoid the serious constitutional

questions.

I think it comes back to the question that you raised

at the very beginning about the territories and the persons

that hold authority in territorial jurisdictions. The source

of the official's power determines whether he's an officer of

the United States.

With respect to the governor of Puerto Rico as it 

currently establishes, the source of that individual's power is 

the Constitution and the statutes and the citizens of 

Puerto Rico. 

The source of the authority of PROMESA Board members

is PROMESA itself. It's a federal statute.

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case:17-03283-LTS Doc#:2251 Filed:01/16/18 Entered:01/16/18 19:10:52 Desc: Main

Document Page 17 of 118
 18

SOUTHERN DISTRICT REPORTERS, P.C.

(212) 805-0300

I1AYPRO1 

THE COURT: So do you read Sanchez Valle's analysis of

the fundamental origin of governmental power in Puerto Rico as

driving from Congress as limited to the formulation of criminal

laws and prosecution of criminal laws?

MR. OLSON: That case, which --

THE COURT: Puerto Rico v. Sanchez, the double

jeopardy case. My question is that you were indicating that

the authority of the governor of Puerto Rico, now popular

election, stems from the people of Puerto Rico.

In the double jeopardy case in Sanchez Valle, the

court looked past the congressional grant of authority to

Puerto Rico to establish a Constitution to ultimately hold, as

I read it, that the power to make and prosecute criminal law

goes back to Congress so that both the federal law and the

local Puerto Rico law derived from the same sovereign, and that

drove the resolution of the double jeopardy question.

So do you read that case as only applying in that

criminal law context? If not, how do you square that with the

motion that the governor's position and authority derived from

the people rather than ultimately from the Congress that

permitted the adoption of the Constitution and also passed the

earlier laws permitting popular elections?

MR. OLSON: We would submit that it's clear from the

context, the double jeopardy context, and the language of

course of the decision itself was focused on the fact of

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case:17-03283-LTS Doc#:2251 Filed:01/16/18 Entered:01/16/18 19:10:52 Desc: Main

Document Page 18 of 118
 19

SOUTHERN DISTRICT REPORTERS, P.C.

(212) 805-0300

I1AYPRO1 

separate sovereigns. 

And the court determined that Puerto Rican territory 

was not a separate sovereign as a state would be because 

ultimately the authority of its existence and its Constitution 

and so forth ultimately came from the United States, the 

Constitution of the United States. 

That's peculiar to separate sovereign issues for the

same reason the 10th Amendment wouldn't apply and certain other

clauses that are pertinent to the states as separate sovereigns

wouldn't apply.

Here the test is do the officials exercise authority,

immediate authority; what is their source of immediate

authority; to whom are they accountable. From the beginning of

our history, the courts have acknowledged in fact that there

may be territories, and that those officers in those

territories, including even clerks of Article 1 courts, are

officers of the United States in territories. That's another

authority for what we're arguing to you today.

Also Congress can permit in the territories a

Constitution or bylaws or organizations pursuant to which local

officials are responsible to that local authority and to the

people there. They're accountable. That's the source of their

immediate authority. So that's the big difference between that

case and the case that we're talking about.

These Board members are not accountable to anyone in

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case:17-03283-LTS Doc#:2251 Filed:01/16/18 Entered:01/16/18 19:10:52 Desc: Main

Document Page 19 of 118
 20

SOUTHERN DISTRICT REPORTERS, P.C.

(212) 805-0300

I1AYPRO1 

Puerto Rico. They are accountable to the President. By

contrast in connection with your point, the Puerto Rican

governor is accountable to the island's electorate.

These are the words of the United States

Supreme Court: "Congress cannot create a board whose officers

enforce only federal law and are appointed, overseen, and

removable only by the President yet label that board a

territorial entity and require the President to select its

members from lists created by individual members of Congress."

The Free Enterprise Fund case is an interesting

example because the language of the Supreme Court there said

this is so novel and so unusual, it comes with a heavy

presumption of maybe violating the Constitution.

As Chief Justice Marshall explained three years after 

Marbury v. Madison in connection with a D.C. justice of the 

peace appointment by the federal government, the court said -- 

this is the language of Justice Marshall -- "He must be an 

officer under the government of the United States driving all 

of his authority from the legislature and President of the 

United States. He is certainly not the officer of any other 

government." That goes back to 1806. 

As the Supreme Court stated in the Freytag case, since

the early 1800's, Congress regularly granted non Article III

territorial courts the authority to appoint their own clerks of

court who, as of at least 1838, were inferior officers of the

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case:17-03283-LTS Doc#:2251 Filed:01/16/18 Entered:01/16/18 19:10:52 Desc: Main

Document Page 20 of 118
 21

SOUTHERN DISTRICT REPORTERS, P.C.

(212) 805-0300

I1AYPRO1 

United States within the meaning of the appointments clause.

That is the language of the Freytag court.

Now, if clerks of territorial courts are officers of

the United States within the meaning of the appointments

clause, so then must other officials whose officers are created

by federal statute, are appointed by a federal official, and

serve even in territories.

So it is quite clear that there is no intended

exception or no acceptable exception to the separation of

powers constraints which could not be more fundamental.

Every time the Supreme Court talks about 

an appointments clause -- you can see this language in Buckley. 

You can see it in other cases -- the court talks about how 

fundamental these separation of powers and the appointments 

clause in particular is to the structure of our government. 

That is a basic fundamental principle, and that was

something that was thought out and discussed at great length at 

the constitutional convention, how people will be appointed. 

In one of the cases, the court talks about that was a 

great concern. Abuse of the appointment authority by the 

executive at the time of the revolution and the creation of the 

new government was something that was exceedingly important. 

So, when Congress wrote that provision into Article 2

of the Constitution, it was something that was exceedingly

important to the structure and the separation of powers because

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case:17-03283-LTS Doc#:2251 Filed:01/16/18 Entered:01/16/18 19:10:52 Desc: Main

Document Page 21 of 118
 22

SOUTHERN DISTRICT REPORTERS, P.C.

(212) 805-0300

I1AYPRO1 

the structure and the separation of powers and the confinement

of the appointment authority was fundamental to liberty and the

security of our government.

The appointments clause and the separation of powers

invariably apply and govern all officers of the United States.

Congress is not immune from scrutiny of constitutional defects

just because it invokes Article 4.

No case has ever held that those provisions of the 

Constitution do not apply to the territories, and numerous 

other constitutional provisions that are part of the structure 

of our Constitution apply in the territories. 

Now, I will say one more thing before stopping and

reserving the balance of my time for rebuttal. I think all the

parties agree that whatever decision is made by you, this

Court, with respect to this issue, A, it's very important that

this issue get resolved as quickly as possible. I think

everyone would agree with that.

There is a lot of uncertainty which even Congress

recognized. One member of the United States senate said, you

know there's going to be a challenge in court to this structure

of the Constitution. Let's not do it this way. But Congress

went ahead and did it this way anyway.

As long as this cloud, which we regard as a very, very

serious cloud, hangs over the authority of this Board, every

decision that it makes may potentially be void. If a decision

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case:17-03283-LTS Doc#:2251 Filed:01/16/18 Entered:01/16/18 19:10:52 Desc: Main

Document Page 22 of 118
 23

SOUTHERN DISTRICT REPORTERS, P.C.

(212) 805-0300

I1AYPRO1 

is finally made six months from now or even six weeks from now,

that's less good, in terms of the ultimate benefit of everyone

concerned, than to have it resolved.

Hopefully Congress will go back and do it right. It

can be done quickly. The appointments clause can be factored

in. Those provisions can be severed, and Congress can rewrite

it.

The President can make new appointments, and the 

effect of your decision -- you can stay your decision. The 

Supreme Court did that in the Northern Pipeline case. It did 

it in other contexts with respect to separation of powers 

challenges. The effects of the decision can be stayed to avoid 

all of the dislocation and parade-of-horribles that we've been 

hearing about in the briefs that oppose our position. 

So, while it's important that it be decided soon so

that the problem can be corrected -- and it can be corrected

relatively easily. It's not going to be difficult to do -- it

is important that it be done soon, and the effect of that

decision can be stayed while the problem is fixed.

THE COURT: Thank you, Mr. Olson.

Mr. Emmanuellei.

MR. EMMANUELLEI: Good morning, your Honor.

THE COURT: Good morning. We have you down for 20

minutes.

MR. EMMANUELLEI: Yes. May it please the Court.

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case:17-03283-LTS Doc#:2251 Filed:01/16/18 Entered:01/16/18 19:10:52 Desc: Main

Document Page 23 of 118
 24

SOUTHERN DISTRICT REPORTERS, P.C.

(212) 805-0300

I1AYPRO1 

The central issue in this case is if the members of

the Financial Oversight and Management Board of Puerto Rico are

federal officers or not. Any discussion regarding the power of

Congress over Article 4 could be material if this Court finds

that the Board members are federal officers, meaning that they

exercise significant federal authority according to Buckley v.

Valeo.

On the other hand, if this Court finds that the

condemn insular cases are the foundation for this Court to rule

that the appointments clause is not applicable to the

territories, in such instance, UTIER argues that the insular

cases should be overturned.

These cases stand at par with Plessy v. Ferguson in

permitting disparate treatment by the government of a discrete

group of citizens solely based on race. In the words of

Honorable Judge Juan Torruella of the First Circuit, the

redeeming difference is that Plessy is longer the law of the

land, while the Supreme Court remains aloof about the

repercussions of its action in deciding the insular cases as it

did, including the fact that these cases are responsible for

the establishment of a regime of de facto political apartheid

which continues in full vigor.

THE COURT: I'm sorry. If I were to determine that I

should make an argument recommending that at the end of the day

when this gets to the Supreme Court the Supreme Court should

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case:17-03283-LTS Doc#:2251 Filed:01/16/18 Entered:01/16/18 19:10:52 Desc: Main

Document Page 24 of 118
 25

SOUTHERN DISTRICT REPORTERS, P.C.

(212) 805-0300

I1AYPRO1 

repudiate the insular cases, what do you see as the practical

result or a default position in the absence of the insular

cases?

Would all territories automatically have all of the

status, rights, privileges and be subject to all provisions of 

the Constitution just like states? Or is there some other set 

of principles that would apply to congressional action under 

Article 4 with respect to the territories? 

MR. EMMANUELLEI: We believe that there is an issue

for Congress to address because there are some scholars that

argue that Puerto Rico will become an incorporated territory.

So we would have access to all the rights and protections of

the U.S. Constitution, your Honor.

THE COURT: Thank you.

That's not something that the Court could declare.

Congress would have to go back.

MR. EMMANUELLEI: Yes, your Honor. I believe so.

It is not necessary to address that issue if this

Court decided that the federal officers of the Board are

subject to the appointments clause, your Honor.

Justice Torruella also stated that the insular cases

were wrongly decided because, at the time of the ruling, they

squarely contradicted longstanding constitutional precedent.

Their skewed outcome was strongly influenced by racially

motivated biases and by colonial governance theories that were

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case:17-03283-LTS Doc#:2251 Filed:01/16/18 Entered:01/16/18 19:10:52 Desc: Main

Document Page 25 of 118
 26

SOUTHERN DISTRICT REPORTERS, P.C.

(212) 805-0300

I1AYPRO1 

contrary to American territorial practice and experience. 

The reliance of the opposing parties in the insular

cases and the doctrine of discriminatory incorporation of 

fundamental constitutional rights accolade that Puerto Rico 

continues to be a colony inhabited by 3.4 million second-class 

American citizens who do not have political or economic rights 

as do the resident citizens of the other states. 

The opposing parties seek to radically outspread the 

insular cases to further deprive Puerto Rico's citizens of not 

only the Bill of Rights' individual protections but also of the 

Constitution's structural protections. 

None of the insular cases involved the appointments

clause or any other structural constitutional provision or

principle. And even if the insular cases had comprehended

certain structural provisions of the new colonial regime, these

cases also recognize restrictions of so fundamental a nature

that they cannot be transgressed. Thus they apply to the

territories.

Certainly the appointments clause is among the 

significant structural safeguards of the constitutional scheme. 

But if in any way the insular cases preclude this challenge, 

UTIER affirmatively argues that the insular cases should be 

overturned. 

In their motions to dismiss, some of the opposing

parties stated that UTIER lacks constitutional and prudential

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case:17-03283-LTS Doc#:2251 Filed:01/16/18 Entered:01/16/18 19:10:52 Desc: Main

Document Page 26 of 118
 27

SOUTHERN DISTRICT REPORTERS, P.C.

(212) 805-0300

I1AYPRO1 

standing upon the incorrect premise that the complaint never

explains how the actions of the Board adversely affected its

members' collective bargaining agreement.

On the other hand, regarding prudential standing, the

Board stated that UTIER and its members lack prudential

standing to complain about the certifications, because PROMESA

Section 106(e) deprived the district courts of subject matter

jurisdiction to hear the challenges to the fiscal plan

certifications.

These allegations are a gross mischaracterization of

the facts alleged by UTIER in the first amended adversary

complaint at docket 75. As stated in paragraph 29, UTIER, as

PREPA's primary workers' union representing 3,600 workers, is a

creditor in this case, and figures as such, in the creditor

matrix of this Title III case.

The result of thousands of pending judicial and

administrative proceedings and the recovery of unappealable

judgments, in actions brought by UTIER against PREPA, are at

stake in the Title III case. Thus UTIER has a large pecuniary

interest in the outcome of this case.

Moreover, UTIER, as a creditor, has a right to 

question the validity of the filing of this Title III petition 

under Section 930 of the bankruptcy code and Section 304 of 

PROMESA. 

UTIER has standing to fight this adversary proceeding,

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case:17-03283-LTS Doc#:2251 Filed:01/16/18 Entered:01/16/18 19:10:52 Desc: Main

Document Page 27 of 118
 28

SOUTHERN DISTRICT REPORTERS, P.C.

(212) 805-0300

I1AYPRO1 

as creditor and party in interest, according to Section 301 of

PROMESA which incorporates Section 1109 of the bankruptcy code.

UTIER negotiates and enforces the collective 

bargaining agreement which is currently valid and binding and 

which governs the terms and conditions of employment of its 

members. 

Its members suffered an invasion of a legally 

protected interests such as employment, salaries, bonuses, 

pensions, and health plans, that is concrete and 

particularized, actual or imminent, not conjectural or 

hypothetical, and fairly traceable to the challenged conduct of 

defendants and likely to be redressed by a favorable judicial 

decision. 

That Board alleges that section 1109(b) of the code

does not automatically satisfy the zone of interest test

required to demonstrate standing. But the Board omits that the

First Circuit decided that Article III standing is almost

always satisfied with respect to any party in interest in a

Chapter 11 case.

With regard to standing, the amended complaint is

sufficient to satisfy the legal standards required by the

Supreme Court in Bell Atlantic Corp. v. Twombly, and Ashcroft

v. Iqbal.

In paragraphs 11 through 29 of the amended complaint,

UTIER alleges with detail that the actions of the unlawfully

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case:17-03283-LTS Doc#:2251 Filed:01/16/18 Entered:01/16/18 19:10:52 Desc: Main

Document Page 28 of 118
 29

SOUTHERN DISTRICT REPORTERS, P.C.

(212) 805-0300

I1AYPRO1 

appointed Oversight Board members have substantially impaired

the collective bargaining agreement, entered upon by PREPA and

UTIER on behalf of its members; 37 out of 50 clauses were

impaired by certain statutes enacted by the government.

Those laws substantially affected the entitlements and 

fiduciary duties of UTIER to negotiate and defend the 

collective bargaining agreement that protects its members. 

These laws were adopted by the members of the Board in the 

Commonwealth's fiscal plan and in PREPA's fiscal plan and 

budget, while being improperly appointed as members of the 

Oversight Board. 

Constitutional standing requires a showing of an

injury in fact that is concrete, distinct, and palpable, and

actual and imminent. Any monetary loss suffered by the

plaintiff dissatisfies this element. Even a small financial

loss suffices. An allegation of future injury is sufficient,

so long as the threatened injury is certainly impending or

there is a substantial risk that the harm will occur.

The Board claims that neither the fiscal plans nor the

budgets discharges any claims and that no motion to that effect

has been filed, but it also asserts that the fiscal plan is an

operative blueprint for financial management and the plan of

adjustment of debt.

However, a collective bargaining agreement is an 

executory contract within the meaning of Section 365(a) of the 

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case:17-03283-LTS Doc#:2251 Filed:01/16/18 Entered:01/16/18 19:10:52 Desc: Main

Document Page 29 of 118
 30

SOUTHERN DISTRICT REPORTERS, P.C.

(212) 805-0300

I1AYPRO1 

bankruptcy code and is, therefore, subject to rejection by the 

debtor, at any moment, under appropriate circumstances. 

Also the filing of a plan of adjustment is the sole

purpose of this Title III petition. Eventually, the Board will

fight the plan of adjustment and will further impair the rights

of UTIER, which at the very least, represents an imminent

injury and a monetary loss for its members.

In terms of prudential standing, UTIER authorized to

sue on behalf of its members since it is its exclusive

representative regarding their labor rights under the

collective bargaining agreement. UTIER's members, as employees

of PREPA, are creditors with pecuniary interest in the outcome

of this Title III case and have standing to sue in their own

right.

This is so, particularly because their accrued fringe

benefit, salaries, vested rights, and pension benefits are at

stake in this Title III case. Therefore, their interests are

germane to UTIER's purpose. In addition, neither the claim

asserted by UTIER in this adversary proceeding, nor the relief

requested, requires the participation of the members in this

lawsuit.

With regard to prudential standing, Lexmark

International, Inc. v. Static Control Components, Inc.,

questioned the continued validity of prudential concerns as

grounds for dismissal.

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case:17-03283-LTS Doc#:2251 Filed:01/16/18 Entered:01/16/18 19:10:52 Desc: Main

Document Page 30 of 118
 31

SOUTHERN DISTRICT REPORTERS, P.C.

(212) 805-0300

I1AsPRO2 

MR. ROLANDO: First, the court concluded that the zone

of interest's test concerns whether congress has authorized a

plaintiff to sue. Second, the court held that its limitations

on generalized grievances suits are based on constitutional

Article III standing requirements and not the prudential

standing principles relied in some of the court's previous

decisions.

In Lexmark, even Justice Antonin Scalia, writing for a 

unanimous court, partially abolished the prudential standing 

doctrine when he expressed that a court cannot limit a cause of 

action merely because prudence dictates. 

Section 106(e) of PROMESA appears to deprive this

court of jurisdiction to review challenges to the Oversight

Board certifications. However, Section 106(a) of PROMESA

clearly created a jurisdictional basis for this court to

entertain against the Oversight Board. The apparent

contradictory language between both provisions of the act

oblige this court to entertain the matter and construe the law

according to the U.S. Constitution.

Plaintiff is neither asking this court to reverse or 

enjoin the certification process. Rather, its aim is for this 

court to prevent illegally appointed board members from 

pursuing this and any Title III cases, or the exercise of any 

other power or authority provided by PROMESA, until they are 

recast to comply with the appointments clause of the U.S. 

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case:17-03283-LTS Doc#:2251 Filed:01/16/18 Entered:01/16/18 19:10:52 Desc: Main

Document Page 31 of 118
 32

SOUTHERN DISTRICT REPORTERS, P.C.

(212) 805-0300

I1AsPRO2 

Constitution. Thus, there is no doubt that the Oversight 

Board's actions are susceptible of court review. 

For the reasons already stated, UTIER has

constitutional and prudential standing to bring this action. 

But moving on to the discussion of the appointments

clause, we hereby adopt the arguments already stated by 

Aurelius in their oral argument on their briefs. 

The U.S. Government states that: Crucial to the 

solution of this controversy is the fact that the Oversight 

Board does not exercise federal authority. On the other hand, 

the opposing parties defend inapplicability of the appointments 

clause claiming that the board members' authority is rather 

limited, since they clearly exercise authority only within the 

territory of Puerto Rico. Not so. 

Under Article IV, congress can govern the territories 

with few restrictions, but this broad power ceases when it 

creates a federal office. None of the opposing parties have 

argued that the appointments clause does not apply to a federal 

officer. A person is a federal officer when he or she complies 

with the constitutional definition, regardless if the office is 

created for a state or a territory. What the opposing parties 

are arguing is that the board's members are not federal 

officers, but territorial. Therefore, our analysis should be 

the applicability of Buckley v. Valeo to the members of the 

board. 

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case:17-03283-LTS Doc#:2251 Filed:01/16/18 Entered:01/16/18 19:10:52 Desc: Main

Document Page 32 of 118
 33

SOUTHERN DISTRICT REPORTERS, P.C.

(212) 805-0300

I1AsPRO2 

In Buckley, the Supreme Court stated that an officer

of the United States is every official whose position is

established by law and who exercises significant authority

pursuant to the laws of the United States. Only those public

officials who are properly characterized as mere employees fall

outside the appointments clause's scope.

This case, just a simple analysis of the board's task 

and powers, as mandated by PROMESA, lead to the conclusion that 

they, in fact, exercise significant authority under federal 

sovereignty. The fatal loophole in the opposing parties' 

argument regarding the alleged nature of the board as 

territorial is that, among the other powers, the board 

exercises the exclusive federal power of pursuing the 

territory's adjustment of debt. Particularly, of debt owed to 

bondholders in the mainland, such as Aurelius. That is 

irrefutable evidence of the significant federal authority that 

the board members are exercising under PROMESA. 

As we mentioned at page ten of our reply in opposition 

to the statement of the United States, PROMESA allows the board 

to file on behalf of its territory for the protection of 

Title III, and to be able to submit a plan of adjustment of 

debt; thus, impairing the obligations to bondholders, hedge 

funds, insurers, and other creditors that are based and do 

business globally. 

Adjustment of debt is an exclusive federal power

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case:17-03283-LTS Doc#:2251 Filed:01/16/18 Entered:01/16/18 19:10:52 Desc: Main

Document Page 33 of 118
 34

SOUTHERN DISTRICT REPORTERS, P.C.

(212) 805-0300

I1AsPRO2 

according to Article I, Section 8, Clause 4 of the

Constitution. See Puerto Rico v. Franklin California Tax-Free

Trust, holding that the preemption provision of Section 903(1)

of the bankruptcy code bars states and their territories from

enacting municipal bankruptcy laws. Thus, bankruptcy is

strictly federal because the Constitution empowers congress to

establish uniform laws on the subject of bankruptcies

throughout the United States.

THE COURT: In jurisdictions that are subject to the

bankruptcy code where there is no special PROMESA and there is

no Oversight Board so that the municipality, with the

permission of the state, can propose a plan of adjustment or in

a chapter 11, say, where the debtor in possession or the

creditor proposes a plan of adjustment, is that the exercise of

an exclusively federal power by that debtor?

If not, why does it make a difference that here it 

is the Oversight Board that makes that filing, makes that 

structural proposal, as opposed to the municipal entity or the 

private entity? 

MR. ROLANDO: The bankruptcy code allows the debtor to

file a chapter 9 case if it is authorized by the state to do

so. Here, congress approved a law, enacted a law, authorizing

just the board to file for the protection of Title III. So

they are vesting the board with the power of Article I of the

bankruptcy clause to pursue a plan of adjustment in a territory

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case:17-03283-LTS Doc#:2251 Filed:01/16/18 Entered:01/16/18 19:10:52 Desc: Main

Document Page 34 of 118
 35

SOUTHERN DISTRICT REPORTERS, P.C.

(212) 805-0300

I1AsPRO2 

or in another state, if the congress authorizes that. So it is

not the same.

The bankruptcy law authorizes a municipality to pursue

a Title III case, but here, they are creating this entity with

the specific power vested from congress to pursue a case, even

though in a territory, that will affect all creditors

notwithstanding the fact that they live in Puerto Rico or they

live outside. Therefore, the only power that sustained that

authority is the power of the Constitution to establish

bankruptcy laws.

THE COURT: Thank you.

MR. ROLANDO: Bankruptcy is strictly federal because

the Constitution empowers congress to establish uniform laws on

the subject of bankruptcies throughout the United States.

Although state law continued to govern most debtor-creditor

relations, congress has the authority to overwrite state laws

dealing with insolvency.

In fact, in 2006, the Supreme Court surprised many by 

holding that the bankruptcy clause overrode state sovereign 

immunity, at least with respect to matters ancillary to the 

central jurisdiction of the bankruptcy court, over the debtor's 

estate. Obviously, when congress can affect the prerogatives 

of the states, it is not exercising a territorial power under 

Article IV. 

There should be no doubt that PROMESA is imposing

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case:17-03283-LTS Doc#:2251 Filed:01/16/18 Entered:01/16/18 19:10:52 Desc: Main

Document Page 35 of 118
 36

SOUTHERN DISTRICT REPORTERS, P.C.

(212) 805-0300

I1AsPRO2 

exclusive bankruptcy federal power of Article I of the

Constitution under the provisions of the federal rules of

bankruptcy procedure. Thus, the members of the board are

exercising significant federal authority. If PROMESA is a

laser focused Article IV territorial statute, as the opposing

parties claim, how could it impair in any way the rights of

creditors of the municipal market of the United States without

enforcing the exclusive federal power under the bankruptcy

clause of the Constitution?

THE COURT: Thank you.

Your time expired, and so if you want to sum up very 

briefly, you may, or if you're done. 

MR. ROMANELLO: I'm done.

THE COURT: Thank you so much. Next we'll hear from

Mr. McGill for five minutes.

MR. MCGILL: Thank you, your Honor.

I am hear to address Aurelius' motion concerning the

automatic stay, and I'll be very brief.

Aurelius filed this motion simply to ensure that it

could obtain promptly all of the injunctive relief that it is

entitled to if we are to prevail on our appointments clause

challenge. This court has held that it lacks jurisdiction over

a claim that does not arise under or is not related to Title

III itself.

THE COURT: In the two decisions that you cited, those

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case:17-03283-LTS Doc#:2251 Filed:01/16/18 Entered:01/16/18 19:10:52 Desc: Main

Document Page 36 of 118
 37

SOUTHERN DISTRICT REPORTERS, P.C.

(212) 805-0300

I1AsPRO2 

were both motions to remand cases that had been removed from

the local courts invoking the Section 306, Title III related

jurisdiction. There was no federal claim asserted in those

cases. The right to information was asserted under local law.

Here, you're asserting a constitutional claim, and so

why wouldn't we be in 1331 land, since I am an Article III

judge and I don't have Stern v. Marshall problems. It doesn't

seem to me to quite map onto the cases that you're citing.

MR. MCGILL: You're exactly correct, your Honor. If

this court were to hold that it has authority to provide us all

of the injunctive relief that we would seek in that alternative

in that additional suit, we would be happy to hear that. But

our good faith reading of the statute and of your appointment

as designated as the judge for this Title III case, we read

that not to permit you also to issue an injunction that would

prohibit the board for, for instance, carrying out its Title II

functions.

I haven't heard the board say that that is incorrect

yet. If the board agrees that this court does, in fact, have

jurisdiction to provide us such relief, then we would act

accordingly.

THE COURT: Has there been an objection to the Title

I, Title II related claims in the UTIER and PREPA adversary?

MR. MCGILL: I'm not aware of that.

The key point I wanted to make to your Honor is that 

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case:17-03283-LTS Doc#:2251 Filed:01/16/18 Entered:01/16/18 19:10:52 Desc: Main

Document Page 37 of 118
 38

SOUTHERN DISTRICT REPORTERS, P.C.

(212) 805-0300

I1AsPRO2 

we did not file this to engender duplicative litigation. That 

is not what we're trying to do. We just want to make sure that 

we have the opportunity to get all of the injunctive relief to 

which we would be entitled. 

If our other lawsuit ever did go forward, we would

anticipate that your ruling on the substantive appointments

clause issue would be dispositive of any subsequent lawsuit,

and certainly if your ruling were appealed to the First

Circuit, the First Circuit's decision certainly would be

dispositive of that as well.

That's all I need to say at this time. Thank you,

your Honor.

THE COURT: Thank you, Mr. McGill.

We will now turn to the arguments of the defenders of

the constitutionality of PROMESA. My intention is to hear

Mr. Verrilli and Mr. Ward, and then have a break. Looks like

that works for everyone.

Mr. Verrilli.

MR. VERRILLI: Good morning, your Honor. May it

please the court.

The board is constitutional. That is so for a very

straightforward reason. Board members are territorial 

officials who serve in the government of the Commonwealth of 

Puerto Rico. They are not officers of the United States who 

serve in federal government, and that is dispositive. 

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case:17-03283-LTS Doc#:2251 Filed:01/16/18 Entered:01/16/18 19:10:52 Desc: Main

Document Page 38 of 118
 39

SOUTHERN DISTRICT REPORTERS, P.C.

(212) 805-0300

I1AsPRO2 

Officers of the United States do have to be appointed 

by the methods set out in the appointments clause, but 

territorial officers do not have to be appointed that way, so 

there is no constitutional problem with the method PROMESA 

established for appointing board members. 

What I would like to do, if I could, is walk through

what I think are the four key points that substantiate what I

just described in summary fashion and that I think lead in a

very straightforward way to the conclusion that congress'

action here is constitutional.

I think a good place to start, we already have spent a

lot of time discussing it, what test does the court apply to

decide whether these are territorial officers or officers of

the United States.

What I would like to do is first tell your Honor what

we think the right test is, then explain why we think the test

Mr. Olson has offered you is an incorrect way to think about

this.

We think the test is as follows. What the court needs 

to do to determine whether these are territorial officers or 

officers of the United States is to examine the structural 

relationship between the board and the government of the 

Commonwealth of Puerto Rico on the one hand and the government 

of the United States on the other and to examine the nature and 

scope of the authority that the board has to determine whether 

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case:17-03283-LTS Doc#:2251 Filed:01/16/18 Entered:01/16/18 19:10:52 Desc: Main

Document Page 39 of 118
 40

SOUTHERN DISTRICT REPORTERS, P.C.

(212) 805-0300

I1AsPRO2 

it is territorial or federal in nature. We think that if you 

apply that test, it is quite clear that the answer here is that 

the board members are territorial officers. 

Starting with the structural relationship. Key fact, 

which we haven't heard any discussion of so far, is that the 

board is funded 100 percent out of the treasury of Puerto Rico, 

not out of the United States Treasury. Therefore, the United 

States Congress, the United States Government, does not have 

the power that it would have over federal officers. In 

addition, numerous key laws that would apply. The board of 

federal officers don't apply. FOIA doesn't apply. The 

Administrative Procedure Act doesn't apply. The Inspector 

General Act doesn't apply. The board's employees are not 

subject to civil service protections. There are many, many 

more. 

When you look at it that way, this is clearly not a

federal entity. At the same time, this is not an entity that 

is within any part of the executive branch of the federal 

government, it is not in any cabinet department, it is not even 

an independent agency. In fact, congress said quite expressly 

in the statute that this board is a part of the government of 

the Commonwealth of Puerto Rico and is not a federal agency or 

department. 

Then if you turn to the nature and scope of the

board's authority, it is clearly delineated as authority that

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case:17-03283-LTS Doc#:2251 Filed:01/16/18 Entered:01/16/18 19:10:52 Desc: Main

Document Page 40 of 118
 41

SOUTHERN DISTRICT REPORTERS, P.C.

(212) 805-0300

I1AsPRO2 

is territorial in scope. PROMESA's substantive provisions

apply only to Puerto Rico and the fiscal crisis in Puerto Rico.

The court's authority is limited only to implementing the

provisions of PROMESA that is charged with implementing

100 percent entirely territorial. They set no national

authority. They set no national policy. They can't do

anything outside of the territory of Puerto Rico. We think

that that is the right way to look at this. We think that is

the way that cases like the Comidor case tell the court you

should look at this question.

Now, if I may, let me turn to why I think the test, as 

you heard from my friends on the other side, is just wrong. 

The test they proposed to you derived from Buckley is whether 

the official is exercising significant authority. But you look 

at Buckley and you look at the other cases my friends have 

cited, what you will see is that not a single one of them 

involved the question of whether it was an exercise of 

territorial authority versus federal authority. They all 

involved the question of whether it was an exercise of 

significant authority versus insignificant authority. The 

point was on all of those cases, that the authority was 

significant enough to trigger the requirements of the 

appointments clause. 

That is really vitally important. Their test doesn't

get you anywhere near answering the questions you need to

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case:17-03283-LTS Doc#:2251 Filed:01/16/18 Entered:01/16/18 19:10:52 Desc: Main

Document Page 41 of 118
 42

SOUTHERN DISTRICT REPORTERS, P.C.

(212) 805-0300

I1AsPRO2 

answer in order to determine whether this is a constitutional

appointment structure, and that is because, of course, it is

absolutely clear, and the Supreme Court has said it from Chief

Justice Marshall in Canter in the early 19th Century, to

Justice Kagan in the Sanchez Valle case just two years ago,

that when congress is legislating under its Article IV

territorial powers, it has extremely broad authority, not only

national authority, but the authority of a local legislature,

the authority to enact laws in manners that are not constrained

by the normal separation of powers, structural requirements

that would apply if congress was legislating the structure of

the national government. The Supreme Court has said that over

and over and over again.

So it is vital to determine which kind of power is 

being exercised here: Territorial power or the structure of 

the territorial government or federal power structured to the 

national government. That is why the test we proposed, I 

respectfully suggest, gets to the heart of the matter and 

answers the question in a clear way. 

THE COURT: I believe I perceive your opponents as

arguing that the act of congress is defined by the

Constitution, and so even if congress can establish structures

at the territorial level that are not strictly compliant with

the constitutional structures for states and the federal

government, that congress' ability to act in the methods by

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case:17-03283-LTS Doc#:2251 Filed:01/16/18 Entered:01/16/18 19:10:52 Desc: Main

Document Page 42 of 118
 43

SOUTHERN DISTRICT REPORTERS, P.C.

(212) 805-0300

I1AsPRO2 

which it acts are not a free-for-all.

So congress always has to color within the lines that 

the Constitution sets for congress, including appointments 

clause, presentment bicameralism, that congress couldn't just 

unilaterally, without a presidential signature, establish a law 

governing a territory. 

Do you agree that the nature of congress and the

powers of congress are always cabined by the Constitution, and

if so, where do you start drawing lines?

MR. VERRILLI: That is the key question, I agree, your

Honor. We certainly agree that congress is cabined by the

Constitution. We certainly agree that congress, in enacting

laws and the exercises of Article IV power over territories,

has to comply with bicameralism and presentment. That is the

only way the congress can act with the Constitution.

What those provisions of the Constitution go to is the 

way in which congress acts as a national legislature exercising 

its authority under the Constitution. But the question here 

is, once you have established that congress is acting in a way 

that the Constitution prescribes is appropriate and congress is 

legislating under Article IV to establish a territorial 

government, what constitutional constraints apply. 

What the Supreme Court has said over and over again is 

that the structural separation of powers constraints don't 

apply to the judgment about what the territorial government 

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case:17-03283-LTS Doc#:2251 Filed:01/16/18 Entered:01/16/18 19:10:52 Desc: Main

Document Page 43 of 118
 44

SOUTHERN DISTRICT REPORTERS, P.C.

(212) 805-0300

I1AsPRO2 

should be structured to operate as. That is what is going on 

here. That is what is at issue here. 

The appointments clause doesn't apply any more than

any of the other separation of powers provisions. I mean, if

my friend on the other side's theory were correct and the whole

territorial judge structure would have been unconstitutional

right from the get-go in the 18th Century, because territorial

judges were certainly appointed -- nominated by the president

and confirmed through the Senate, but only had four-year terms

and the didn't get diminution of salaries. So the core

separation of powers protections that Article III provides for

the federal judiciary weren't there.

THE COURT: I think your opponents respond to that,

well, that is an Article I court, so it didn't have to be there

and so it is not inconsistent with the general notion that the

structural provisions apply.

MR. VERRILLI: Well, but what I think that what it

shows you is that you need to figure out which provisions apply

and which don't, based on the nature of the power being

exercised. They conceded that that is the case, they just want

to put the appointments clause on the other side of the line.

But it is exactly the same kind of structural separation of

powers provision that the Supreme Court has said over and over

again doesn't apply.

If you walk through the history -- I do think each

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case:17-03283-LTS Doc#:2251 Filed:01/16/18 Entered:01/16/18 19:10:52 Desc: Main

Document Page 44 of 118
 45

SOUTHERN DISTRICT REPORTERS, P.C.

(212) 805-0300

I1AsPRO2 

side has thrown a lot of history at you, I realize that -- but

a couple of key points here with respect to that. One is that

you just can't swear so much of our historical practice with

their theory about the appointments clause applying. Even with

respect to territorial officers below the level of a

territorial governor, it has been the case for hundreds of

years that the authority to appoint inferior officers, cabin

head, departments in the territories, have been delegated by

congress to the territorial governor. That doesn't comply with

the appointments clause.

The appointments clause said territorial officers have 

to be appointed by the president, the courts, and the head of 

the department. So you can't square that. You can't square 

territorial judges. You can't square the way congress has 

historically treated the District of Columbia. That is an 

Article I power, but it has been understood to be parallel to 

the Article IV territorial power. You just can't square up of 

the history. You can't square up their position with the 

Supreme Court precedent. You can't square it up with the 

history. 

I do want to turn to what I think is the key piece of 

history, which your Honor discussed a little bit with 

Mr. Olson, and that is congress' decision in 1947 and 

thereafter to empower the people of Puerto Rico to elect a 

governor by popular election as opposed to a federal 

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case:17-03283-LTS Doc#:2251 Filed:01/16/18 Entered:01/16/18 19:10:52 Desc: Main

Document Page 45 of 118
 46

SOUTHERN DISTRICT REPORTERS, P.C.

(212) 805-0300

I1AsPRO2 

appointment. That was in 1947. It was 70 years ago. 

Now, it can't be the case that -- it just can't be the

case that the position of the governor of Puerto Rico in 1946

was an officer of the United States who had to be nominated by

the president and confirmed by the Senate. But that in 1947,

that position with exactly the same duties, is no longer an

officer of the United States, even though it is exercising the

same significant authority, because the congress has decided

that the people of Puerto Rico should elect the governor

through a popular election.

I think another key point to remember about that is

that the great constitutional reforms, the granting of 

discretion to the people of Puerto Rico to have their own 

constitution and set up their own form of government delegated 

by congress doesn't occur until several years after 1947 

judgment. So you can't even defend that 1947 judgment on the 

theory that my friends on the other side have provided to you. 

And that is why their theory is so deeply threatening to the 

self-governance that congress has supported to Puerto Rico and 

other territories. 

I do think your Honor had a dialogue with Mr. Orson

about Sanchez Valle. If you don't mind, I think there is a key 

passage here that I do think answers the question that your 

Honor posed. If you don't mind, I would like to just read if, 

if I could. 

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case:17-03283-LTS Doc#:2251 Filed:01/16/18 Entered:01/16/18 19:10:52 Desc: Main

Document Page 46 of 118
 47

SOUTHERN DISTRICT REPORTERS, P.C.

(212) 805-0300

I1AsPRO2 

THE COURT: Yes.

MR. VERRILLI: It is towards the end of the Justice

Kagan's opinion to the court. The opinion says: We agree that

congress has broad latitude to develop invasive approaches to

territorial government, as we do here. That congress may thus

enable a territory's people to make large-scale choices about

their own political institutions and congress did exactly that

enacting public law and approving the Puerto Rico Constitution.

But one power congress does not have, just in the 

nature of things, it has no capacity, no magic wand or airbrush 

to erase or otherwise rewrite its own foundational role in 

conferring political authority or otherwise said the delegator 

cannot make itself any less so no matter how much authority it 

opts to hand over. 

So what the court is saying here, it certainly is 

answering a question in the double jeopardy context, but if the 

court is answering it on the basis of a fundamental principle, 

which is that the congress retains what the court said was the 

foundational role in conferring federal political authority, 

that authority is delegated to the people of Puerto Rico 

through their 1950 Constitution and the governmental structure 

enacted under it. But it is the authority of the United States 

Congress at the end of the day. That is the source of the 

authority. 

So when a popularly elected governor, legislature,

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case:17-03283-LTS Doc#:2251 Filed:01/16/18 Entered:01/16/18 19:10:52 Desc: Main

Document Page 47 of 118
 48

SOUTHERN DISTRICT REPORTERS, P.C.

(212) 805-0300

I1AsPRO2 

members of the government in the Commonwealth of Puerto Rico

are exercising their authority, the ultimate source of that

authority is the authority of the United States Congress that

was conferred on them.

So if their theory is right, then that whole structure

has to be unconstitutional because they are all exercising

significant federal authority, and none of them were in

compliance with the appointments clause. It just can't be

right. It cannot be right.

I would like, if I could, to turn to the MWAA case

that my friends have put so much weight on. Your Honor asked,

I think, exactly the right question about it at the outset of

the argument. For one thing, you can read that opinion over

and over again, as we all have, I'm sure, in this courtroom.

You will not find the phrase appointments clause in there. It

wasn't a case about the appointments clause.

But also, I think of particular importance here, what 

the court said in that case was that it was undeniable that 

what congress was doing when it set up the structure that it 

did was exercising federal authority. In fact, the court said 

congress was acting under the commerce power as well as the 

property clause, and it said that it did so because it was an 

undeniable national interest in the flow of air traffic in and 

out of Washington's national airport. On top of that, it 

involved two states adjacent to the airport. That was the 

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case:17-03283-LTS Doc#:2251 Filed:01/16/18 Entered:01/16/18 19:10:52 Desc: Main

Document Page 48 of 118
 49

SOUTHERN DISTRICT REPORTERS, P.C.

(212) 805-0300

I1AsPRO2 

reason why the separation of powers restrictions were triggered 

in that case. The predicate was the court's finding that this 

was an exercise of federal power. 

Now, Mr. Olson said at one point that for purposes of 

Article IV, territorial power and power over property are 

interchangeable. Whatever power congress has over property, it 

has over territories too. But there is no case that says that. 

There is a very well developed body of authority that I went 

over in the earlier part of my argument that, under the 

territories clause, congress has the plenary authority to act 

as both a state or local legislature as well as a national 

legislature, and separation of the power constraints don't 

apply when congress was doing that because they can't. 

Congress needs that flexibility to engage in that kind of 

greater statesmanship that Justice Kagan was talking about to 

ensure effective governance of the territories given the 

different circumstances they present. 

The Supreme Court has never said anything like that

about the property clause. So drawing that analogy, I think,

it just doesn't work. Then when you get to the last part of

the opinion, where the Supreme Court did certainly find a

separation of powers problem with the way that board was

structured, this case is distinctly different from that. There

was a list mechanism there, but there were two key features to

it that made the court decide that it was unconstitutional.

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case:17-03283-LTS Doc#:2251 Filed:01/16/18 Entered:01/16/18 19:10:52 Desc: Main

Document Page 49 of 118
 50

SOUTHERN DISTRICT REPORTERS, P.C.

(212) 805-0300

I1AsPRO2 

The first key feature was that the president had to choose off

the list, and the second key feature was that the statute

didn't require any additional -- more names than there were

available slots. So the statute gave congress the ability

essentially to give no discretion, no authority to the

president at all.

Of course, now I want to transition, if I could, to my 

fourth point on this subject, which is the question of whether, 

once you have concluded that the board members are territorial 

officers and not officers of the United States and therefore 

don't have any issue under the appointments clause, is there 

any residual separation of powers problem at the margin about 

the way in which the congress provided for the appointment of 

these board members. 

The short and clean and clear answer to that is no. I

think it is critical to look at the structure here of the way

in which that mechanism works. Now, it is true that before

congress leaders provide a list from which the president is

asked to choose the board members, but the statute doesn't say,

unlike the MWAA statute that says "shall choose," this statute

said "should choose." The president isn't obligated to choose

off the list. The statute also says that the president has the

right to ask for more names if he doesn't like the names on

list. And the statute also says that the president has the

authority to pick whomever the president wants to nominate,

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case:17-03283-LTS Doc#:2251 Filed:01/16/18 Entered:01/16/18 19:10:52 Desc: Main

Document Page 50 of 118
 51

SOUTHERN DISTRICT REPORTERS, P.C.

(212) 805-0300

I1AsPRO2 

even if the nominees aren't on the list, and then those people

go through the normal by consent procedures.

So the president clearly has very substantial

discretion to pick whomever the president wants. The one

question arises as a result of this, after 60 days, then the

statute imposes limits on the president. Several things about

that.

First, Mr. Olson says, well, the Senate was only in

eight days over that period of time. That is up to the Senate

whether they are in recess or not. There is no constitutional

requirement that they not work in July or August. They can

decide whether to be in recess or not, and if this is important

enough, they can come in and vote. Certainly 60 days is plenty

of time. You don't have to have a hearing before you vote to

confirm a nominee. You have plenty of federal officers. There

is no confirmation hearing, just as you provide to the United

States Attorneys. They proceed right to a vote, no hearing.

That is something that could easily be accomplished within

60 days.

There is no evidence in the record that President

Obama, making those choices, felt any constraint, practical or

otherwise, for making the choices. Quite the contrary.

Pleasure was consistent. Pleasure with the options available

to him.

Really what my friends on the other side are making is 

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case:17-03283-LTS Doc#:2251 Filed:01/16/18 Entered:01/16/18 19:10:52 Desc: Main

Document Page 51 of 118
 52

SOUTHERN DISTRICT REPORTERS, P.C.

(212) 805-0300

I1AsPRO2 

exactly the kind of argument that the Supreme Court rejected in 

the Mulcanon cases with respect to recess appointments. It 

said, let's look at the way the system operates as a formal 

matter. You don't assess the particular circumstances in a 

political biplate that's going on in the here and now and 

decide whether this is allocating power unfairly to one branch 

or the other. You look at it as a formal matter. You do that 

here and the answer is clear. 

Even if your Honor thinks there is any problem, this

really is a fail-safe here, which is that the president felt

constrained in the president's ability to make an appointment

by the structure. The president could have simply decided to

let the 60 days go by and not nominate somebody off the list,

nominate somebody else, then it would have been up to the

Senate to decide whether to confirm those people.

So the president had that ability to do it, to do it

that way, and I would certainly think that given the way the

stakes here, if that were the issue, I don't think it is for

all the reasons I have given you already, I think that you

really don't need to get that far down the line to decide that

this is a constitutional structure here, given that we are not

talking about officers of the United States. But even if you

did, then I would certainly think that principles of

constitutional avoidance were justified interpreting the

statute to allow the court to operate in that way. I really

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case:17-03283-LTS Doc#:2251 Filed:01/16/18 Entered:01/16/18 19:10:52 Desc: Main

Document Page 52 of 118
 53

SOUTHERN DISTRICT REPORTERS, P.C.

(212) 805-0300

I1AsPRO2 

don't think you can find a separation of powers problem here.

A few more points. Mr. Olson talked about the

commission and the importance of a commission and that

commission indicating that you are an officer of the United

States. Well, when I worked in the White House counsel's

office. I had a really nice commission signed by the

president, framed, hanging on the wall behind my desk. I was

not an officer of the United States. I was an employee. The

fact is that many, many employees in the executive branch are

given commissions and many interior officers who don't have to

be confirmed by the Senate to take office are given

commissions. I really don't think you can read anything of

significance into that.

Then a couple more points of Mr. Olson with respect to

the Valsia case. We talked about the critical significance of

the removal power as showing federal control. Well, of course,

that was removable without cause. Its certainly true that the

executive branch officer can be removed without cause, does

have to make sure that he or she is carrying out their duties

in conformity with the wishes of the president. This is a

clause standard, a completely different thing.

If I could, I would like to just spend a minute

thinking about the way this whole thing is set up because I do

think it is something that gets to the heart of it and is

really important.

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case:17-03283-LTS Doc#:2251 Filed:01/16/18 Entered:01/16/18 19:10:52 Desc: Main

Document Page 53 of 118
 54

SOUTHERN DISTRICT REPORTERS, P.C.

(212) 805-0300

I1AsPRO2 

Basically what my friends on the other side are saying

is, look, this board is set up as a federal overseer of the

common law government. But that is just not right. First of

all, the congress said it is part of the Commonwealth

government, not a federal overseer. What it is is an

independent board embedded within the structure of the

Commonwealth government.

Now, the board needed independence because it had to 

make some very difficult political decisions and choices that 

the governor wasn't going to like and the legislature wasn't 

going to like, so they needed independence. But independence 

is not the same thing as superintendence. I do think, not to 

be presumptuous, I do think your Honor's opinion, recent 

opinion about the transformation officer issue really 

recognizes that that is exactly what the structure is here. Of 

course, it makes sense that congress would think about it that 

way, because you now have a very strongly embedded legislative 

policy, judgment and commitment, to autonomy and 

self-governance within the territorial structure for the people 

of the Commonwealth of Puerto Rico. This way of approaching 

it, this way of doing it is consistent with that commitment. 

They are embedded in the government of Puerto Rico. They are 

an independent board. 

Now, removal of power does remain with the president, 

but the reason that it remains with the president is because 

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case:17-03283-LTS Doc#:2251 Filed:01/16/18 Entered:01/16/18 19:10:52 Desc: Main

Document Page 54 of 118
 55

SOUTHERN DISTRICT REPORTERS, P.C.

(212) 805-0300

I1AsPRO2 

you've got to have can some check in case there is malfeasance 

by board members. Somebody has to have the authority to remove 

in the case of that situation. You can't really give that to 

the governor or the legislature of Puerto Rico, for the reasons 

that we talked about before, independence in the way that could 

impair the mission. 

If they give it to the president, I think that is a

very practical reason. But I do think really, their whole 

argument about control comes down to the fact that the 

president has four clause rule power. There really isn't any 

other control. There is no other supervision. The board 

doesn't report to the secretary of the treasury or anybody 

else. It is not in the chain of command. They are an 

independent entity within the government of Puerto Rico. 

I think I have exhausted what I want to say, your

Honor. I probably exhausted you as well. If you have any

other questions.

THE COURT: Thank you. You have been quite clear and

comprehensible.

MR. VERRILLI: Thank you.

THE COURT: Now Mr. Ward for the United States. I

have you down for 20 minutes.

MR. WARD: Yes. Thank you, your Honor. May it please

the court.

My name is Thomas Ward from the U.S. Department of 

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case:17-03283-LTS Doc#:2251 Filed:01/16/18 Entered:01/16/18 19:10:52 Desc: Main

Document Page 55 of 118
 56

SOUTHERN DISTRICT REPORTERS, P.C.

(212) 805-0300

I1AsPRO2 

Justice. I have the privilege of arguing on behalf of the 

United States. So that I don't bury the lead, it is the view 

of the United States that PROMESA is unquestionably

constitutional despite all the foreign generals in the room 

today, we don't think that this one is that close. 

It is also the view of the United States that if 

Aurelius and UTIER are correct, that the appointments clause 

applies here, that not just the Oversight Board, but the entire 

territorial government of Puerto Rico is unconstitutional. So 

if Aurelius wins, Puerto Rico has bigger problems than just 

losing the Oversight Board. There is a good argument that 

their self-governance and their constitution are also 

unconstitutional. 

Jumping to the appointments clause, as you know, the

appointments clause prescribes the method of appointment for

all officers of the United States whose appointments are not

otherwise provided for in the Constitution. Officers of those

persons hold federal offices and exercise significant authority

pursuant to the laws of the United States. Central to

PROMESA's statutory scheme is a creation of the Oversight Board

within Puerto Rico's territorial government. Congress

explicitly stated in this PROMESA that the Oversight Board is

an entity within the territorial government of Puerto Rico

making an expressed designation consistent with the board's

authority --

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case:17-03283-LTS Doc#:2251 Filed:01/16/18 Entered:01/16/18 19:10:52 Desc: Main

Document Page 56 of 118
 57

SOUTHERN DISTRICT REPORTERS, P.C.

(212) 805-0300

I1AsPRO2 

THE COURT: Mr. Ward, I'm sorry. I have to ask you to

project more. They are having trouble hearing you in San Juan.

MR. WARD: Sure.

THE COURT: Make that a little more vertical and speak

out, please. Thank you.

MR. WARD: Sure. Glad to do so.

THE COURT: Much better.

MR. WARD: The Oversight Board is an Article IV entity

to which the appointments clause does not apply. We know the

appointments clause doesn't apply to Article IV territorial

entries because if it did, as I noted and we will discuss in

more detail, Puerto Rico's self-governance statute would be

unconstitutional. Aurelius has conceded that territorial

self-governance is constitutional, and as a result, their

appointments clause argument can't be right.

The territory clause of Article IV is congress has

plenary authority over the territories, and as the Supreme

Court recently reiterated, pursuant to that plenary authority,

congress has broad latitude to develop innovative approaches to

territorial governance. That is the Sanchez Valle case that

your Honor is familiar with.

The Supreme Court has also held that congress may

legislate the territory in a manner that would exceed its

powers or at least be very unusual in the context of national

legislation enacted under other powers delegated to it under

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case:17-03283-LTS Doc#:2251 Filed:01/16/18 Entered:01/16/18 19:10:52 Desc: Main

Document Page 57 of 118
 58

SOUTHERN DISTRICT REPORTERS, P.C.

(212) 805-0300

I1AsPRO2 

Article I Section 8. That is the Palmore case from 1973.

To address the crisis in Puerto Rico, congress

provided for the creation of the Oversight Board as an entity

within Puerto Rico's territorial government to work with the

existing territorial government to get Puerto Rico back on

sound financial footing. In PROMESA, congress used some of the

elements that were successful from the DC control board

structure, which was used to get DC's financial house back in

order.

The president approved PROMESA and the structure of

the Oversight Board by signing it into law on June 30, 2016.

By August 31, 2016, two months later, President Obama populated

the Oversight Board, choosing from the list, and also

appointing his own person. He could have sought to supplement

the list with additional names, and he did not have to appoint

the people recommended by the congressional leaders. He could

have appointed other individuals who would then be subject to

Senate confirmation. President Obama chose to go with the

names listed in the recommended list. As he stated publicly,

he was happy to do so. In fact, he praised the board members

as the right people to help Puerto Rico over the challenges it

faced.

While PROMESA's Oversight Board may be innovative or 

unusual in some respects, even though it is close to the DC 

control board, it was in congress' plenary authority over the 

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case:17-03283-LTS Doc#:2251 Filed:01/16/18 Entered:01/16/18 19:10:52 Desc: Main

Document Page 58 of 118
 59

SOUTHERN DISTRICT REPORTERS, P.C.

(212) 805-0300

I1AsPRO2 

territories to enact that. Beyond that, it was within the 

president's authority to sign it rather than veto it and 

populate it without delay. 

Turning to Aurelius' arguments, which are also made by

UTIER, they say the appointments clause does not apply because,

in part -- the appointments clause does apply in part because

history is replete with examples where the president has

appointed, with Senate confirmation, officials in the

territories, such as territorial governors. But as we make

clear in our papers, history is also replete with examples of

territory officials being appointed by some method other than

presidential appointment with Senate confirmation. We also

included examples of territorial officials being elected by the

people of the territory or the territorial legislature.

What the history actually shows is that congress has 

long exercised its broad latitude to develop innovative 

approaches to territorial governor. Again, Sanchez Valle. In 

our brief, we give several examples of different types of 

appointments and elections, territorial legislatures, attorneys 

general and other. Puerto Rico's history alone, there have 

been elected territorial officials since the Foraker Act. 

There have been territory officials appointed by the governor 

under the Jones Act. And Puerto Rico's governor has been 

elected since 1947. 

What the history shows is that congress is allowed to 

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case:17-03283-LTS Doc#:2251 Filed:01/16/18 Entered:01/16/18 19:10:52 Desc: Main

Document Page 59 of 118
 60

SOUTHERN DISTRICT REPORTERS, P.C.

(212) 805-0300

I1AsPRO2 

be innovative with regard to the territories and has not felt 

itself to be bound by the appointments clause. So Aurelius is, 

what really disproves the argument here is, I think what 

Mr. Verrilli touched on, their acknowledgment that the election 

structure of Puerto Rico's governor is constitutional. Nothing 

changed between the time when the governor was appointed and 

the governor was elected in terms of the United States 

Constitution. That is a real problem for them. 

The appointments clause, where it applies, provides

the exclusive procedure for selecting federal officers. An 

election is not one of them. If the appointments clause 

applies to a territorial officer, an election of that same 

official would be a violation of the Constitution. Yet 

territorial officials have long been elected by the people or 

by territorial legislatures, and territorial legislatures, in 

turn, have been elected since the founding of the nation. For 

example, as we note in our brief, throughout the 19th Century, 

territorial attorney generals and district attorneys were 

elected by territorial legislatures. More to the point, 

congress frequently provided for the election of territorial 

offices that had previously been appointed by the president 

with the advice and the consent in the Senate. That is 

happening in Guam, in the Virgin Islands, in American Samoa. 

All the arguments made by Aurelius whether the board 

should be appointed in the appointments clause applied with 

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case:17-03283-LTS Doc#:2251 Filed:01/16/18 Entered:01/16/18 19:10:52 Desc: Main

Document Page 60 of 118
 61

SOUTHERN DISTRICT REPORTERS, P.C.

(212) 805-0300

I1AsPRO2 

equal force to these territorial officers, but they have 

conceded that self-governance in the territories is

constitutional, and that has to be right because the clause 

does not govern the appointment of territorial officers. 

Faced with this reality, Aurelius has tried to invent

an election exception to the appointment clause, or as

Mr. Olson said, the immediate authority exception to the

appointments clause. Those don't exist. The Constitution's

text structure history provide no such exceptions, nor does

the appointments clause provide an on/off switch for its

application, depending on whether the selection is made by

territorial residents or federal appointment or whether it is

made of immediate authority, as Mr. Olson stated.

Aurelius suggests that this is a constitutional 

significance, the election point. It is not. This is made up 

out of whole cloth. Aurelius also suggests that it is of 

constitutional significance that the Oversight Board owes its 

existence to a federal law. Again, because of Sanchez Valle, 

it does not. That is of no constitutional significance in 

terms of application of the appointment clause. That would be 

the case with regard to every territorial government or entity 

within a territorial government. They all go back to the 

congress. They all owe their existence to federal legislation, 

even those which are elected. Therefore, what they argue 

cannot be the law. 

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case:17-03283-LTS Doc#:2251 Filed:01/16/18 Entered:01/16/18 19:10:52 Desc: Main

Document Page 61 of 118
 62

SOUTHERN DISTRICT REPORTERS, P.C.

(212) 805-0300

I1AsPRO2 

Look, they also spend a fair amount of time in their

brief on recess appointments, which nobody has touched on

today. They tried to argue that the fact that the president

has made recess appointments over time, where he appointed and

the Senate confirmed officers is evidence that the appointment

clause applies. That is quite a leap. The right to make a

recess appointment doesn't turn someone into a federal officer

or grant them federal powers.

The simple answer is that congress is permitted to 

legislate in any number of ways in the territories. One way is 

to give the president the ability to appoint officers with 

Senate confirmation. If congress does that, the recess 

appointment power can go with it. That is all it shows. 

Looking at the text of the recess appointment power,

it is not expressly limited to the appointment of

constitutional officers, that is, the text plainly permits the

president to recess appoint of a territorial official, if the

officer is designated by congress, to require Senate

confirmation and the Senate is in recess. That is all it is.

There is no magic to the recess appointments. It proves way

too much to say that the president's exercise of that power

demonstrates a territorial official a federal officer.

Also, Aurelius brings up a number of grab-bag reasons

why these are federal officials, and I am going to try to knock

them down quick. They say it is significant the Oversight

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case:17-03283-LTS Doc#:2251 Filed:01/16/18 Entered:01/16/18 19:10:52 Desc: Main

Document Page 62 of 118
 63

SOUTHERN DISTRICT REPORTERS, P.C.

(212) 805-0300

I1AsPRO2 

Board is mentioned in the federal budget. I don't know why

they mention that because it doesn't help them. What that

shows in the federal budget is that it has zero impact on the

federal balance sheet. It receives no federal funding and

makes no contribution to the federal coffers. Rather, the

federal budget makes clear that the board's financing is

derived entirely from the territorial government.

They also argue that the Oversight Board being able to

initiate litigation in federal court is of some importance.

Again, it is not. The territorial government of Puerto Rico

has the same right, but that doesn't make that a federal

entity, and nobody would argue otherwise.

They also talked about the ability to get GSA, 

government facilities. What they don't say is that there is 

actually a federal statute that allows the provision of 

government facilities to all the territories on a reimbursable 

basis. Again, that means nothing. 

They talk about federal ethics being applied. That is

just good governance. It doesn't turn somebody into a federal

officer.

They also talk about being able to serve subpoenas

outside of Puerto Rico. Again, that doesn't make it a federal

entity. Territorial entities have the authority to issue

subpoenas, and the board's subpoena authority is governed by

Puerto Rico's statute defining the scope of personal

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case:17-03283-LTS Doc#:2251 Filed:01/16/18 Entered:01/16/18 19:10:52 Desc: Main

Document Page 63 of 118
 64

SOUTHERN DISTRICT REPORTERS, P.C.

(212) 805-0300

I1AsPRO2 

jurisdiction.

Then, I think, as the people have touched on, the

existence of bicameralism and presentment is also, that is the

price of admission for congress doing business. That has to be

present. So the fact that those two are present doesn't mean

that every other structural constitutional protection just gets

incorporated automatically. Those are the two minimum ones.

Then they say that the board makes annual reports to

the president and congress, so that must mean it is a federal

entity. They make an annual report, but they also give to the

governor and legislature of Puerto Rico. This is just so

people know what they're doing. That would be quite a stretch

to say that that was something that turned you into a federal

officer.

Going to their separation of powers, which is kind of

a subset of their appointments clause argument, any separation

of powers analyst here has to account for the context in which

congress is exercising its power, which here is the plenary

Article IV territory power. The flexible balancing that courts

engage in when conducting separation of powers of analysis

accounts for that greater authority vis-a-vis the other

branches. Congress has plenary authority when it legislates

under Article IV that is greater than its authority to act

under Article I.

For example, with legislative territories, congress

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case:17-03283-LTS Doc#:2251 Filed:01/16/18 Entered:01/16/18 19:10:52 Desc: Main

Document Page 64 of 118
 65

SOUTHERN DISTRICT REPORTERS, P.C.

(212) 805-0300

I1AsPRO2 

can cut the president out entirely by providing for a direct 

election. The balance of power, and thus the separation of 

powers analysis, is likely different in other context. For 

example, in enacting a military or foreign religions, the 

president's power under Article II is at its height and the 

separation of powers analysis for those instances would reflect 

that type of balance of power. 

Against the backdrop of the plenary Article IV power,

PROMESA's selection procedures do not amount to

unconstitutional environment because the statute permits the

president to ignore the list. The president has the ability

under the statute to request supplementation of the list or to

appoint his own candidates with Senate confirmation. Moreover,

it would be particularly odd to find the separation of powers

problem here in light of the fact that the plaintiffs have

failed to demonstrate that the president was, in fact,

constrained.

In fact, all evidence including the president's public 

statement goes the other way. He did not ask for 

supplementation of the list, nor did he select his own 

appointees and ask the Senate to confirm them. 

To the extent that Aurelius is arguing that the

statute objectivity provides the president with a number of

means to effect his choices, that subjectively the president

was, in fact, constrained, that is not the role of the courts

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case:17-03283-LTS Doc#:2251 Filed:01/16/18 Entered:01/16/18 19:10:52 Desc: Main

Document Page 65 of 118
 66

SOUTHERN DISTRICT REPORTERS, P.C.

(212) 805-0300

I1AsPRO2 

to adjudicate that kind of dispute, because it is impossible to

determine whether the statute actually limited the president's

selection. Thus, PROMESA's provisions enacted in the context

where congress' power is at its apex, governance of the

territories do not defend constitutional separation of powers.

Turning to footnote 15, which apparently Aurelius'

attorney is very excited. I wish I could get so excited about

nothing. We conceded nothing in that footnote. The point in

footnote 15 was only to make clear how far Aurelius was

overreaching in its deal to strike down the statute.

As we understand their argument, they think the 

statute must be read to compel the president to pick future 

board members in the same expedited manner that applied under 

the special provision for picking initial board members. That 

is an untenable reading of the statute on its own terms and 

that should resolve the issue. That was our point in footnote 

15. If there is any ambiguity on that point, principles of 

constitutional avoidance would resolve it going forward. That 

is all. 

I would also like to touch on the remedy point because

Aurelius says that the government concedes and agrees that bad

things would not happen if the court strikes down the board and

the Title III proceeding is dismissed or stayed. That is not

the government's proceeding. That is not our position.

If the court concludes that it is going to sever the 

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case:17-03283-LTS Doc#:2251 Filed:01/16/18 Entered:01/16/18 19:10:52 Desc: Main

Document Page 66 of 118
 67

SOUTHERN DISTRICT REPORTERS, P.C.

(212) 805-0300

I1AsPRO2 

Oversight Board and going to stay the proceedings for whatever 

remedy the court would seek to impose, the government would 

ask, given the importance of this issue, to have the 

opportunity to brief what our position would be. But it is not 

accurate to say that we agree that bad things would not happen. 

THE COURT: Just so that I understand you procedurally

and logistically, you're asking that if I would determine that

this appointment mechanism for the Oversight Board is

unconstitutional, you would have me announce that decision, but

entertain further briefing on the remedy point?

MR. WARD: Absolutely, given the importance here, and

we can do it quickly.

But we think that given the gravity of what is 

involved here, and that even what a short stay could entail, 

that we should be able to brief this. 

Now, if Puerto Rico, for example, if a stay is not put

in place in the Title III proceeding, we don't know what would

happen to the Title III proceeding then. For example, Puerto

Rico may have payments on its debt due. What we understand

currently is Puerto Rico owes $2 billion in debt payments out

of a $9 billion budget. That is quite a bite out of what they

would have to spend for this year, not to mention what they

owed from last year, 2017.

So we would like the opportunity to really sharpen

the pencils, put out the numbers, and come up with our

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case:17-03283-LTS Doc#:2251 Filed:01/16/18 Entered:01/16/18 19:10:52 Desc: Main

Document Page 67 of 118
 68

SOUTHERN DISTRICT REPORTERS, P.C.

(212) 805-0300

I1AsPRO2 

recommendation on the remedy or our position on a remedy.

THE COURT: Pursuing this a bit with you, because

eventually there will be rebuttal, and those that are asking

for that remedy will have further chance to speak about it.

My understanding of what was said was that they would

be asking me to stay any decision that would imply invalidation

of what has gone forward. It was unclear to me whether they

were asking for a complete standstill of further activity until

the Title III, but leaving the Title III and therefore the

automatic stay and everything else in place or something else.

What is your understanding of what they are asking?

MR. WARD: That is also my understanding, which is I

am not quite sure what they are seeking. But anything that

involves the significant delay, even a stay in the Title III

proceeding, will have negative consequences for Puerto Rico,

and we would like the ability to submit something in writing of

our position on that.

THE COURT: Thank you.

MR. WARD: I'll reserve my two seconds.

THE COURT: Fair enough.

At this point, I promised everybody, including myself,

a break.

If you don't mind, Mr. Dellinger. 

MR. DELLINGER: I'm happy.

THE COURT: We will take a ten-minute break, and then

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case:17-03283-LTS Doc#:2251 Filed:01/16/18 Entered:01/16/18 19:10:52 Desc: Main

Document Page 68 of 118
 69

SOUTHERN DISTRICT REPORTERS, P.C.

(212) 805-0300

I1AsPRO2 

everyone please return to your seats in ten minutes.

Thank you. 

(Recess)

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case:17-03283-LTS Doc#:2251 Filed:01/16/18 Entered:01/16/18 19:10:52 Desc: Main

Document Page 69 of 118
 70

SOUTHERN DISTRICT REPORTERS, P.C.

(212) 805-0300

I1AYPRO3 

THE COURT: Good afternoon. Please be seated.

Mr. Dellinger.

MR. DELLINGER: Thank you, Judge Swain, and may it

please the Court.

Let me address a question that you raised at the

outset of the hearing about the relevance of the insular cases

to the propositions that we put forward.

We have two propositions under the appointments

clause, and neither of them is dependent upon the insular

cases. In fact, we have no occasion to disagree with the

powerful dissenting statement of the first Justice Harlan in

the insular cases that the Constitution is supreme over every

foot of territory, wherever situated, under the jurisdiction of

the United States.

As my colleague, Mr. Olson, suggests, we do not

believe that Congress' power under the territories clause is

"immune from constitutional scrutiny." We believe that it

passes that constitutional scrutiny.

Our two propositions are that properly interpreted,

the phrase in the appointments clause, officers of the

United States, does not include officials of the

District of Columbia, like the mayor and the city council, or

territorial officials.

Our second proposition is that the Oversight Board 

members are territorial officials. And I know both

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case:17-03283-LTS Doc#:2251 Filed:01/16/18 Entered:01/16/18 19:10:52 Desc: Main

Document Page 70 of 118
 71

SOUTHERN DISTRICT REPORTERS, P.C.

(212) 805-0300

I1AYPRO3 

Mr. Verrilli and Mr. Ward touched on this, but I wanted to add 

a bit more detail to what I think is a critical point in this 

case about whether these are or are not territorial officials. 

Mr. Olson talks about the significance of the powers,

but, as this Court noted in your November 16 opinion, the

important responsibilities are shared by the Board and by the

government of the Commonwealth.

Those are all territorial powers, and when Congress

says -- and you wonder what weight to give to Congress'

declaration that this is an entity within the territorial

government.

Congress can't declare something to be true by ipse

dixit, but when Congress says that and when Congress carries 

through on that, as it did throughout PROMESA, Congress 

provided that the Board cannot contract on behalf of the 

United States. It can't sue on behalf of the United States. 

It can't draw upon the federal fisc. It can't obligate the 

full faith in credit, but that's not all. And this is 

critical. There are federal powers under PROMESA, but where 

those powers exist, they are not conferred upon the Board. 

For example, there is power under PROMESA to waive

federal wage and overtime regulations. That's Section 404, but

that power is not placed with the Oversight Board. It's placed

with the Secretary of Labor and the Controller General of the

United States.

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case:17-03283-LTS Doc#:2251 Filed:01/16/18 Entered:01/16/18 19:10:52 Desc: Main

Document Page 71 of 118
 72

SOUTHERN DISTRICT REPORTERS, P.C.

(212) 805-0300

I1AYPRO3 

Mr. Olson notes that the Board has subpoena powers,

but it's precisely delineated as subpoena power under

Puerto Rican law, not U.S. law. And to pick out just one of

many, 204(d), the Board is expressly given no power over the

Commonwealth's implementation of federal programs so that if

you go through PROMESA, you see that there is a consistent

operating principle that territorial authority only is given to

the Board and that, along with the declaration on the part of

Congress, is what makes it clear.

Ask this question. If the Board ceased to exist,

where would its powers go. None of its powers would go to

federal agencies. They would all revert to officials of the

Puerto Rican government.

Now, I think Mr. Olson has a very difficult problem

with the fact that we have elected since 1947 in Puerto Rico

the governor and other officials. We've elected the mayor and

city council of the District of Columbia. We have no problem

with that under the text of the appointments clause because of

the history that suggests that they are not officers of the

United States.

He has to create an unnoted, unwritten elections

exception, and even that doesn't do the trick because there are

other people who are not appointed in accordance with the

appointments clause, people who since 1917 and 1947 in

Puerto Rico have been appointed by officials of Puerto Rico and

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case:17-03283-LTS Doc#:2251 Filed:01/16/18 Entered:01/16/18 19:10:52 Desc: Main

Document Page 72 of 118
 73

SOUTHERN DISTRICT REPORTERS, P.C.

(212) 805-0300

I1AYPRO3 

not by the President.

There is nothing in text history or logic that would

create this elections exception, and I think to hold that

territorial officers are officers of the United States would

imperil the democratic government.

It's somewhat ironic that in their brief Aurelius says

Puerto Rico should enjoy the benefits of the Constitution's

structural safeguards, but if those supposed benefits include a

loss of the right of self-governments through elected

officials, I think that is a benefit that the Commonwealth

could do without.

There is one other way to think about this. If

Congress did not violate the appointments clause when it

provided for popular election, why is it that all of a sudden

Congress becomes under the constraints of the appointments

clause if it adds to democratic government an element that the

U.S. has, in part with the Federal Reserve Board, which D.C.

had with the control Board, an element of insulation partially

for some fiscal and budgetary matters from immediate popular

election. It makes no sense to say that there is an election

exception but that the full weight of the clause applies.

So I think what we have at the end of the day is what

Aurelius is seeking is the mere opposite of that broad latitude

for innovative approaches of which the Supreme Court spoke just

last year.

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case:17-03283-LTS Doc#:2251 Filed:01/16/18 Entered:01/16/18 19:10:52 Desc: Main

Document Page 73 of 118
 74

SOUTHERN DISTRICT REPORTERS, P.C.

(212) 805-0300

I1AYPRO3 

Because I think there were 62 days in which Congress

could have acted, there was plenty of time for the President to

have his choices met. Congress was able to pass an entire

revision of the Internal Revenue Code through the House and

Senate in fewer days than that.

So I think it's not surprising that, given the amount 

of authority that remains with the President to make these 

choices, it's not surprising that two successive and somewhat 

different presidential administrations have not found this to 

unduly constrain any authority of the President. 

If you have no questions, your Honor.

THE COURT: Thank you, Mr. Dellinger.

Mr. Cooper for five minutes.

MR. COOPER: Yes, your Honor. Good morning, Judge

Swain. Charles Cooper for the COFINA senior bondholders.

I simply want to punctuate really a point that's made

by all of the very fine lawyers who have preceded me on my side

of the case, and it deals with this proposition advanced by

Aurelius that the way you sort out federal officers from

territorial officers is whether they have been appointed

federally or whether they've been elected.

Counsel puts it in their brief this way at page 21 of

their opening brief: "Officials who are elected by the people

of a territory or appointed by such elected representatives are

not officers of the federal government. While those installed

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case:17-03283-LTS Doc#:2251 Filed:01/16/18 Entered:01/16/18 19:10:52 Desc: Main

Document Page 74 of 118
 75

SOUTHERN DISTRICT REPORTERS, P.C.

(212) 805-0300

I1AYPRO3 

by the federal government are federal officers."

This is essentially the fulcrum of their argument.

It is an essential pivot. And, your Honor, it seems clearly

framed in order to produce two very convenient results for

Aurelius. Number one, it renders the Oversight Board

unconstitutional, but it saves all of the elected officials --

governors, legislators, etc -- of the Commonwealth from any

harm.

So, with surgical precision, Aurelius has, again,

produced a result that only applies to the targets of their

lawsuit here but leaves standing everybody else in the

Commonwealth. That's simply a result that the Constitution

cannot sustain.

If you step back for a minute and just assess this

argument, it produces results that are, on their face, I would

submit, strange and counterintuitive. Congress can give no

role, when it acts under its Article 4 powers to make all need

for rules, can give no role in the selection of territorial

officers to the President of the United States, for if they do,

if the President is involved in that appointment process,

he essentially has what's analogous to the Midas Touch. He

creates only federal officers if he's involved in that process.

But Congress can give the entire selection or appointment

process to the voters of the Commonwealth.

Your Honor, that just strikes my ear anyway -- and I 

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case:17-03283-LTS Doc#:2251 Filed:01/16/18 Entered:01/16/18 19:10:52 Desc: Main

Document Page 75 of 118
 76

SOUTHERN DISTRICT REPORTERS, P.C.

(212) 805-0300

I1AYPRO3 

would submit it should yours as well -- as a very strange type 

of constitutional interpretation, one that because it is such 

an odd result, ought to be driven by constitutional text that 

leaves very little doubt that that's the result the

Constitution requires. 

You can search the text of the Constitution and

nowhere find anything suggesting in any way that that is the

line determining whether an officer is an officer of the

United States versus a territorial officer. 

Another seemingly odd result of Aurelius' theory here 

is that it would seem to me that Congress could call for the 

election of officers that are in every respect clearly and 

undeniably federal officers, officers of the United States, 

such as the U.S. Attorney, so long as Congress placed the 

appointment power in the hands of the voters. That would seem 

to square with Aurelius' argument. 

So, your Honor, I will yield back the balance of my

time, but I simply wanted, again, to bring into sharp focus the

problem of Aurelius' argument. Thank you.

THE COURT: Thank you, Mr. Cooper.

Now Mr. Gershengorn.

MR. GERSHENGORN: Thank you, your Honor. May it

please the Court.

I represent the Retired Employees of Puerto Rico,

160,000 police officers, fire fighters, teachers, judges, and

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case:17-03283-LTS Doc#:2251 Filed:01/16/18 Entered:01/16/18 19:10:52 Desc: Main

Document Page 76 of 118
 77

SOUTHERN DISTRICT REPORTERS, P.C.

(212) 805-0300

I1AYPRO3 

other government workers who collectively have the largest

claim in these proceedings of roughly $50 billion.

I'd like to make three points this morning,

your Honor. First is that history makes clear that Congress

can generally legislate for the territories free from the

appointments clause and similar separation of powers

constraints, and all three branches have believed that.

The Supreme Court held, as you heard in Canter, that 

Article III doesn't apply to territorial judges. The 

Supreme Court held in the Heisen case that when Congress 

legislates for the territories, separation of powers arguments 

don't apply in the same way. And as you heard from

Mr. Dellinger and others, courts have held that the

appointments clause doesn't apply to the D.C. counsel. 

Second, Congress has made the same judgment. You

heard about elections. Elections have been part of territorial

governments from the start of our republic. I won't belabor

that, but I did want to touch on the events following the

Louisiana Purchase. Congress provided that all the powers of

the existing government "shall be vested in such person and

persons as the President of the United States shall direct," no

use of the advice and consent.

Congress debated the very appointments clause issue

that Mr. Olson is raising here today, and Congress decisively

rejected it. In addition, for the next hundred years, Congress

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case:17-03283-LTS Doc#:2251 Filed:01/16/18 Entered:01/16/18 19:10:52 Desc: Main

Document Page 77 of 118
 78

SOUTHERN DISTRICT REPORTERS, P.C.

(212) 805-0300

I1AYPRO3 

used that exact same language, so not just for Louisiana but

for Florida and the Philippines and for Panama.

Not just Congress, the third branch, the executive

branch has had the same view for nearly two centuries from

Attorney General Grundy's opinion that territorial officers are

not officers of the United States in 1839.

Attorney General Cushing made the same point to the

Supreme Court in Goodrich in 1854. The solicitor general told 

the Supreme Court in 2003 that the appointments clause doesn't 

apply in the territories, and then of course you've heard the 

United States arguments and seen their briefs today. The 

history is clear. 

That brings me to my second point. Aurelius' efforts

to explain away each historical example just don't work. Just

to pick the Heisen example, for instance, Aurelius dismisses

that in a footnote as just a case about statutory ratification.

That is simply not the case.

I urge the Court to read pages 384 and 385 of the 

opinion. The court makes clear its view that Congress can 

delegate legislative authority to the President when 

legislating for the territories even though it could not do so 

constitutionally when legislating for the states. 

The same is true for their distinction of the statutes 

following the Louisiana Purchase. They suggest, for example, 

that the first governor of Louisiana had been subject to advice 

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case:17-03283-LTS Doc#:2251 Filed:01/16/18 Entered:01/16/18 19:10:52 Desc: Main

Document Page 78 of 118
 79

SOUTHERN DISTRICT REPORTERS, P.C.

(212) 805-0300

I1AYPRO3 

and consent because he was governor of Mississippi. That is 

true, but that misses the point, which is that no officer was 

subject to advice and consent but that many others that were 

appointed by the President did not receive advice and consent. 

Even today with respect to the Washington Airports

case, your Honor, you asked the question about the appointments

clause. It was not at issue. Footnote 23 says, "We express no

opinion on whether the appointment process of the board of

review contravened the appointment clause." So I hope that

gets you what your Honor was asking earlier.

All of that brings me then to my final point which is

that Aurelius' effort to provide ad hoc explanations and

distinctions for each of these historical examples I think

really misses the forest through the trees.

I think what has to happen is the Court should step

back and consider the broader import of the territories clause. 

The framers recognized that they couldn't possibly anticipate 

the unique local needs and mysteries of all the territories the 

new nation might acquire. 

Some territories were going to be destined for state 

hood; some not. Some would be geographically close to existing 

states, some not. Some received emergency or temporary 

governments; some not. And some, like Puerto Rico, have faced 

emergency fiscal crisis, at least in part as a result of their 

territorial status; and some not. 

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case:17-03283-LTS Doc#:2251 Filed:01/16/18 Entered:01/16/18 19:10:52 Desc: Main

Document Page 79 of 118
 80

SOUTHERN DISTRICT REPORTERS, P.C.

(212) 805-0300

I1AYPRO3 

All three branches have realized that the appointments 

clause gives Congress the freedom to tailor individual 

solutions to individual territorial needs, apart, freed from, 

constraints like the appointments clause. 

You've heard a number of times today the language from 

Sanchez Valle, and I'll repeat it as well. The Supreme Court 

said, Congress has "broad latitude to develop innovative 

approaches to territorial governance," consistent with the need 

for what the Supreme Court called "inventive statesmanship for 

the territories." 

The enactment of PROMESA by Congress to meet the 

emergency conditions in Puerto Rico shows very clearly the 

wisdom of the framers' approach. 

If the Court has no further questions, Aurelius' 

motion to dismiss should be denied. 

THE COURT: Thank you.

MR. GERSHENGORN: Thank you.

THE COURT: Now Mr. Mollen.

MR. MOLLEN: Good afternoon, your Honor.

THE COURT: Good afternoon.

MR. MOLLEN: Thank you for your patience and hearing

us today.

The lawyers who have preceded me have done a fantastic

job of going over most of the territory. I'd like to focus the

Court on four quick points that I think illuminate in further

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case:17-03283-LTS Doc#:2251 Filed:01/16/18 Entered:01/16/18 19:10:52 Desc: Main

Document Page 80 of 118
 81

SOUTHERN DISTRICT REPORTERS, P.C.

(212) 805-0300

I1AYPRO3 

detail why this notion that the structural provisions of the

Constitution constrained Congress when it legislates for the

territories can't be right.

I'd like to start with the Heinszen case that 

Mr. Gershengorn just mentioned because I think there is 

actually an aspect of that case that's even more directly 

applicable here. 

In that case, Congress had delegated a non-delegable 

responsibility, that is, the duty or the power to lay duties 

under Article 1, Section 8, clearly unconstitutional if 

Congress was legislating for the United States, but it wasn't. 

It was legislating for the territory of the Philippines, and 

the Supreme Court said that the notion that is fully 

dispositive here is that when legislating for the territories, 

Congress can delegate its power of governance to such agencies 

as it determines appropriate. 

In this case, the Oversight Board is the agency that

Congress determined was appropriate. We believe that Heinszen

is actually fully dispositive of this question whether the

structural provisions of the Constitution apply.

The Supreme Court has also said on a number of

occasions that Congress' authority in structuring the

governmental affairs of the territories under Article 4 is as

extensive as the states' power to order their own affairs or

the affairs of the municipalities within the states.

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case:17-03283-LTS Doc#:2251 Filed:01/16/18 Entered:01/16/18 19:10:52 Desc: Main

Document Page 81 of 118
 82

SOUTHERN DISTRICT REPORTERS, P.C.

(212) 805-0300

I1AYPRO3 

We only have to look around the country, your Honor,

and you see many examples where states have adopted structures

of government that are incompatible, facially incompatible,

with the structural provisions of the Constitution.

We list a number of them in our brief. Just to name 

one, the attorney general in New Hampshire takes office, not 

after being confirmed or appointed by the governor and then 

confirmed by any legislative body, but confirmed by or approved 

by a five-member, elected board, incompatible with the 

structures of the Constitution. 

If what the Supreme Court said in Cincinnati Soap and

in other cases is true, that is, that Congress' authority is

equal to the authority of the states in ordering their own

affairs, then obviously the structural provisions of the

Constitution cannot apply.

Third, we know that those structural provisions don't

apply because of history. We've heard an awful lot about

territorial judges and the appointment of governors and those

sorts of things.

Your Honor, the executive officers of the Virgin

Islands today -- there is no legislative consent given. It

never goes to a Senate or a House of Representatives for

consent to the appointments made by the governor.

Guam has a unicameral legislature, your Honor. If the

structural provisions of the Constitution applied when Congress

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case:17-03283-LTS Doc#:2251 Filed:01/16/18 Entered:01/16/18 19:10:52 Desc: Main

Document Page 82 of 118
 83

SOUTHERN DISTRICT REPORTERS, P.C.

(212) 805-0300

I1AYPRO3 

legislates the form of government for the territories, Guam

could not have a unicameral legislature.

Finally, your Honor, the discussion here has avoided,

it seems to me, any real examination of the line of demarcation

between those rights that do and those rights that do not

constrain Congress when it legislates for the territories.

We have 115/116 years worth of history here,

your Honor. It does go back to the insular cases, but the

Supreme Court reaffirmed that line of cases in 2008. We don't

have to rely on ancient case law in order to establish it.

What is that line of demarcation? Congress is

constrained only where the legislation it's considering creates

personal rights that are essential to free government. That's

the standard that has survived for over a century.

It is obvious, your Honor, that the appointments

clause, that is, appointment by the President and confirmation

by the Senate, is not essential to all free government.

It doesn't exist in the states as I just described, it 

doesn't exist in some of the other territories, and it doesn't 

exist with our allies who somehow manage to provide free 

government to their people without having a president at all, a 

senate at all, or anything like the sort of structural 

provisions that we have in our Constitution. 

One example -- we have others in our brief --

Great Britain. Your Honor, the members of the prime minister's

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case:17-03283-LTS Doc#:2251 Filed:01/16/18 Entered:01/16/18 19:10:52 Desc: Main

Document Page 83 of 118
 84

SOUTHERN DISTRICT REPORTERS, P.C.

(212) 805-0300

I1AYPRO3 

cabinet are selected by the prime minister, appointed by the

queen or the king, and they have to be, by law, serving both in

the house of parliament and in the administration. That is,

it's a disqualification for office if -- it seems I've run out

of time, your Honor. May I finish this sentence?

THE COURT: Yes.

MR. MOLLEN: It's a disqualification in the British

system for the individual appointed by the queen to serve in

the minister's cabinet if that individual is not in the house

of parliament. 

In the united States, it's exactly the reverse, and

yet somehow, Great Britain manages to provide free government 

to the subjects of the country. 

Thank you, your Honor, for hearing me.

THE COURT: Thank you.

Mr. Blumin.

MR. BLUMIN: Thank you, your Honor. Matt Blumin for

the American Federation of State, County, and Municipal

Employees, AFSCME. AFSCME Stands today on behalf of the tens

of thousands of active and retired Commonwealth public

employees it represents.

The average salary of a Commonwealth central 

government employee is less than $28,000 per year. The average 

pension is less than $15,000 per year. And these modest 

resources are being used every day to support entire families 

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case:17-03283-LTS Doc#:2251 Filed:01/16/18 Entered:01/16/18 19:10:52 Desc: Main

Document Page 84 of 118
 85

SOUTHERN DISTRICT REPORTERS, P.C.

(212) 805-0300

I1AYPRO3 

as they recover and rebuild after devastating hurricanes. 

AFSCME public servants, like the Commonwealth they

serve, cannot afford a single moment of delay in Puerto Rico's

recovery. It is for this reason that AFSCME opposes dismissal

of these Title III cases.

Nevertheless, AFSCME's members are offended by the

current state of Supreme Court jurisprudence with respect to

the territories. In particular, AFSCME rejects the racist

insular cases and the doctrine of territorial incorporation

adopted conclusively by the Supreme Court in 1922 and

unfortunately reaffirmed by the courts since.

Under this offensive doctrine, it is only that narrow

category of fundamental constitutional provisions which are the

basis of all free government that must define U.S. territories

deemed unincorporated into the United States.

This doctrine has been deployed by the Supreme Court 

to deny the constitutional right to trial by jury. It has also 

been used to justify discrimination against Puerto Rico in 

federal programs, such as the exclusion of elderly and disabled 

Puerto Ricans from receiving SSI benefits on Puerto Rican soil. 

These basic injustices cut much more deeply at the

fundamental nature of free government than rejecting Aurelius'

request to formalistically apply the appointments clause to

Puerto Rico solely in order to advance Aurelius' interests as

an investor/creditor.

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case:17-03283-LTS Doc#:2251 Filed:01/16/18 Entered:01/16/18 19:10:52 Desc: Main

Document Page 85 of 118
 86

SOUTHERN DISTRICT REPORTERS, P.C.

(212) 805-0300

I1AYPRO3 

To be clear, AFSCME believes that the insular cases

and the doctrine of territorial incorporation must be

overruled. They are based on racist and false assumptions,

were meant to be temporary but have endured for more than a

century, and do not reflect the evolution of self-government 

in Puerto Rico.

But only the Supreme Court can overrule its own

decisions. Therefore, unless and until the insular cases are

overruled by the Supreme Court with respect to Puerto Rico,

AFSCME absolutely opposes Aurelius' effort to derail

Puerto Rico's recovery.

Aurelius' impractical demand that, contrary to the 

Supreme Court's guidance, Aurelius is somehow entitled to have 

the judicial branch overrule the form of territorial government 

chosen by Congress simply pales in comparison to the basic 

rights that everyday Puerto Ricans are denied under the insular 

cases. 

Furthermore, AFSCME agrees with the governor and

others that Aurelius' theory, which is that the appointments

clause applies to territorial officials, could call into doubt

the governor of Puerto Rico's popular election.

The democratic rights to self-governance which 

Puerto Ricans have fought so hard to win should not be called 

into question so lightly. For this reason, AFSCME acknowledges 

that these appointments clause challenges can be resolved under 

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case:17-03283-LTS Doc#:2251 Filed:01/16/18 Entered:01/16/18 19:10:52 Desc: Main

Document Page 86 of 118
 87

SOUTHERN DISTRICT REPORTERS, P.C.

(212) 805-0300

I1AYPRO3 

Supreme Court case law which long predates the insular cases 

and which supports the conclusion that the Oversight Board 

members are not officers of the United States within the 

textural meaning of the appointments clause. 

However, for the Court not to reach that conclusion

and to rule in favor of Aurelius, it must overrule the insular

cases and the doctrine of territorial incorporation entirely.

To merely distinguish those cases and hold for 

Aurelius would distort the law to benefit off-island 

investor/creditors while leaving in place a grave injustice to 

the civil rights of the Puerto Rican people. 

If Aurelius were to succeed here in bending the 

Constitution to its will only to harm Puerto Rico by 

threatening the Commonwealth's ability to serve its citizens 

and those citizens' right to elect their own self-government, 

it would be a tragic act of colonial oppression in the 

tradition of the insular cases themselves. Thank you. 

THE COURT: Thank you.

Mr. Bienenstock. I have you down for eight minutes.

MR. BIENENSTOCK: Thank you, your Honor. Good

afternoon, Judge Swain. Martin Bienstock from Proskauer Rose

for the Financial Oversight Board, both for itself and as

representatives.

Your Honor, my mission is to address the motion for

stay relief. There are two main points I want to make, and

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case:17-03283-LTS Doc#:2251 Filed:01/16/18 Entered:01/16/18 19:10:52 Desc: Main

Document Page 87 of 118
 88

SOUTHERN DISTRICT REPORTERS, P.C.

(212) 805-0300

I1AYPRO3 

then I will double back to the jurisdictional issue that was

raised in your Honor's colloquy with my adversary here earlier.

First, I want to set the table with some undisputed

facts. I say they're undisputed because I'm taking them from

Aurelius' pleadings. Aurelius is a plaintiff in a case

your Honor has sub judice where it's the ACP complaint.

In paragraph 10, it asserts that it's entitled as a

constitutional debt holder, that is, a general obligation debt 

holder, is entitled to be paid before all other expenses. 

In paragraph 11, it complains that the Commonwealth's

budget spends some money on recreation and art for the

Commonwealth people and children who are growing up. And in

paragraphs 6 and 7 of that complaint, Aurelius contends that it

has a lien against the property taxes and clawback revenues in

the Commonwealth.

Moving over to the request that Aurelius is making

here in its motion for stay relief, it leaves us a little bit

in mystery as to what it wants to do because it doesn't file a

proposed pleading, but it does say in its motion that whatever

pleading it files would include two requests for relief, one

that all the Board's acts be deemed void and; two, that the

Board be enjoined from any further actions under PROMESA. That

can be found on pages 2 and 25 of Aurelius' stay relief motion.

So what's the impact of that. The impact, number one,

addresses Aurelius' first contention that it should get stay

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case:17-03283-LTS Doc#:2251 Filed:01/16/18 Entered:01/16/18 19:10:52 Desc: Main

Document Page 88 of 118
 89

SOUTHERN DISTRICT REPORTERS, P.C.

(212) 805-0300

I1AYPRO3 

relief if the stay applies because it is not trying to recover

on a claim.

Your Honor, under Section 362(a)(6) of the bankruptcy 

code incorporated in PROMESA by its Section 301(a), any act to 

recover on a claim is automatically stayed. It is impossible, 

given Aurelius' pending complaint where it is asserting its 

secured and other rights to the Commonwealth's revenues, its 

request for dismissal of the Title III petition, and for all 

acts of the Board to be deemed void, which would include its 

certification of the restructuring cases, the Title III cases. 

If those go away, the automatic stay goes away. 

So it is impossible, given the relief that Aurelius

has on file with this Court as requesting and what it wants to

file, it is impossible that it is not asking to do an act to

recover on a claim.

Even if in Aurelius' personal mind process it is

thinking that maybe it wouldn't take immediate action to

recover on a claim, what it is doing is an act to recover on a

claim. 

And more importantly, your Honor, if the relief it's 

requesting were to be granted such as all its acts deemed void, 

including its restructuring certifications, then even if 

Aurelius were kind enough out of the goodness of its heart not 

to go forward to seize assets, to engage in the race to the 

courthouse, all the other thousands of creditors in the 

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case:17-03283-LTS Doc#:2251 Filed:01/16/18 Entered:01/16/18 19:10:52 Desc: Main

Document Page 89 of 118
 90

SOUTHERN DISTRICT REPORTERS, P.C.

(212) 805-0300

I1AYPRO3 

Commonwealth would be free to do so. And it's really hard to 

believe that Aurelius would stand by and let everyone else try 

to get paid while it was silent. 

So, whether or not it personally wants to go forward

and grab assets, it's asking for relief, the essence of which

is to enable itself and all other creditors to recover on

claims.

So the notion that the stay doesn't apply is just

wrong because it applies to any act to recover on a claim, and

this is not, as Aurelius argues in its reply, an overbroad

reading of the word "any act to recover" in 362(a)(6).

One can't imagine an any more direct connection 

between the relief it's asking for, its position in the case, 

and recovering on a claim. Anyone wanting to recover on the 

claims Aurelius owns would want to get rid of the automatic 

stay, which is exactly what it's asking to do. 

So, number two, it says, if the stay applies, which we

contend it does, it should clearly be granted relief. And why?

Because it contends that it's being hurt. And how is it being

hurt? It says on page 24 of its brief, it says the harm it's

suffering arises from the Board's unlawful certifications of

the fiscal plan, the budget, and the restructuring.

Your Honor, it is truly ironic that a litigant who

comes to this Court today to enforce constitutional rights in

this motion believes it can make three conclusory legal

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case:17-03283-LTS Doc#:2251 Filed:01/16/18 Entered:01/16/18 19:10:52 Desc: Main

Document Page 90 of 118
 91

SOUTHERN DISTRICT REPORTERS, P.C.

(212) 805-0300

I1AYPRO3 

allegations that it's being harmed by unlawful certifications,

without showing any subject matter jurisdiction to the Court to

do that in view of Section 106(e) without putting in an iota of

evidence, and assuming the Court can simply take its legal

conclusory obligation as proof in evidence that it's being

harmed, and therefore, should get stay relief. The bottom line

is it has failed to state a claim.

Finally on the jurisdictional issue, your Honor, the

relief Aurelius requests in its motion to dismiss the Title III

petition that the Court has heard this morning, in paragraph 5

on its proposed order, it wants the Court to say that the Board

was unconstitutionally appointed. Its acts were void ab

initio.

In paragraph 6, it acts for a dismissal of the Title

III petition. That is identical to what it wants permission to

file with another district court or a court in the same

district but perhaps with a different judge assigned, or

perhaps your Honor would be assigned. It's unclear.

The bottom line, it's asking for the same relief

twice. Now, it will probably come back and say, well, it has

some question as to whether the acts it wants to declare void

could go beyond its Title III acts and affect Title II.

Well, your Honor, under Section 306 of PROMESA, it's

the same construct for your Honor's subject matter jurisdiction

as in Title 11, namely, anything arising under PROMESA arising

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case:17-03283-LTS Doc#:2251 Filed:01/16/18 Entered:01/16/18 19:10:52 Desc: Main

Document Page 91 of 118
 92

SOUTHERN DISTRICT REPORTERS, P.C.

(212) 805-0300

I1AYPRO3 

in the case or related to -- related to affects the

administration of the case -- and anything that adds or

subtracts to the assets and liabilities.

So, while we can't say because it hasn't filed a

complaint that all of the relief it's asking for it's not

already asking for, clearly some of it is, but it's left that

to a mystery because it didn't give us a draft complaint.

Unless your Honor has questions.

THE COURT: I do.

Given your position as to the applicability of the

stay to the broader conceptual purpose of this litigation,

which is also mirrored in substantial part in the UTIER

complaint, is there a principled reason why there was no

objection to what has been initiated as violative of the

automatic stay or needing some relief in advance that I should

consider in connection with this motion?

MR. BIENENSTOCK: Your Honor, it's a matter of I think

history and custom that people can always come to the

restructuring court and ask for relief that if they would go

into any other court for they would need stay relief.

To be sure, because your Honor is perfectly positioned

to take into account how to grant any remedy without

obstructing things that the Court and the law wouldn't want

obstructed, I would point out in that regard that Aurelius'

proposed order in the motion to dismiss does not include a stay

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case:17-03283-LTS Doc#:2251 Filed:01/16/18 Entered:01/16/18 19:10:52 Desc: Main

Document Page 92 of 118
 93

SOUTHERN DISTRICT REPORTERS, P.C.

(212) 805-0300

I1AYPRO3 

pending appeal.

THE COURT: Thank you.

Mr. Harris.

MR. HARRIS: Thank you, your Honor. May it please the

Court. Mark Harris for the Oversight Board.

I'm here to address the Board's motion to dismiss

UTIER's adversary proceeding. I'm planning only to address the

standing issues as the appointments clause issues have been

dealt with already by others.

So I have two quick points to make, your Honor,

concerning standing. One concerns constitutional standing; the

other one concerns prudential standing. On constitutional

standing, UTIER has not shown that it complies with the

requirements of Article III.

As the Court is aware, Article III requires three 

showings for constitutional standing -- injury in fact, 

traceability, and redressability. That's the basic requirement 

for every lawsuit that's brought under Article III.

UTIER needs to be able to show that it suffered

injuries in fact, and it needs to be able to put those injuries

at the doorstep of the Board in order to proceed with its

filing.

The trouble here is that it's quite clear from UTIER's

filing that its complaint is really with the Commonwealth, not

with anything that the Board has done. When it describes its

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case:17-03283-LTS Doc#:2251 Filed:01/16/18 Entered:01/16/18 19:10:52 Desc: Main

Document Page 93 of 118
 94

SOUTHERN DISTRICT REPORTERS, P.C.

(212) 805-0300

I1AYPRO3 

injuries, it describes some number of impairments concerning

its collective bargaining agreement and says that it suffered

various harms.

It doesn't cite the provisions of the CBA itself. The 

real problem is that each of the impairments it's complaining 

about was caused allegedly by something that the Commonwealth 

did, not the Board at all. 

It refers to four statutes. Three of these statutes 

were passed by the Commonwealth before any fiscal plan was 

certified by the Board. In fact, one of them was passed in 

2014. So that's years ago. 

The last one, which is the Fiscal Plan Compliance

Act -- that was passed after the Board approved, certified, a

fiscal plan. But, again, it's the Commonwealth's action, not

the Board's action, that it's complaining about.

Now, I think that UTIER explains somehow that it

believes that the acts incorporated something that the Board

did, but that's not what happened at all. The Commonwealth

passed its own laws, and if it has complaints about those laws

or thinks that those laws somehow harmed it, its claims are

against the Commonwealth, not against the Board at all.

This is a problem, as I said, your Honor, that goes

both to traceability, that the injury that it alleges it can't

blame the Board for. It also relates to redressability because

the key takeaway from all this is that even if UTIER received

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case:17-03283-LTS Doc#:2251 Filed:01/16/18 Entered:01/16/18 19:10:52 Desc: Main

Document Page 94 of 118
 95

SOUTHERN DISTRICT REPORTERS, P.C.

(212) 805-0300

I1AYPRO3 

the relief it's asking for, which was the invalidation of the

Board, these four statutes would still be on the books. It

wouldn't affect anything. It wouldn't change the impairments.

That's the reason why they don't have Article III standing.

I want to very briefly address prudential standing.

This is a problem for their third and fourth prayers for

relief. In those prayers for relief, UTIER has asked for

declarations or orders declaring that all of the Board's

actions up until this point are null and void and also an

injunction, that any actions that the Board takes in the future

will be either preventing them or declaring those to be null

and void.

Our position is that those are both nullified and

blocked by Section 106(e) which basically says that there is no

jurisdiction in this Court to review challenges to the

Oversight Board, certification determinations. That's really

what those prayers for relief were getting at.

Again, going back to the injuries that they're

claiming, the injuries, as they've alleged them, they believe

all go back to the certification of the fiscal plans. Again,

as I've explained, really the harm is caused by statutes. It's

not caused by the fiscal plans.

Even on their theory which is that somehow the fiscal

plans influence somehow the passage of acts, that was blocked

by 106(e). They can't go forward with a challenge to certify

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case:17-03283-LTS Doc#:2251 Filed:01/16/18 Entered:01/16/18 19:10:52 Desc: Main

Document Page 95 of 118
 96

SOUTHERN DISTRICT REPORTERS, P.C.

(212) 805-0300

I1AYPRO3 

fiscal plans. 106(e) says there is no jurisdiction for those

to be considered. For that reason, UTIER is not able to bring

those claims.

If the Court has no questions. 

THE COURT: Thank you.

MR. HARRIS: Thank you.

THE COURT: Now we will turn to the rebuttal

arguments, beginning with Mr. McGill.

MR. McGILL: Thank you, your Honor.

I want to start just by being very clear about what

Aurelius is seeking here today because there seems to be a

little bit of confusion about that. So, of course, we are

seeking dismissal of the Title III proceeding. That is the

relief sought by our motion to dismiss. We have further said

that we would consent to a stay pending appeal of that if this

Court were inclined to enter an order dismissing the Title III

petition.

As Mr. Bienstock said, we did not include that in our

proposed order, but I think we've made clear -- and I'm making

clear right now -- that we would not object to a stay pending

appeal if one were sought by the Oversight Board or others.

We also filed this motion seeking relief from the stay

because it was, in our view, not clear whether this Court had

jurisdiction as the Court overseeing the Title III proceeding

to issue the full measure of injunctive and declaratory relief

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case:17-03283-LTS Doc#:2251 Filed:01/16/18 Entered:01/16/18 19:10:52 Desc: Main

Document Page 96 of 118
 97

SOUTHERN DISTRICT REPORTERS, P.C.

(212) 805-0300

I1AYPRO3 

that we sought.

I did not hear counsel for the Board state a position

on that. So, for that reason, I think we would continue to say

that we should get relief from the stay. We think the stay

does not apply because the contemplated lawsuit is one for

declaratory and injunctive relief against the Board, not the

debtor.

It rides solely on this appointments clause issue. 

This is not, in any sense, an action to enforce one of 

Aurelius' claims against the Commonwealth. So, for that 

reason, we think the stay does not apply. 

I do want to be clear. We have no interest in

duplicative litigation. If we filed such a lawsuit and it were

assigned to your Honor, we would have no objection to that. As

I said before, we expect your ruling here to be dispositive of

any lawsuit that we filed seeking additional injunctive relief.

Certainly if this case goes to the Court of Appeals --

and you suggested that it might -- that appellate ruling

certainly would be dispositive of not only the motion to

dismiss filed by Aurelius here today but also any other lawsuit

seeking additional injunctive relief.

We also think that there is good cause to grant us

relief from the stay, even if the stay applied, because if

we're correct that the appointments clause here has been

violated and Aurelius is suffering a constitutional harm by

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case:17-03283-LTS Doc#:2251 Filed:01/16/18 Entered:01/16/18 19:10:52 Desc: Main

Document Page 97 of 118
 98

SOUTHERN DISTRICT REPORTERS, P.C.

(212) 805-0300

I1AYPRO3 

virtue of the fact that it is being made part of a bankruptcy

proceeding that was initiated by and is being administered by

persons who do not have authority under federal law to hold the

offices that they are holding. We think that's clear

constitutional harm. It counts as irreparable, and that would

be adequate grounds for relief from the stay.

So we do think that the motion for relief from the

stay should be granted or that the stay should be clarified to

make clear that it does not apply to an action seeking relief

against the Board for an appointments clause challenge, but

another way that the Court could handle this is if the Court is

going to grant our motion to dismiss, I would expect that would

be appealed expeditiously by the Board.

If the Court is going to deny our motion to dismiss,

we would ask that the Court then enter an order under Section

1292(b) that would certify it for interlocutory appeal. We

think that there are plenty of good arguments that we could

appeal it as of right, that that would resolve any issue of

appellate jurisdiction in the First Circuit.

That way, as we stated and as Mr. Olson stated at the

outset of his argument, our interest is getting an expeditious

resolution of this issue so that this proceeding can move

forward. That is what our client wants, and that is what we're

here trying to achieve. Thank you, your Honor.

THE COURT: Thank you.

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case:17-03283-LTS Doc#:2251 Filed:01/16/18 Entered:01/16/18 19:10:52 Desc: Main

Document Page 98 of 118
 99

SOUTHERN DISTRICT REPORTERS, P.C.

(212) 805-0300

I1AYPRO3 

Mr. Emmanuellei.

MR. EMMANUELLEI: Thank you, your Honor.

The opposing parties have raised some fear about the

legality of the internally elected territorial officers.

The government and the other opposing parties assert

that recognizing the constitutional flaws in PROMESA's

appointments mechanisms would necessarily entail that the

internal elected governments are unconstitutional. That is

incorrect, your Honor.

Federal officers can coexist with territorial

officers. As recently as 2016 in Sanchez Valle, the

Supreme Court distinguished officers who report to the federal

government from those who reflect the idea of self-government

stating that -- this is Sanchez Valle -- while the federal

government remains the ultimate source of all sovereignty in

Puerto Rico, local democracy makes the Commonwealth sovereign

in the ordinary sense that the island has a measure of autonomy

comparable to that process by the states, and the most

immediate source of Puerto Rico's authority to act and enforce

law is the Puerto Rico populace.

UTIER is not contending that the democratic election

of territorial officers violates the appointments clause. On

the contrary. When authority is derived directly from the

consent of the governor as opposed to remedially from Congress,

the character of the office is fundamentally changed.

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case:17-03283-LTS Doc#:2251 Filed:01/16/18 Entered:01/16/18 19:10:52 Desc: Main

Document Page 99 of 118
 100

SOUTHERN DISTRICT REPORTERS, P.C.

(212) 805-0300

I1AYPRO3 

That authority is ultimately delegated by the people

of the state, and the local electorate of state officers who

appoint them are accountable for their actions.

On the issue of the laws that affected UTIER, I should

say that those laws substantially affected the entitlement and

fiduciary duties of UTIER to negotiate and defend the

collective bargaining agreement that protects its members. 

These laws were adopted by the members of the Board in 

the Commonwealth fiscal plan and in PREPA's fiscal plan and 

budget while being improperly appointed as members of the 

Oversight Board. 

The Board claims that neither the fiscal plan nor the

budgets discharges any claim and that no motion to that effect

has been filed, but it's also said that the fiscal plan is an

operative blueprint for financial management and the plan of

adjustment of debt.

The filing of a plan of adjustment of debt is the sole

purpose of this Title III proceeding. Eventually, the Board

will file the plan of adjustment and will further impair

UTIER's rights, which at the very least, represent an imminent

injury and a monetary loss for its members. That is standing

for UTIER. Thank you, your Honor.

THE COURT: Thank you.

Mr. Olson.

MR. OLSON: Thank you, your Honor, for your attention

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case:17-03283-LTS Doc#:2251 Filed:01/16/18 Entered:01/16/18 19:10:52 Desc: Main

Document Page 100 of 118
 101

SOUTHERN DISTRICT REPORTERS, P.C.

(212) 805-0300

I1AYPRO3 

and for your patience. You heard a lot of different voices

today, and I will take this opportunity, as briefly as I can,

to respond to some of the arguments made by our opponents with

respect to this motion.

The fundamental question before you is whether or not

members of this Oversight Board are officers of the

United States. And if they are officers of the United States,

were they appointed under the statute in a manner consistent

with the Constitution of the United States with respect to the

appointment of officers of the United States.

Starting with Mr. Verrilli, our opponents have

challenged our assertion with respect to what the test is that

you must apply to determine whether these individuals, these

appointees, are officers of the United States. And we've heard

various different iterations of alternative tests, but they are

clearly stated in many Supreme Court decisions.

I will quote the Freytag case, "Any appointee

exercising significant authority pursuant to the laws of the

United States is an officer of the United States and must,

therefore, be appointed in the manner prescribed by Section 2,

Clause 2, of Article 2." That's the Freytag case.

In the Metropolitan Washington Airports case, the

court said, "An entity created at the initiative of Congress,

the powers of which Congress has delineated, the purpose of

which is to protect and acknowledge federal interest, and

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case:17-03283-LTS Doc#:2251 Filed:01/16/18 Entered:01/16/18 19:10:52 Desc: Main

Document Page 101 of 118
 102

SOUTHERN DISTRICT REPORTERS, P.C.

(212) 805-0300

I1AYPRO3 

membership of which is limited to officials are officers of the

United States." The court has stated that several times.

It isn't how big an area the official has dominion 

over. There is no limitation if the official of the 

United States is a clerk of a tax court or a clerk of a 

territorial court or a trustee that is given limited 

jurisdiction over space or a marshal of the United States that 

has a limited territorial jurisdiction. It's whether that 

authority is exercising significant authority, that official is 

exercising significant authority under the statutes of the 

United States. 

Now, what happened here. What was intended. What was

intended was to create a federal board of federal officials to

oversee what was happening with the financial affairs of

Puerto Rico.

Congress wasn't interested in vesting authority in 

Puerto Rican officials to act pursuant to Puerto Rican law to 

deal with the financial problems in Puerto Rico. They were 

creating a federal board because that other solution had not 

been working out. 

There were serious financial problems. Congress

decided it must intervene, and it must create an agency that

would protect millions of citizens in Puerto Rico and the

millions of citizens who are affected by the financial affairs

of Puerto Rico, millions of citizens who are outside the

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case:17-03283-LTS Doc#:2251 Filed:01/16/18 Entered:01/16/18 19:10:52 Desc: Main

Document Page 102 of 118
 103

SOUTHERN DISTRICT REPORTERS, P.C.

(212) 805-0300

I1AYPRO3 

territory of Puerto Rico to whom money was owed or financial

obligations are owed.

So it was intended to be a federal board of federal

officials to deal with what was perceived as a major federal

problem affecting millions of United States citizens.

THE COURT: So then why did Congress say specifically

that it was being created as a territorial Board?

MR. OLSON: I think because Congress was concerned

about the very appointment clause provisions. They did the

same thing with respect to the Metropolitan Washington Airports

Authority by saying these congressional members were going to

be acting in their individual capacity.

And what the Supreme Court said is that a label given

by Congress is not dispositive. What the Supreme Court or the

courts must do with respect to facing these questions is look

at what's really happening.

There is no question what Congress intended with

respect to the Board. It was created by a federal statute.

That's federal authority under a federal statute. Its only

function is to enforce a federal statute. Its members were

appointed by a federal official.

I've said these things before. So I beg your

indulgence with respect to that, but all of these

manifestations are simply manifestations indeed of the fact

that it is a federal job that was being done with federal

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case:17-03283-LTS Doc#:2251 Filed:01/16/18 Entered:01/16/18 19:10:52 Desc: Main

Document Page 103 of 118
 104

SOUTHERN DISTRICT REPORTERS, P.C.

(212) 805-0300

I1AYPRO3 

parameters, federal authorities created in order to exercise

that federal responsibility.

With respect to the appointment -- I read this

before -- but Congress was fairly forthright about it. "The

section for the appointment of several of the individuals

through a process that ensures a majority of its members are

effectively chosen by republican congressional leaders."

(Continued on next page)

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case:17-03283-LTS Doc#:2251 Filed:01/16/18 Entered:01/16/18 19:10:52 Desc: Main

Document Page 104 of 118
 105

SOUTHERN DISTRICT REPORTERS, P.C.

(212) 805-0300

I1AsPRO4 

MR. OLSON: Congress was forthright in terms of the

problem it was trying to solve and it was forthright with

respect to the mechanism by which it would put officials there

to solve that problem.

One of my colleagues here today said, well, what would 

happen if the board were to disappear? All that authority 

would be exercised by Puerto Rican officials. Well, that is 

not true, because congress created this agency because it was 

not satisfied with what was happening by Puerto Rican officials 

with respect to the finances of Puerto Rico. So congress would 

have to move further to create another board, if for some 

reason this board disappeared. And there is no reason this 

board would need to disappear and there is no reason really to 

go back to congress. Because if the unconstitutional 

provisions are stricken by you or by a higher court with 

respect to the difficult constitutional problems that exist, 

the board may go forward and exercise its authority in a 

constitutional way. 

Now, with respect -- 

THE COURT: Given your view of the effect of elections

on the source of power, if congress had in this statute

provided for popular election of the members of the Oversight

Board from a slate prepared by congress, would there still be

an appointments clause problem?

MR. OLSON: Yes, there would because it would be a

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case:17-03283-LTS Doc#:2251 Filed:01/16/18 Entered:01/16/18 19:10:52 Desc: Main

Document Page 105 of 118
 106

SOUTHERN DISTRICT REPORTERS, P.C.

(212) 805-0300

I1AsPRO4 

federal statute creating federal authorities. All these

authorities that are being exercised at the board are pursuant

to a federal statute. So if it is a substantial federal

authority created by a federal statute, then the appointment

clause must be complied with, and you can't give that authority

away.

With respect to the territorial limitations, I'll

refer again to the U.S. Marshals, U.S. Trustee's commission,

such as the Presidio Commission out in California which is

taking care of the former Army base in San Francisco, and the

Metropolitan Air Force Authority of the Tennessee Valley

Authority. Congress constantly is creating agencies,

officials, and so forth, with limited territorial scope, with

limited territorial responsibility. 

If a clerk of a territorial court is an officer of the 

United States, which the Supreme Court has said, then certainly 

these individuals who exercise such substantial power are 

officers of the United States. 

THE COURT: What changed about the governor of Puerto

Rico between 1946 and 1947?

MR. OLSON: That's a very good question, because we

hear that repeatedly from our opponents. Actually, that kind

of authority delegating to the authoritarian territory itself

wants power to enact laws or a constitution for self-governance

is permissible and it has been since the foundation of the

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case:17-03283-LTS Doc#:2251 Filed:01/16/18 Entered:01/16/18 19:10:52 Desc: Main

Document Page 106 of 118
 107

SOUTHERN DISTRICT REPORTERS, P.C.

(212) 805-0300

I1AsPRO4 

country.

Because the very first statute that congress was 

dealing with, one of the very first statutes that congress was 

dealing with, was the Northwest Territory enactment. And in 

that respect, when the Articles of Confederation set up an 

appointment power that was vested differently when the 

Constitution was adopted, congress really realized that it had 

to change that and amended the Northwest Territory statute or 

the treaty with respect to change the appointment power, but 

still, legislative officials in the territory were local 

officials. 

On and off during history, congress has decided that 

we will best authority in a territory to elect its own local 

regional municipal type of government. And then the 

substantial difference the court has made clear is that then 

when those officials are acting, they are acting pursuant to 

the authority that is given to them by their own officials in 

their own territory. 

But when this board is acting, it is not acting

pursuant to any law of Puerto Rico or the Constitution of

Puerto Rico, it is acting pursuant to and restricted by the

federal statute itself. So the source of the authority is what

the Supreme Court has repeatedly talked about. That is what

the language that I quoted to you with respect to the various

cases. It is whether substantial federal authority is being

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case:17-03283-LTS Doc#:2251 Filed:01/16/18 Entered:01/16/18 19:10:52 Desc: Main

Document Page 107 of 118
 108

SOUTHERN DISTRICT REPORTERS, P.C.

(212) 805-0300

I1AsPRO4 

executed. 

There isn't any question. No action by this board is 

constrained or dictated by Puerto Rican law or Puerto Rican 

officials or Puerto Rican citizens. They owe their

responsibility to the president and who can remove them and 

their appointment by the president if it is done in a 

constitutional way. 

The Buckley case --

THE COURT: Do you have any specific case law

recognizing direct election as something that moots or

obviates, specifically recognizing direct election as some

popular election or something that moots or obviates the

seemingly absolute language of the appointments clause?

MR. OLSON: I don't have a specific authority that

says that, but what we do have is the authority that says the

source of the power pursuant to which the official acts is the

determinative factor as to whether that officer is an officer

of the United States or an officer of a local agency.

Congress has -- history is the guide to this -- the

Supreme Court talked in the Noel Canning case about how 

important history is with respect to the interpretation of the 

recess clause. We cite that in our briefs. The fact is that 

congress has been doing this from the beginning of time with 

respect to vesting certain authority in territories or other 

places to local officials, and that is not a violation of the 

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case:17-03283-LTS Doc#:2251 Filed:01/16/18 Entered:01/16/18 19:10:52 Desc: Main

Document Page 108 of 118
 109

SOUTHERN DISTRICT REPORTERS, P.C.

(212) 805-0300

I1AsPRO4 

appointments clause because the authority then to which the 

individual has to respond is the local authority rather than 

the statutory authority. 

The Buckley case is another case with respect to what

the source of the authority is. Congress there and the

arguments there in support of the Federal Election Commission

appointments was said to be acting pursuant to its authority in

the Constitution explicitly in Article I to control the manner

and time and so forth of elections.

The Supreme Court says, yes, the authority of congress 

is plenary with respect to the elections clause, but that 

doesn't immunize congress from complying with the structural 

constraints of the Constitution. 

We have heard much about territorial courts and how

that somehow is a response to the arguments that we have been

making. But those cases allowing territorial courts talk in

terms of Article I courts, territorial courts, tax courts,

military courts, and other authorities. The courts have

repeatedly said that all judicial power need not be vested in

Article III bodies. A member of the judiciary can be appointed

with respect to the authority to create inferior courts,

specifically set forth in Article III and also in Article I,

and those cases involve various different Article I type

courts. That does not change anything.

In fact, those Article I courts are also officers of 

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case:17-03283-LTS Doc#:2251 Filed:01/16/18 Entered:01/16/18 19:10:52 Desc: Main

Document Page 109 of 118
 110

SOUTHERN DISTRICT REPORTERS, P.C.

(212) 805-0300

I1AsPRO4 

the United States because they are exercising substantial 

authority under the statutes of the United States and, indeed, 

their clerks are officers of the United States, according to 

the Supreme Court. 

THE COURT: Now, if congress passed a statute

requiring the president to compile a list of candidates for a

governor of Puerto Rico and submit that list to popular

election as opposed to a selection to Senate advice and

consent, would that be constitutional?

MR. OLSON: I think your question was that if the

president compiles a list, which is then submitted to Puerto

Rico officials, you can elect your governor?

THE COURT: Then submit it to the Puerto Rican people,

that is what goes on the ballot?

MR. OLSON: You can elect your governor, but the

governor that you elect must be from this list.

THE COURT: Yes.

MR. OLSON: I think that would be a more difficult

question, but to the extent that congress is then taking the

responsibility under a federal statute to limit the persons who

will be the head of the executive branch in Puerto Rico, it

would raise substantial questions under the appointments clause

because the president -- neither the president nor congress can

give this authority away.

We cited the Boumediene case involving Guantanamo 

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case:17-03283-LTS Doc#:2251 Filed:01/16/18 Entered:01/16/18 19:10:52 Desc: Main

Document Page 110 of 118
 111

SOUTHERN DISTRICT REPORTERS, P.C.

(212) 805-0300

I1AsPRO4 

detainees and so forth. The Supreme Court said congress may 

have full authority in the territories of the United States, 

but it cannot contract away fundamental structural provisions 

of the Constitution. One of the things that we heard today was 

that there was somehow a difference between a territory and 

property under Article IV. 

THE COURT: Before you go there, would the governor in

this scenario be a territorial officer or a federal officer?

MR. OLSON: He would be an officer of the United

States if his authority is derived from federal statute. The

hypothetical that you're giving me doesn't completely cover

what kind of laws are being enforced, what limitations on the

power, how the individual must act. But to the extent that the

authority being exercised is created by a federal statute in a

hypothetical you give, then that person would be an officer of

the United States.

THE COURT: In 1946, you have a governor who is

appointed by the federal government with the set of powers that

presumably congress has structured.

1947, that person prior to the adoption of a 

constitution is popularly elected, and I think you tell me 

there is no appointments clause problem there, no obvious 

change in substance of authority, perhaps source of authority. 

So let's say in 1946 and a half, the president 

provides this list and it wasn't an open. Anybody in Puerto 

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case:17-03283-LTS Doc#:2251 Filed:01/16/18 Entered:01/16/18 19:10:52 Desc: Main

Document Page 111 of 118
 112

SOUTHERN DISTRICT REPORTERS, P.C.

(212) 805-0300

I1AsPRO4 

Rico wants to nominate, but it was an election. 

Does the character of the governor change from a U.S. 

office to a territorial office, and at what point and why? 

MR. OLSON: I think it is difficult to parse exact

lines with respect to this, but what the court is basically

saying is if congress passes a statute which delineates the

authority pursuant to which the appointee is acting, then that

person must be appointed in a manner consistent with the

Article II appointment clause provisions.

THE COURT: So there is a question about whether the

change to popular elections in 1947 was actually compliant with

the Constitution, where there was no separate Puerto Rican

Constitution at that point?

MR. OLSON: No. I think because the municipal laws

that were governing the activity of the governor at that

particular point in time -- and I haven't studied this, so I'm

not sure of what I am saying here with respect to that -- but

to the extent that the decision-making, the scope of authority,

the relationship between the official and the legislative

branch is determined by some municipal instrument or a

territorial instrument that delineates those authorities, then

that official, over history, has permitted on the Constitution

permits that authority to be exercised by someone who hasn't

gone through the advice of consent provisions.

THE COURT: But if the key points were in the Jones

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case:17-03283-LTS Doc#:2251 Filed:01/16/18 Entered:01/16/18 19:10:52 Desc: Main

Document Page 112 of 118
 113

SOUTHERN DISTRICT REPORTERS, P.C.

(212) 805-0300

I1AsPRO4 

Act or carried over from the Foraker Act and hadn't yet been

instantiated in the Constitution for Puerto Rico, then it might

be a problem?

MR. OLSON: It might be a problem to the extent that

the authority being exercised is pursuant to that federal

statute, whichever statute it might be. There might be

differences at various different times, but it is clear that

what has happened over time is that under certain

circumstances, congress, pursuant to its authority under

Article IV, can define the rules and regulations. And when it

continues to exercise authority over those areas, then those

are federal officials. But it may delegate that authority to

local officials under certain circumstances, which it has done

from the beginning of our constitution.

The idea that the board cannot -- the central fact is

with respect to this case -- there might be closer cases, there

might be different types of cases -- but with respect to this

case, it is clear that congress was intending to create a

federal Oversight Board. It may have called it a territorial

board. But the effect of it, what the court did, what the

congress did was create a federal Oversight Board. It decided

when and under what circumstances actions by the governor or

the legislature of Puerto Rico bonds other provisions would

have to be run through and secure the consent or non-objection

of the Oversight Board. 

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case:17-03283-LTS Doc#:2251 Filed:01/16/18 Entered:01/16/18 19:10:52 Desc: Main

Document Page 113 of 118
 114

SOUTHERN DISTRICT REPORTERS, P.C.

(212) 805-0300

I1AsPRO4 

And those individuals, when they need to look at 

whether they can act on something, whether they can exercise 

some authority or not, where do they look? They do not look to 

the Constitution of Puerto Rico. They look to the 

responsibilities given to them by the federal statute. 

Now, we have heard a little bit about how this is a

very ingenious creative method, and Article IV allows congress

a lot of flexibility to create innovative solutions to

problems. But those are the same arguments that were made in

the Chadha case. The same arguments that were made in the

Northern Pipeline case, and in other cases where the Supreme

Court of the United States looked upon its responsibilities and

said, well -- especially in the Chadha case. In the Chadha

case, the legislative veto cases, congress was looking -- I

mean, the court was looking at overturning some 200 statutes

that had been passed by congress, signed by the president from

the Roosevelt administration all the way up through the Carter

administration. And the Supreme Court said, it is fine to have

these innovative creative approaches by congress, but they all

must comply with the structural limits of the Constitution of

the United States.

These provisions about the appointments clause and

other structural separation of powers provisions are designed

to protect all citizens of the United States. I heard one of

my opponents say, well, the citizens of Puerto Rico will be

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case:17-03283-LTS Doc#:2251 Filed:01/16/18 Entered:01/16/18 19:10:52 Desc: Main

Document Page 114 of 118
 115

SOUTHERN DISTRICT REPORTERS, P.C.

(212) 805-0300

I1AsPRO4 

just fine without your federal interference with the

appointment of our authorities. But the point is that for the

long term and for the liberty of our citizens throughout our

nation, those structural provisions protect the liberty and

protect the structure of government and provide for

accountability so people will know who is responsible for

making the decisions. These lists were actually secret lists

that were sent to the president. There wasn't any publication

of who sent what names to the president. So this

accountability is dissipated when people are appointed in that

particular fashion.

THE COURT: But the president had to own the names

that were chosen and that was published, so that is no secret.

The president said, These are the people I am choosing, and he

did it at least two weeks before the deadline.

MR. OLSON: Right, he did. Because his pressure, if

he didn't act that way and he didn't have time to have the

advice of the consent of the Senate, I think it was

Mr. Verrilli who said it was the Senate decided, the Senate

could decide whether to confirm through an advice of consent

process or not.

Had the Senate, if it had had time for the president 

to submit names to the Senate that the president came up with 

as opposed to names that came up from legislative leaders, if 

the president had had time to do that, which he didn't, there 

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case:17-03283-LTS Doc#:2251 Filed:01/16/18 Entered:01/16/18 19:10:52 Desc: Main

Document Page 115 of 118
 116

SOUTHERN DISTRICT REPORTERS, P.C.

(212) 805-0300

I1AsPRO4 

is no opportunity to go through that process. Had he had time, 

the Senate could have said, well, we are busy or we're not in 

session or we are having pro forma sessions and not going to 

come back into full session to conduct an advice and consent 

process. If the Senate hadn't done that by that deadline, this 

is the power created by the statute. It isn't what actually 

happened. It is the power created by the statute. 

The ultimate control was in the branches of the 

congress to decide who could be appointed. If that hadn't been 

done, the statute specifically provides that the names have to 

come from the congressional list. 

I also heard one of our opponents saying, well, the

president can't ignore that and wait and just submit names and 

maybe they will be approved by congress. But the statute said 

says that the president cannot do that, that the president, 

after that deadline, must appoint officials from the lists. 

This is a very, very important structural provision

that is intended to protect all citizens of the United States.

And at the end of the Metropolitan Washington Airport Authority

case, the Supreme Court has a paragraph where it says, if

congress can do this, there is no limit to what congress can do

in terms of constraining the appointment process and creating

all manner of ingenious techniques to rest power from the

president of the United States.

So the Supreme Court is very much aware, if you break 

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case:17-03283-LTS Doc#:2251 Filed:01/16/18 Entered:01/16/18 19:10:52 Desc: Main

Document Page 116 of 118
 117

SOUTHERN DISTRICT REPORTERS, P.C.

(212) 805-0300

I1AsPRO4 

the line and allow these kind of changes to take place, 

congress will continue to pursue them. It is clear in the 

federalist papers that that impetuous vortex, which is what 

Hamilton referred to, is something -- was attempting to move 

greater power to itself and reduce power from the president or 

the other branches of government, and that is what must be 

guarded against, and that is the authority given to the 

judiciary beginning with Marbury v. Madison. 

THE COURT: Thank you, Mr. Olson.

This has indeed been not only a long day, but an

extraordinary and extraordinarily important day. I thank all

of the advocates here for their thoughtful, detailed arguments

and for engaging my various questions and hypotheticals.

I take these matters under advisement, and you'll know 

when I have reached a decision from the ECF system.

We have scheduled another argument to begin at two.

We will begin that at 2:10.

Thank you, all.

(Adjourned) 

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case:17-03283-LTS Doc#:2251 Filed:01/16/18 Entered:01/16/18 19:10:52 Desc: Main

Document Page 117 of 118
 118

SOUTHERN DISTRICT REPORTERS, P.C.

(212) 805-0300

I1AsPRO4 

UNITED STATES DISTRICT COURT) 

 ) ss. 

OF PUERTO RICO ) 

REPORTERS' CERTIFICATE

I, Kelly Surina and Lisa Picciano Fellis, do hereby

certify that the above and foregoing, consisting of the 

preceding 117 pages, constitutes a true and accurate transcript 

of my stenographic notes and is a full, true and complete 

transcript of the proceedings to the best of our ability. 

Dated this 10th day of January, 2018. 

S/Kelly Surina__________ 

Kelly Surina, RMR, CSR, RPR, CRR 

S/Lisa Picciano Fellis____________ 

 Lisa Picciano Fellis, RMR, CSR, RPR 

 Official Court Reporters 

 500 Pearl Street 

New York, NY 10007 

212-805-0320 

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case:17-03283-LTS Doc#:2251 Filed:01/16/18 Entered:01/16/18 19:10:52 Desc: Main

Document Page 118 of 118