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UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF PUERTO RICO

PROMESA

Title III

No. 17 BK 3283-LTS

(Jointly Administered)

 

THE COFINA SENIOR BONDHOLDERS’ COALITION’S RESPONSE TO 

AURELIUS’S INFORMATIVE MOTION REGARDING RECENT SUPREME 

COURT DECISIONS IN ORITZ v. UNITED STATES AND LUCIA v. SEC

The Senior COFINA Bondholders’ Coalition2 respectfully submits this statement in 

response to the Aurelius’s Informative Motion Regarding Recent Supreme Court Decisions in

Ortiz v. United States and Lucia v. SEC (July 6, 2018), Dkt. 3451 (“Informative Motion”):

 1 The Debtors in these Title III cases, along with each Debtor’s respective bankruptcy case number and the last 

four (4) digits of each Debtor’s federal tax identification number, as applicable, are the (i) Commonwealth of Puerto 

Rico (Bankruptcy Case No. 17-BK-3283-LTS) (Last Four Digits of Federal Tax ID: 3481); (ii) Puerto Rico Sales Tax 

Financing Corporation (“COFINA”) (Bankruptcy Case No. 17-BK-3284-LTS) (Last Four Digits of Federal Tax ID: 

8474); (iii) Employees Retirement System of the Government of the Commonwealth of Puerto Rico (“ERS”) 

(Bankruptcy Case No. 17-BK-3566-LTS) (Last Four Digits of Federal Tax ID: 9686); (iv) Puerto Rico Highways and 

Transportation Authority (“HTA”) (Bankruptcy Case No. 17-BK-3567-LTS) (Last Four Digits of Federal Tax ID: 

3808); and (v) Puerto Rico Electric Power Authority (“PREPA”) (Bankruptcy Case No. 17-BK-4780-LTS) (Last Four 

Digits of Federal Tax ID: 3747) (Title III case numbers are listed as Bankruptcy Case numbers due to software 

limitations). 2 The COFINA Senior Bondholders’ Coalition comprises Fideicomiso Plaza and the following institutional 

holders of the COFINA senior bonds: Aristeia Capital, LLC; GoldenTree Asset Management LP (on behalf of its 

participating clients; Canyon Capital Advisors LLC (on behalf of its participating clients); Decagon Holdings 1, 

L.L.C.; Decagon Holdings 2, L.L.C.; Decagon Holdings 3, L.L.C.; Decagon Holdings 4, L.L.C.; Decagon Holdings 

5, L.L.C.; Decagon Holdings 6, L.L.C.; Decagon Holdings 7, L.L.C.; Decagon Holdings 8, L.L.C.; Decagon Holdings 

9, L.L.C.; Decagon Holdings 10, L.L.C.; Scoggin Management LP (on behalf of its participating clients); Tilden Park 

Capital Management LP (on behalf of its participating clients); Taconic Capital Advisors, L.P.; Whitebox Advisors 

LLC (on behalf of its participating clients).

In re:

THE FINANCIAL OVERSIGHT AND

MANAGEMENT BOARD FOR PUERTO RICO,

as a representative of

THE COMMONWEALTH OF PUERTO RICO, et al.,

Debtors.1

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1. In response to a grave financial crisis in Puerto Rico, Congress established the 

Financial Oversight and Management Board for Puerto Rico (“Board”) pursuant to its broad power 

under Article IV of the U.S. Constitution to “make all needful rules and regulations respecting the 

Territory . . . belonging to the United States.” U.S. CONST. art. IV, § 3, cl. 2. The Board’s sole 

purpose is to guide Puerto Rico out of its present straits, and it exercises territorial power to do so.

2. Despite Congress’s longstanding and judicially-sanctioned practice of establishing 

territorial governments in a manner that does not conform with Articles I, II, and III of the 

Constitution, Aurelius Investment, LLC, Aurelius Opportunities Fund, LLC, and Lex Claims, LLC 

(“Aurelius”) have argued that the Board’s composition is unconstitutional because its members 

were not appointed in accordance with the Article II Appointments Clause. The central question 

in this case is whether members of the Board are territorial officers, like the judges, governors, 

legislators, and other territorial officials who have long been chosen without regard to Article II, 

or whether they are officers of the United States. Aurelius contends that the members of the Board 

are principal “Officers of the United States,” who must therefore be nominated by the President 

and confirmed by the Senate before taking office. Aurelius’s Obj. and Mot. to Dismiss Title III 

Pet. at 11 (Aug. 7, 2017), Dkt. 913 (“Motion to Dismiss”).

3. On July 6, 2018, Aurelius filed an informative motion arguing that two recent 

decisions of the United States Supreme Court “directly impact several constitutional issues raised 

in the briefing over” Aurelius’s Motion to Dismiss. Informative Motion ¶ 1.

4. Neither the Supreme Court’s decision in Ortiz v. United States nor its decision in 

Lucia v. SEC addresses the central question on which Aurelius’s motion turns: are the members of 

the Board “Officers of the United States,” whose appointment must conform to Article II, or 

officers of the territorial Government of Puerto Rico, whose appointment need not? As explained 

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more fully in the many responses in opposition to Aurelius’s motion and at oral argument, they 

are officers of Puerto Rico’s government. See, e.g., The COFINA Senior Bondholders’ Coalition’s

Opp’n to Motion to Dismiss at 14 (Nov. 3, 2017), Dkt. 1638 (“Coalition Br.”); The Financial 

Oversight and Management Board for Puerto Rico’s Opp’n to the Motion to Dismiss at 13–21 

(Nov. 3 2017), Dkt. 1622 (“Board Br.”); United States’ Mem. of Law in Supp. of the 

Constitutionality of PROMESA at 21–27 (Dec. 6, 2017), Dkt. 1929 (“U.S. Br.”). Neither Ortiz nor 

Lucia says otherwise.

5. In Ortiz v. United States, the Court held in part that cases decided by the Court of 

Appeals for the Armed Forces (CAAF) fall within the Supreme Court’s appellate jurisdiction under 

Article III. 138 S. Ct. 2165 (2018). Its conclusion depended upon the premise that CAAF’s 

“essential character” is judicial. Ortiz, 138 S. Ct. at 2174; id. at 2186–88 (Thomas, J., concurring).

The Court rejected the argument that it could not exercise its appellate jurisdiction to review 

CAAF’s decisions because CAAF is not an Article III Court. Id. at 2176 (majority). In doing so, 

the Court pointed out that it exercises appellate jurisdiction to review decisions of other courts that 

are not established under Article III, including territorial courts, the courts of the District of 

Columbia, and state courts. Id.

6. The Court’s decision in Ortiz provides little guidance on the constitutional issues 

presented by Aurelius’s Motion to Dismiss because it charts a different axis of power than the one 

at issue in this case. Here, the Court must decide whether the members of the Board exercise 

powers “of the United States” or those of the government of Puerto Rico. In Ortiz, by contrast, the 

Court considered whether CAAF exercises judicial or executive power. Id. at 2174, 2176, 2179; 

id. at 2184, 2186–89 (Thomas, J.); id. at 2196 (Alito, J., dissenting). The Court’s focus on the 

nature rather than the seat of CAAF’s power is underscored by the comparisons it draws to state 

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courts, id. at 2176 (majority), which obviously do not exercise power “of the United States.” Its 

only statement concerning the seat of the judicial power exercised by territorial courts contradicts 

Aurelius’s position by acknowledging that the territorial courts’ “authority [i]s ‘not a part of that 

judicial power which is defined in the 3d article,’ ” id. at 13 (quoting American Ins. Co. v. 356 

Bales of Cotton, 1 Pet. 511, 546 (1828)), i.e., “[t]he judicial power of the United States,” U.S. 

CONST., art. III, § 1.

7. Aurelius nonetheless attempts to wrest support from Ortiz based on the following 

flawed syllogism: (1) The Court drew parallels between Congress’s plenary power over the 

military and its plenary power over the territories. Informative Motion ¶ 4. (2) Congress must 

provide for the appointment of military officers in accordance with Article II. Id. ¶ 5. (3) Therefore, 

Congress must likewise provide for the appointment of territorial officers in accordance with 

Article II. Id. ¶ 6.

8. The conclusion does not follow because Aurelius’s syllogism is built on an invalid 

premise: that Congress’s powers with respect to the military and its powers with respect to the 

territories are “equivalent.” See id. ¶ 5. Far from treating them as such, the Court acknowledged a 

patent distinction between the two: whereas military courts exercise power over all members of 

the U.S. armed forces, territorial courts exercise power within a defined geographic area. Ortiz, 

138 S. Ct. at 15; see also id. at 2178 (enumerating the relevant ways in which the two powers were 

similar). The geographical distinction may make no difference in determining whether those courts 

exercise judicial or executive power, id. at 2178–79, but it makes all the difference in determining 

whether those courts exercise power “of the United States” or of a geographically-defined territory,

see, e.g., U.S. Br. at 21–24.

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9. Having begun with an overgeneralized premise, Aurelius’s argument 

unsurprisingly proves too much. As Aurelius is forced to concede, Congress may create 

mechanisms for selecting territorial officers that do not comply with Article II. And it has done so, 

time and again, from the earliest days of the Republic—creating territorial courts, legislatures,

executives, and inferior offices, all outside of Article II’s limits. Coalition Br. at 6–12. If the above 

syllogism were correct, Congress’s longstanding practice would be unconstitutional, and none of 

these officers or judges would have been validly appointed. This untenable conclusion does not 

follow, Aurelius acknowledges, because not all officers who exercise power in the territories are 

“Officers of the United States.” See, e.g., Motion to Dismiss at 20–21. That concession is fatal to 

its overreading of Ortiz.

10. Again, the central question in this case is whether members of the Board are

territorial officers, like the judges, governors, legislators, and other territorial officials who have 

long been chosen without regard to Article II, or whether they are officers of the United States. On 

that question, Ortiz provides no guidance of any use to Aurelius. To the contrary, it confirms that 

Congress may, for one reason or another, depart from the structural provisions of the Constitution 

when acting pursuant to its plenary powers over the military and the territories—for example, by 

authorizing a non-Article III entity to exercise judicial power. Ortiz, 138 S. Ct. at 2175–78. And it 

further confirms that Congress’s power to depart from those structural provisions in structuring 

territorial governments arises from the fact that those governments do not exercise powers “of the 

United States.” Id. at 2177. Its analysis therefore undermines rather than supports Aurelius’s 

argument.

11. Finding no support in the opinion itself, Aurelius is left with the warnings of amicus 

curiae Professor Aditya Bamzai that exercising appellate jurisdiction over cases decided by CAAF 

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would have “dramatic implications” for Congress’s Article IV powers over the territories. 

Informative Motion ¶ 6. But Professor Bamzai’s warning described the potential consequences of 

a holding that “Congress’s authority to legislate for the court-martial system is coterminous with 

Congress’s authority to legislate in the territories and the District of Columbia.” Mot. of Prof. 

Aditya Bamzai for Leave to Participate in Oral Arg. as Amicus Curiae and for Divided Arg. at 4–

5, Dalmazzi v. United States, et al., Nos. 16-961, et al. (U.S. Dec. 14, 2017). As noted above, the 

Court did not rely on such a holding to find jurisdiction; it simply held that the courts established 

under all three powers exercise judicial power (though not the judicial power of the United States), 

Ortiz, 138 S. Ct. at 2177, and rejected distinctions between them as irrelevant to the jurisdictional 

inquiry before it, id. at 2178.

12. Like the Supreme Court’s holding concerning the nature of the power at issue in 

Ortiz, its holding concerning the quantum of the power at issue in Lucia v. SEC has no bearing on 

the seat of the power at issue in this case. 

13. In Lucia, the Court concluded that administrative law judges (ALJs) working for 

the Securities and Exchange Commission (SEC) are Officers, rather than employees, of the United 

States, who accordingly must be appointed in conformity with the Appointments Clause. Lucia v. 

SEC, 138 S. Ct. 2044 (2018).

14. As an initial matter, Lucia emphatically did not elaborate on the legal standard 

governing the inquiry into whether someone qualifies as an “Officer of the United States” for 

purposes of the Appointments Clause. Id. at 2052. Instead, the Court simply applied its analysis of 

the judges at issue in Freytag v. Commissioner of Internal Revenue, 501 U.S. 868 (1991), to the 

SEC ALJs, which it concluded were “carbon copies” of the Freytag judges. Lucia, 138 S. Ct. at

2052. Thus, if this Court was not convinced by Aurelius’s earlier reliance on Freytag, it cannot be 

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convinced by its reliance, now, on Lucia, which merely applies Freytag. See U.S. Br. at 20 

(explaining why Freytag did not help Aurelius).

15. In any event, Lucia, like Freytag, has no bearing on the parties’ present dispute 

about the constitutional status of members of the Board. Those cases concern what quantum of 

authority defines the line between constitutional “Officers” and mere employees. Lucia, 138 S. Ct.

at 2051 (“The sole question here is whether the [SEC’s] ALJs are ‘Officers of the United States’

or simply employees of the Federal Government.”); Freytag, 501 U.S. at 880. In both cases, it was 

undisputed that the authority the individuals exercised was part of some power “of the United 

States,” so the Court said nothing about the entirely separate line between officers or employees 

of the United States and officers or employees of another government, like Puerto Rico.

16. Here, the exact opposite is true: No party disputes that the quantum of authority the 

members of the Board exercise is enough to render them officers, not employees. Instead, the 

question is: officers of what government? Aurelius and an ad hoc group of bondholders says “of 

the United States.” Motion to Dismiss at 13–23; Statement of the Ad Hoc Group of General 

Obligation Bondholders in Supp. of Obj. and Motion to Dismiss ¶ 2 (Nov. 3, 2017), Dkt. 1627.

Congress, the United States, and every other party weighing in on Aurelius’s motion says “of 

Puerto Rico.” 48 U.S.C. § 2121(c); U.S. Br. at 21–27; Coalition Br. at 14; Board Br. at 13–21;

American Federation of State, County and Municipal Employees’ Obj. to Motion to Dismiss at 10

(Nov. 3, 2017), Dkt. 1610; Obj. of Official Committee of Retired Employees of the 

Commonwealth of Puerto Rico to Motion to Dismiss at 5–6 (Nov. 3, 2017), Dkt. 1629; Obj. of 

Official Committee of Unsecured Creditorsto Obj. and Motion to Dismiss at 21–26 (Nov. 3, 2017), 

Dkt. 1631; Opp’n of Puerto Rico Fiscal Agency and Financial Advisory Authority to Motion to 

Dismiss at 15–23 (Nov. 3, 2017), Dkt. 1640. Lucia says nothing that speaks to this question. 

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17. For these reasons and all of those offered in its brief and other briefs in opposition 

to the Motion to Dismiss, the Senior COFINA Bondholders’ Coalition respectfully submits that 

Aurelius’s Motion to Dismiss should be denied.

Dated: July 12, 2018 Respectfully submitted,

REICHARD & ESCALERA LLC

By : /s/ Rafael Escalera___________

Rafael Escalera

USDC No. 122609

escalera@reichardescalera.com

/s/ Sylvia M. Arizmendi_______

Sylvia M. Arizmendi

USDC-PR 210714

arizmendis@reichardescalera.com 

 

/s/ Fernando Van Derdys_______

Fernando Van Derdys

USDC-PR 201913

fvander@reichardescalera.com 

/s/ Carlos R. Rivera-Ortiz_____

Carlos R. Rivera-Ortiz 

USDC-PR 303409

riverac@reichardescalera.com

/s/ Gustavo A. Pabón-Rico____

Gustavo A. Pabón-Rico

USDC-PR 231207

pabong@reichardescalera.com

255 Ponce de León Avenue

MCS Plaza, 10th Floor

San Juan, Puerto Rico 00917-1913 

COOPER & KIRK, PLLC

Charles J. Cooper (pro hac vice)

ccooper@cooperkirk.com

Howard C. Nielson, Jr. (pro hac vice)

hnielson@cooperkirk.com

Haley N. Proctor (pro hac vice)

hproctor@cooperkirk.com

1523 New Hampshire Ave., NW

Washington, DC 20036

QUINN EMANUEL URQUHART & 

SULLIVAN, LLP

Susheel Kirpalani (pro hac vice)

susheelkirpalani@quinnemanuel.com

Eric Winston (pro hac vice)

ericwinston@quinnemanuel.com

Daniel Salinas

USDC-PR 224006

danielsalinas@quinnemanuel.com

David Cooper (pro hac vice)

davidcooper@quinnemanuel.com

Eric Kay (pro hac vice)

erickay@quinnemanuel.com

Kate Scherling (pro hac vice)

katescherling@quinnemanuel.com

51 Madison Avenue, 22nd Floor

New York, New York 10010-1603

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