U.S. Supreme Court justices skeptical about voiding Puerto Rico board appointments

FILE PHOTO: The exterior of the U.S. Supreme Court in Washington, U.S., as seen on September 16, 2019. REUTERS/Sarah Silbiger/File Photo

WASHINGTON (Reuters) – U.S. Supreme Court justices on Tuesday signaled reluctance to overturn appointments to Puerto Rico’s federally created financial oversight board in a dispute that could disrupt the panel’s restructuring of about $120 billion of the bankrupt U.S. territory’s debt.

The justices are considering an appeal by the board after a lower court ruled that the 2016 appointments of its seven members violated the U.S. Constitution’s so-called appointments clause because they were not confirmed by the Senate.

The legal challenge to the board’s composition was brought in 2017 by Puerto Rico creditors including Aurelius Investment, LLC, a hedge fund that holds Puerto Rico bonds, and Unión de Trabajadores de la Industria Eléctrica y Riego, Inc, a labor group that represents workers at Puerto Rico’s government-owned electricity utility.

Bondholders face losses as a result of debt restructuring while the labor group has said the board’s proposed restructuring of the utility’s debt would lead to its members having worse working conditions.

Several of the nine justices appeared concerned about the potential broad ramifications of a victory for the challengers in part because of the effect it could have on other appointees in U.S. territories and the District of Columbia. Justice Brett Kavanaugh described it as a “serious concern.”

The ruling ultimately is likely to hinge on whether the justices think that the board primarily has control over local issues or is exercising federal control. Several seemed to indicate that they saw the board as being more an instrument of the territorial government, which would favor those defending the current appointments.

“Its focus is on Puerto Rico,” Chief Justice John Roberts said of the board.

A ruling is due by the end of June.

Reporting by Lawrence Hurley; Editing by Will Dunham

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