The Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA) is the federal legislation that was enacted to provide a special bankruptcy framework for Puerto Rico. 48 U.S.C. §§2101 et seq. An important component of PROMESA is the establishment of a Financial Oversight Board (FOMB) with oversight powers over the financial affairs of the Puerto Rican government and sole authority over the Puerto Rico bankruptcy cases. 48 U.S.C. §§2121(b), 2121(d), and 2124(j)(1). The members of the FOMB are appointed by the President. 48 U.S.C. §2101(e)(2).
In Aurelius Investment v. Commonwealth of Puerto Rico, 2019 WL 642328 (1st Cir. 2019) the U.S. Court of Appeals for the First Circuit held that the appointment of the members of the FOMB (the Board Members) violated the Appointments Clause of the U.S. Constitution. The Board Members are officers of the United States, and therefore they are subject to Senate confirmation. However, the court refused to dismiss the Puerto Rico bankruptcy case. The First Circuit ruled that under the de facto officer doctrine the acts of the FOMB were lawful because the Board Members of the FOMB had acted under color of law and it would be counter-productive to negate the actions of the FOMB because thousands of people have relied upon the acts of the FOMB. The court stayed enforcement of its decision for ninety days to allow the FOMB to function and to permit the Board Members of the FOMB to go through the Senate confirmation process.
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