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Missed Opportunities in Puerto Rico Ruling: David Kupetz Authors Daily Journal Article
On June 13, the U.S. Supreme Court struck down as unconstitutional the Puerto Rico Corporation Debt Enforcement and Recovery Act (Recovery Act). However, this decision may be too narrowly focused. In the Daily Journal article “Missed Opportunities in Puerto Rico Ruling,” David Kupetz discusses two issues that the Supreme Court failed to address in its ruling.
The Recovery Act was originally enacted by Puerto Rico in 2014 to enable Puerto Rico’s public utilities to implement a recovery or restructuring plan for their debt. The Supreme Court found that the “gateway” provisions providing access to Chapter 9 bankruptcy relief for municipal entities excludes Puerto Rico (and the District of Columbia).
In his article, Mr. Kupetz explained that the Supreme Court did not address that the Recovery Act could also have been held to be an unconstitutional violation of the contracts clause of the U.S. Constitution. Nor did the Court discuss that there is an argument that the exclusion of Puerto Rico and the District of Columbia from access to Chapter 9 relief may be a violation of the Constitution’s bankruptcy clause.
Following the Supreme Court’s decision, Congress passed and the President signed the Puerto Rico Oversight, Management, and Economic Stability Act. However, this federal law does not provide Puerto Rico’s governmental entities with access to Chapter 9, something local officials had sought.
“While application of the contracts clause by the Supreme Court could have provided another basis for invalidating the Recovery Act, application of the uniformity provision of the bankruptcy clause, as advocated by the 1st Circuit’s concurring opinion, would have opened the door to Chapter 9 relief for Puerto Rico,” Mr. Kupetz wrote.