Torruella: Treatment of Puerto Rico under Bankruptcy Law Reflects a “Colonial Relationship” with the U.S.

In 2014, Puerto Rico passed a law called “Puerto Rico Corporation Debt Enforcement and Recovery Act” or simply “The Recovery Act,” which would have allowed the territory to restructure some of its debts.  The law was struck down in 2015 by Judge Francisco A. Besosa of the United States District Court in Puerto Rico, who said that it was preempted by federal bankruptcy law. The United States Court of Appeals for the First Circuit affirmed the lower court’s rejection of Puerto Rico’s bankruptcy law, and First Circuit Judge Juan Torruella of the First District Court wrote a sweeping concurrence to the case.

Judge Torruella’s concurrence focused on the impact of Puerto Rico’s territorial status on the 1984 change to the U.S. bankruptcy law that excluded the island from chapter 9, the section of the law which allows states to restructure debt for their municipalities, such as public utilities or cities.

“The majority’s disregard for the arbitrary and unreasonable nature of the legislation enacted in the 1984 Amendments showcases again this court’s approval of a relationship under which Puerto Rico lacks any national political representation,” Torruella wrote. “That discriminatory relationship allows legislation — such as the 1984 Amendments –to be enacted and applied to the millions of U.S. citizens residing in Puerto Rico without their participation in the democratic process.”

Puerto Rico has no senators and no voting representation in Congress, and residents of Puerto Rico cannot vote in presidential elections. This lack means, since members of the legislature serve their constituents, that there is no one looking after Puerto Rico’s interests, except for one non-voting Resident Commissioner.

“This is clearly a colonial relationship,” Torruella continued, “one which violates our Constitution and the Law of the Land as established in ratified treaties. Given the vulnerability of these citizens before the political branches of government, it is a special duty of the courts of the United States to be watchful in their defense.”

Torruella quoted the opinion of the Supreme Court in United States v. Carolene Products Co., 304 U.S. 144, 152 n.4 (1938): “[P]rejudice against … insular minorities may be a special condition, which tends seriously to curtail the operation of those political processes ordinarily to be relied upon to protect minorities, and which may call for a correspondingly more searching judicial inquiry.”

He then said, “I am sorry to say this special duty to perform a ‘more searching inquiry’ has been woefully and consistently shirked by this court when it comes to Puerto Rico, with the majority opinion just being the latest in a series of such examples.”

Congress is currently examining how to address Puerto Rico’s fiscal crisis, including the possibility of allowing Puerto Rico to participate in chapter 9, as it was able to do before the 1984 change in the law.