U.S. Supreme Court Will Hear Puerto Rico’s Bankruptcy Appeal

On December 4, 2015, the United States Supreme Court issued an order granting a request by Puerto Rico and representatives of Puerto Rico’s Government Development Bank (“GDB”) for appellate review of the lower court rulings finding Puerto Rico’s Recovery Act to be unconstitutional.

The U.S. District Court in Puerto Rico had ruled that the law was pre-empted by the federal Bankruptcy Code, and the U.S. Court of Appeals for the First Circuit affirmed the district court’s decision.

The Supreme Court order states only that the petitions for a writ of certiorari are granted; the cases brought by Puerto Rico and the GDB are consolidated and a total of one hour is allotted for oral argument; and Justice Samuel Alito recused himself from the decision whether to grant certiorari.

The Supreme Court’s decision to hear Puerto Rico’s appeal may come as a surprise to Court-watchers who believed that the country’s highest court would not want to wade into the political firestorm that has engulfed the concept of bankruptcy relief for Puerto Rico.  This includes Puerto Rico’s bankruptcy law that is on appeal, as well as federal efforts to extend chapter 9 of the Bankruptcy Code to Puerto Rico’s municipalities and the more recent ‘Super Chapter 9’ plan, which would cover the government of Puerto Rico at a “state” level.

Others may have believed that the Court’s earlier decision to hear the appeal in Puerto Rico v. Sanchez Valle, which involves the issue of whether Puerto Rico would be considered a separate sovereign entity from the United States under the Constitution’s Double Jeopardy clause, would dissuade the Court from taking on another case related to Puerto Rico.  Still others may have expected Valle to weigh in favor of the Court accepting the Recovery Act appeal, because the Justices are focused on Puerto Rico this term.  One commentator suggests, “The Court’s willingness to hear the two new controversies over Puerto Rico’s status suggests that the Justices are becoming more sensitive about the relationship between [Puerto Rico] and the U.S. government — a topic of ongoing and sometimes disruptive public debate among Puerto Ricans themselves.”

The Justices’ votes and reasons for granting certiorari are never made public, however, so interested parties must await oral arguments in the spring to get a sense of the Court’s view of the case.