Liberal justices lean toward Puerto Rico in debt case

Source: Reuters

Tue Mar 22, 2016 4:03pm EDT

Liberal justices lean toward Puerto Rico in debt case

WASHINGTON | By Lawrence Hurley and Nick Brown


Liberal justices on Tuesday signaled support for Puerto Rico's bid to convince the Supreme Court to revive a law that could let the U.S. territory cut billions of dollars in debt at public utilities in a key test in its quest to weather a fiscal crisis.

The issue before the court was whether the Caribbean island's 2014 law known as the Recovery Act, which was invalidated by U.S. courts last year, conflicts with U.S. federal bankruptcy law. With only seven justices hearing the case, the Supreme Court's four liberals, including one whose parents were from Puerto Rico, could determine the outcome.

Puerto Rico faces what its governor has called an unpayable $70 billion in debt. In 1984, Congress passed legislation that barred Puerto Rico, as a U.S. territory and not a state, from using statutes that let states put struggling municipalities into bankruptcy. The Supreme Court must decide whether other aspects of federal bankruptcy law apply to Puerto Rico, specifically a provision barring states from passing their own restructuring laws. Applying that provision to Puerto Rico would mean the island could neither pass its own law nor use federal bankruptcy law.

"Why would Congress put Puerto Rico in this never-never land?" liberal Justice Ruth Bader Ginsburg asked. The Recovery Act would not apply to all of Puerto Rico's debt, but would let it put into bankruptcy public utilities including power authority PREPA. Two U.S. court decisions deemed the Recovery Act invalid after PREPA creditors sued, with the Supreme Court agreeing in December to hear Puerto Rico's appeal. Puerto Rico needs four votes among the seven justices to overturn the rulings that invalidated the Recovery Act. Conservative Justice Samuel Alito recused himself from the case. Conservative Justice Antonin Scalia, who died in February, has not yet been replaced.


Read more: http://www.reuters.com/article/us-usa-court-puertorico-idUSKCN0WO2FK