The Supreme Court heard arguments Tuesday on whether Puerto Rico can avoid financial collapse by restructuring a portion of its massive $70 billion debt.
The court will likely be in favor of Puerto Rico, 4-3 — Justice Samuel Alito recused himself, apparently because he or his wife has personal investments in Puerto Rico's bonds.
And while it’s hard to interpret how the high court will rule, the four liberal justices sounded more sympathetic to the position of the island’s government than to that of its bondholders.
Certainly more sympathetic than the Republicans in Congress, who have refused for the past eight months to pass any law to assist the 3.5 million U.S. citizens who reside on the Caribbean island.
And in this particular case, the court’s liberal wing will have more influence than usual. That’s because Justice Antonin Scalia died in February — and has yet to be replaced — while Justice Samuel Alito has recused himself, apparently because he or his wife has personal investments in Puerto Rico’s bonds.
That leaves only seven justices.
The issue before the court was a bankruptcy law Puerto Rico’s legislature passed in 2014 that would permit the island’s public utilities to restructure about $20 billion those entities owe to bondholders.
Puerto Rico has maintained that Congress never barred the territory from adopting its own bankruptcy provision.
Known as the Recovery Act, that law was struck down last year after several major bondholders sued successfully in federal court to oppose it. A federal appellate court later upheld the lower court.
Both courts concluded that when Congress amended federal bankruptcy law in 1984 it specifically denied Puerto Rico the right to resort to bankruptcy protection for its municipalities and public corporations.
Puerto Rico has maintained that Congress never barred the territory from adopting its own bankruptcy provisions — something Justice Ruth Bader Ginsburg seemed to agree with.
“Why would Congress put Puerto Rico in this never-never land?” Ginsburg asked.
So did Justice Sonia Sotomayor, the daughter of Puerto Rican parents, who specialized in the legal issues surrounding the island’s status when she was a student at Princeton and Yale.