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Some might call Aurelius Capital Management founder Mark Brodsky a vulture investor. Others might call him a financial and economic terrorist. (Actually, it was the same person—former Argentine president and incoming Argentine vice president Cristina Kirchner—who called him both.) There are other epithets: prophet of doom, “the main hurdle for Puerto Rico.”

Mark Brodsky sees himself as something else: A defender of disenfranchised Americans, people of color, the Constitution, truth, justice, etc.

“The citizens of Puerto Rico ought to have the same constitutional protections as the citizens of the 50 states,” he wrote. But, he went on, the oversight board’s lawyer had cited “disturbingly racist” legal precedents that treated Puerto Ricans as “second-class citizens.” Brodsky also said: “I care a lot about acting honorably. I care a lot about the court system….”

Go on.

In June 2016, President Obama signed the law that allowed Puerto Rico to declare bankruptcy…. PROMESA let the island restructure its debt, but — critics have suggested — at the cost of its sovereignty….

Such unbridled authority required a legal justification, and Congress found it in Article IV of the Constitution: “The Congress shall have power to dispose of and make all needful rules and regulations respecting the territory or other property belonging to the United States….”

Senator Maria Cantwell, Democrat of Washington, got to the heart of it: “If this bill is enacted, you’re going to have board members that have significant authority over federal law, and they’re not appointed by the president, and they’re not confirmed by the Senate. So it’s going to be challenged constitutionally.”

And so it was, by Aurelius. You’d think that kind of strict constructionist, Article II vs. Article IV argument would appeal to the likes of, say, Supreme Court Justice Samuel Alito. So why is the chief strict constructionist on the highest bench in the land being so mean to Brodsky’s lawyer?

“Mr. Olson,” he said, “are you and your client here just to defend the integrity of the Constitution, or would one be excessively cynical to think that something else is involved here involving money?”…

“Are you and Aurelius here just as amici to defend the Constitution?” Alito asked. “There is no money issue involved here?”…

“Well,” Olson said, “there’s over $100 billion dollars’ of indebtedness being adjudicated.”

“Right, and your client wants more of it,” Alito replied. “So what is it, exactly?”

Oh, right, the money. Did we forget to mention the money? Or the early lawsuit that didn’t seem to care very much about the citizens of Puerto Rico at all, and which was filed with spectacularly bad timing?

According to the complaint, the Puerto Rican Constitution mandated the repayment of certain types of bond debt, but the island’s latest budget was instead pouring money into services that were “nonessential,” leaving the bondholders high and dry…. One assertion in particular stood out. Puerto Rico’s budget had set aside $205 million in discretionary money for things like disaster relief. “While a ‘rainy-day fund’ is nice to have,” the hedge funds conceded in Paragraph 159, “it is impossible to see how this is an ‘essential service’ or how it can be justified,” in part because natural disasters were not “likely to occur” in the coming fiscal year. Three months later, Hurricane Maria made landfall….

If Aurelius wins, it will be one step closer to compelling Puerto Rico — a territory poorer than any state in the union — to pay the full $379.5 million that the firm most likely acquired at a steep discount.

And yet!

Reflecting this near-universal discontent, unexpected travelers have clambered aboard Aurelius’s attack on PROMESA. In a brief supporting Aurelius’s appeal in the First Circuit, 33 Puerto Rican mayors and legislators from the minority Popular Democratic Party urged that court to side with the firm, while explicitly acknowledging that they considered the firm’s reasons for suing to be strictly mercenary…. “Nobody could think they’re doing this because of an interest in the well-being of Puerto Rico.”

The Curious Case of Aurelis Capital v. Puerto Rico [NYT]


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