JLG Flags Risks Related to Territorial Sovereignty and Congressional Plenary Power
- Jia Law Group
- 3 minutes ago
- 2 min read
JLG recently undertook targeted issue monitoring and market outreach in connection with Dinh v. United States, a closely watched challenge arising from Puerto Rico’s debt restructuring under PROMESA and now being reviewed for certiorari before the U.S. Supreme Court.
As part of this effort, the firm alerted bond-market participants, including bond rating agencies and municipal bond insurance companies, on the broader implications of the case for investor priority, contractual expectations and risk allocation.
The Supreme Court is scheduled to consider the bondholders’ petition for certiorari on January 9, with a decision on whether the case will be accepted for review expected as part of the Court’s January 12 orders list.
Unlike municipal securities issued in the U.S. that enjoy protection under the Contract and Takings Clauses of the U.S. Constitution, the bonds in question were issued by Puerto Rico, a U. S. territory, that potentially subjects them to the plenary power of the U.S. Congress.
Unless reversed as unconstitutional, Congress will have the power to enact legislation (similar to PROMESA) that retroactively subordinates, impairs, or extinguishes statutory liens and security interests pledged to bondholders, without just compensation as is required for investments in the U.S.
The Dinh case raises broader questions about how Congress may respond to systemic crises through custom statutory frameworks and what that could mean for how private rights are treated when markets fail.