Hernandez-Castrodad v. Steidel-Figueroa

• Court: Court of Appeals for the First Circuit
• Decided: July 1, 2026
• Docket: 23-1872
• Status: Published

Opinion

United States Court of Appeals For the First Circuit

No. 23-1872

JOSÉ ERNESTO HERNÁNDEZ-CASTRODAD; IRIS MARTA MARCANO; CONJUGAL PARTNERSHIP HERNÁNDEZ-MARCANO,

Plaintiffs, Appellants,

v.

HON. SIGFRIDO STEIDEL-FIGUEROA, in his official capacity as Administrator of the Administration of Tribunals of the Commonwealth of Puerto Rico (OAT),

Defendant, Appellee.

APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF PUERTO RICO

[Hon. Silvia Carreño-Coll, U.S. District Judge]

Before

Barron, Chief Judge, Breyer,* Associate Justice, and Thompson, Circuit Judge.

Eduardo Vera Ramirez, with whom Julio C. Alejandro-Serrano and Landron & Vera, LLP were on brief, for appellants. Juan A. Marqués-Díaz and Nayuán Zouairabani-Trinidad, with whom Isabel Torres-Sastre and McConnell Valdés LLC were on brief, for appellee.

* Hon. Stephen G. Breyer, Associate Justice (Ret.) of the Supreme Court of the United States, sitting by designation. July 1, 2026 THOMPSON, Circuit Judge. Appellants José Ernesto

Hernández-Castrodad and Iris Marta Marcano (collectively

"appellants") once had their land taken by the Commonwealth of

Puerto Rico. As constitutionally required, the Commonwealth paid

appellants over two million dollars in just compensation for that

property. But appellants say a second taking of their property

occurred when that money changed hands.

They point the finger at the

middleman -- defendant-appellee the honorable Sigfrido

Steidel-Figueroa ("Steidel") -- whose lack of efficient and

transparent processes (they say) failed to notify them of interest

that accrued on their money, and for deducting a 15% administrative

fee from that accrued interest. Appellants claim that both

practices contravene their constitutional protections against

takings of private property without just compensation or due

process.

Appellants sued Steidel in his official capacity as the

Administrator of the Administration of Tribunals of the

Commonwealth of Puerto Rico (known as "OAT" based on its Spanish

name), seeking declaratory and equitable relief (in various forms)

from these alleged takings and deprivations without due process.

The United States District Court for the District of Puerto Rico

dismissed the bulk of appellants' claims. And, later, it awarded

summary judgment to Steidel on the only claim that survived

- 3 - dismissal, reasoning that the deduction of the 15% administrative

fee did not amount to a taking. Appellants filed this appeal

asking us to consider both the dismissal and entry of summary

judgment.

But the complex legal questions appellants pose face an

equally formidable jurisdictional hurdle heretofore unaddressed.

That is, whether any filings or orders in the district court were

subject to the automatic stay provisions of Title III of the Puerto

Rico Oversight, Management, and Economic Stability Act

("PROMESA"), or whether this case can proceed after the

Commonwealth's Title III Plan's discharge. After untangling

appellants' efforts to sidestep PROMESA's ramifications, we

dismiss appellants' appeal of their claim decided on summary

judgment and affirm the district court's dismissal.

I

To efficiently elucidate the happenings-below and the

parties' appellate arguments, we'll start by explaining the

statutory and regulatory scheme behind appellants' admonishments.

From time to time, and for various reasons, litigants deposit funds

with the Puerto Rico Court of First Instance for future

disbursement.1 As relevant here, when the Commonwealth initiates

Courts in the Commonwealth of Puerto Rico are not unique in 1

this regard. See generally Goldstein v. Cox, 396 U.S. 471, 472 & n.1 (1970).

- 4 - a condemnation proceeding, it estimates the amount of just

compensation owed and deposits that amount with the court.2 See

E.L.A. v. Registrador, 11 P.R. Offic. Trans. 152, 155 (1981). The

court keeps these funds in interest-bearing accounts pending

disbursement. See P.R. Laws Ann. tit. 7 § 253. And, pursuant to

judicial regulation, interest owned by third parties "shall be

delivered to the owners, through the procedure provided by the

[Administrative Director of the Courts], once custody and

management by the Judicial Branch ends."

In this scheme, OAT takes a cut of the interest that

accrued while the funds were in its possession. Specifically,

Puerto Rico law authorizes the OAT Administrator to, "if delegated

on him," "determine the reasonable share of [interest on "other

funds"3] that may be deposited in . . . special accounts to cover

expenses and other liabilities incurred by [the Judicial] Branch

for services rendered in the receiving, accounting, control,

custody and delivery of these deposits." P.R. Laws Ann. tit. 7

§ 253b. Pursuant to that statutory authorization, the judiciary

promulgated a regulatory framework governing the interest on other

2"Just compensation" comes from the text of the Fifth Amendment, U.S. Const. amend. V, and generally means "the full monetary equivalent of the property taken." United States v. Reynolds, 397 U.S. 14, 16 (1970). 3Judiciary regulations define "other funds" as "[m]oney in the custody of the Judicial Branch belonging to private individuals."

- 5 - funds that states that "[t]he Judicial Branch shall retain a

reasonable amount in interests accrued on Other Funds deposited."

Discerning what is "reasonable" is not always an easy

task. See generally CBS, Inc. v. FCC, 453 U.S. 367, 398 (1981)

(White, J., dissenting) ("What is 'reasonable' access and what are

'reasonable' amounts of time . . . are matters about which fair

minds could easily differ."). So, OAT hired an outside accounting

firm to conduct a cost study and calculate how much the judiciary

spent on managing "other funds" so that OAT could impose a fee to

"recover administrative costs." The accounting firm ultimately

landed on "15% of the total interest earned by each beneficiary"

per quarter.4

So, to summarize the scheme we're working with: funds

deposited with courts on behalf of third parties get placed into

interest-bearing accounts where interest accrues until

4 Appellants only relied on the cost study report when opposing Steidel's motion for summary judgment. On appeal, it remains unclear whether OAT actually adopted the firm's recommendation to take 15% of the accrued interest quarterly if OAT deducts 15% at the time of disbursement. Neither the parties' arguments nor the district court's decisions rely on any specific version of the administrative fee, and neither will our forthcoming analysis. Furthermore, Steidel submitted an "Informative Motion" following oral argument stating that no administrative fee has been collected from appellants' accrued interest, which had reached a total of $1,939.76 as of March 2026. Our appellate review concentrates solely on the factual record presented in the district court, and we will not be considering any evidence introduced in Steidel's motion. See, e.g., Rosaura Bldg. Corp. v. Mun. of Mayagüez, 778 F.3d 55, 64 (1st Cir. 2015).

- 6 - disbursement, and OAT charges a 15% administrative fee from the

accrued interest for managing the funds.

II

A

In late 2011, eminent domain proceedings began against

appellants in the Puerto Rico Court of First Instance. A 2018

final judgment in those proceedings ordered the Puerto Rico Highway

and Transportation Authority ("PRHTA") to pay appellants

$2,414,251.10 in just compensation. That final judgment included

"the simple legal interest per semester" of $15,255.47 from PRHTA

representing interest accrued on the principal value of the just

compensation award between the time appellants' land was taken and

when PRHTA was ordered to pay. Appellants received payments of

varying amounts between January 2012 and January 2019, and all

just compensation owed to appellants from the 2018 final judgment

has been paid. Therefore, the only interest at issue (and what we

will be referring to as "the interest" from here on out) is the

interest that accumulated after PRHTA made various deposits of

appellants' estimated and awarded just compensation with the court

up until appellants withdrew those deposits. Only this interest

is subject to OAT's administrative fee. See P.R. Laws Ann. tit.

7 § 253b.

- 7 - B

In September 2020, appellants filed a class action

complaint against Steidel in his official capacity as the OAT

Administrator.5 The complaint alleged that Steidel retained

interest generated by monies belonging to third parties,

constituting "an unconstitutional taking of private property

without just compensation." (All involved refer to this as

appellants' "interest" claim, and we'll be using that label, too.)

The complaint also alleged that Steidel deducts an administrative

fee for managing these funds, constituting "another form of

unconstitutional taking." (Similarly, this has been dubbed

appellants' "administrative fee" claim, and we'll be borrowing

this label, too.) To remedy these alleged wrongs, appellants asked

the district court to issue a series of declaratory judgments and

to grant injunctive relief.

Steidel responded with a motion to dismiss, which the

district court granted over appellants' objections. The court's

holding rested on a sua sponte determination that appellants lacked

standing.6 It reasoned that, because appellants had failed to

5The district court never reached the issue of class certification and, due to our forthcoming resolution, neither will we. See Narrigan v. Goldberg, 170 F.4th 14, 17 (1st Cir. 2026) (limiting review to named plaintiff's appeal where a class was not certified below). 6 Per constitutional demand, a plaintiff must establish standing through a tripartite showing: "that she has suffered an injury in fact, that her injury is fairly traceable to the disputed

- 8 - allege that they requested disbursement of their interest, they

necessarily failed to allege an injury in fact, as required.

Additionally, the court viewed appellants' claims as "akin to a

generalized grievance," giving it further reason to find that

appellants lacked standing. Sans standing, the court granted

Steidel's motion and dismissed the case accordingly.

But, after appellants moved for reconsideration, the

court had a change of heart and decided that one of appellants'

claims "should have survived Steidel's motion to dismiss." That

sole surviving claim was part of the administrative fee claim,7

which the court resurrected because appellants had plausibly

alleged that Steidel "is deducting unreasonable administrative

fees." In reinstating this claim, the court carefully cabined

appellants' requested relief to only prospective injunctive relief

from future administrative fees because the Eleventh Amendment

barred any retrospective demands for payment. In sum, the court

held at that juncture appellants' "only surviving claim is that

Steidel has violated the Takings Clause by deducting an

administrative fee from their accrued interest."

conduct, and that the relief sought promises to redress the injury sustained." Osediacz v. City of Cranston, 414 F.3d 136, 139 (1st Cir. 2005) (citing Lujan v. Defs. of Wildlife, 504 U.S. 555, 560-61 (1992)). 7 The court briefly revived the due process portion of appellants' administrative fee claim before dismissing it on the merits.

- 9 - That "only surviving claim" later succumbed to Steidel's

motion for summary judgment. The court granted summary judgment

in Steidel's favor because it found that the administrative fee

was reasonable (and thus, legally speaking, not a taking) given

the benefits provided by the judiciary, and because appellants did

not submit any evidence to rebut the fee's reasonableness. The

court also pointed out that appellants dedicated most of their

summary judgment briefing to a due process claim that had already

been dismissed, and thus no longer at issue. Appellants moved the

court to alter or amend this judgment and requested an opportunity

for supplemental discovery, but the court denied that motion and

informed appellants "the discovery ship has sailed."

III

While the story just told played out, in May 2017 the

Commonwealth of Puerto Rico filed a petition under Title III of

PROMESA, 48 U.S.C. §§ 2161 et seq., to restructure its debts in a

specially designated court (commonly referred to as the

"Title III" court), see Villalobos-Santana v. P.R. Police Dep't,

171 F.4th 544, 546 (1st Cir. 2026). The Title III court later set

a June 29, 2018, deadline for filing prepetition proof of claims

against the Commonwealth. See id. And, on January 18, 2022, the

Title III court confirmed the Commonwealth's Title III Plan, with

an effective date of March 15, 2022. See id.; see generally In re

Fin. Oversight & Mgmt. Bd. for P.R., 636 B.R. 1 (D.P.R. 2022).

- 10 - Under 48 U.S.C. § 2161(a), the automatic stay

provisions, 11 U.S.C. §§ 362 and 922, and the bankruptcy discharge

provisions, 11 U.S.C. §§ 944 and 524(a)(1)-(2), of the Bankruptcy

Code are incorporated into PROMESA. Generally speaking (we'll be

getting into some of the details shortly), for our court to have

jurisdiction over this appeal, the underlying action cannot have

been filed in violation of the automatic stay, see HealthproMed

Found., Inc. v. Dep't of Health & Hum. Servs., 982 F.3d 15, 19-20

(1st Cir. 2020), and cannot have been discharged by the

Commonwealth's Plan and Confirmation Order, see Díaz-Santiago v.

Sánchez-Acosta, No. 24-1256, 2025 WL 2670236, at *2 (1st Cir. July

23, 2025); In re Fin. Oversight & Mgmt. Bd. for P.R., 650 B.R.

286, 295-96 (D.P.R. 2022).

These PROMESA-related developments went unaddressed in

the district court proceedings. Appellants did not file a proof

of claim or seek relief from the automatic stay in the Title III

court.8 So, we directed the parties to show cause as to

(1) "whether any filings or orders in the district court case at

issue in this appeal were subject to the automatic stay provisions"

The parties were directed to state whether any proof of 8

claim or administrative expense claim had been filed with the Title III court, or whether any party sought or received a retroactive lift of the automatic stay. Appellants did not respond to this inquiry, but Steidel reports that nothing was filed with the Title III court. Thus, we proceed based on that uncontested representation.

- 11 - and (2) "whether any aspect of this appeal can proceed in light of

the Commonwealth's Title III Plan's discharge (§ 92.2) and

discharge injunction (§ 92.3) provisions, or any other Plan

provisions."

The parties duly responded. Appellants succinctly

replied to our first question: "The answer to that question is

no." As for our second question regarding the Commonwealth's

Title III Plan's discharge, appellants stated that they were

mounting a Fifth Amendment challenge, and they believed our

precedent "made clear that a Fifth Amendment claim, such as this

case, cannot be discharged in Tittle [sic] III bankruptcy without

the just compensation." See In re Fin. Oversight & Mgmt. Bd. for

P.R., 41 F.4th 29, 37 (1st Cir. 2022). Indeed, we previously

affirmed the Title III court's order wherein it confirmed the Plan

and found that the Fifth Amendment prohibited the Commonwealth

from paying claimants less than just compensation on their

prepetition takings claims. Id. at 46. But we also acknowledged

the difference between "what makes the denial of just compensation

substantively unlawful [and] what may make a claim for just

compensation procedurally inactionable or waivable by the

claimant" (i.e., when a claim is time-barred or when a claim is

settled for less than full value). Id. at 45.

After receiving the parties' show-cause responses, we

further directed each party to "fully brief all issues pertaining

- 12 - to jurisdiction," because our capacity to review aspects of

appellants' case remained unclear. For example, we requested

briefing on whether the Title III Plan's modification of the

automatic stay to permit holders of eminent domain and inverse

condemnation claims to pursue and receive payment from the Clerk

of the Court of First Instance applied to any of appellants'

claims. And we asked the parties how the Plan's definition of

"Allowed" claims should be considered given that "the holder of an

Eminent Domain/Inverse Condemnation Claim" "must be paid in full

to the extent they are Allowed Claims for just compensation." In

re Fin. Oversight & Mgmt. Bd. for P.R., 636 B.R. at 168-69; see

also id. at 82 (defining "Allowed" and "Allowed Claim"). (As

Steidel points out in his brief, our prior decision did not comment

on the difference between allowed and not allowed eminent

domain/inverse condemnation claims.) Again, the parties' answers

to these questions would help us determine whether we may review

appellants' claims.

We now turn to appellants' briefing, particularly their

responses to the jurisdictional questions posed. Here, appellants

assert that they are only arguing that Steidel "has provided no

proceeding, no information and no disclosure of the amounts of

interests that were accrued on their accounts and the legal and

accounting basis for the deduction of a 15% service fee upon those

monies." Similarly, appellants also argue that the PROMESA

- 13 - provisions need not apply because "[t]his is not a claim for

interest against the underlying agencies," but that "[t]his claim

centers on the disbursement procedures ordered by the

Administrator and followed by each clerk of each first instance

regional courts [sic] when third party deposits were received and

disbursed." Steidel disagrees in part, arguing that appellants'

administrative fee claim was filed in violation of the automatic

stay and is subject to the Plan's discharge. (We say "in part"

because Steidel does not dispute appellants' position on their

interest claim.)

IV

After due consideration of the parties' arguments and

PROMESA's automatic stay provisions, appellants' appeal of their

administrative fee claim decided on summary judgment ends here.

PROMESA's automatic stay comes from two sections of the

Bankruptcy Code expressly incorporated into the first section of

Title III, which again are 11 U.S.C. §§ 362 and 922. See 48 U.S.C.

§ 2161(a). Section 362 is the general stay provision which stays

"the commencement or continuation . . . of a

judicial . . . proceeding against the debtor . . . to recover a

claim against the debtor that arose before the commencement of the

case under this title." 11 U.S.C. § 362(a)(1). Section 362 also

stays "any act to obtain possession of property of the estate or

of property from the estate." Id. § 362(a)(3). Section 922

- 14 - applies "in addition to the stay provided by section 362" and stays

"the commencement or continuation . . . of a judicial,

administrative, or other action or proceeding against an officer

or inhabitant of the debtor that seeks to enforce a claim against

the debtor." Id. § 922(a)(1). We've previously described § 922's

purpose as "plug[ging] a hole left open by Section 362" by

including actions against officers, Colón-Torres v.

Negrón-Fernández, 997 F.3d 63, 69 n.5 (1st Cir. 2021), but

importantly, "both sections apply only to suits in which the

ultimate objective of enforcement is a claim against the debtor,"

id. at 69 (citation modified).

In the PROMESA context, there is no "estate." In re

Fin. Oversight & Mgmt. Bd. For P.R., 939 F.3d 340, 349 (1st Cir.

2019). So the statute directs us to swap instances of "property

of the estate" that appear in the incorporated Bankruptcy Code

provisions for "property of the debtor," with the debtor being the

Commonwealth. See id. (quoting 11 U.S.C. § 902(1)). "The

practical ramification of the foregoing is that the reach of the

automatic stay is broader in the PROMESA and municipal bankruptcy

contexts than it is in the run-of-the-mill bankruptcy case." Id.

But the Title III court must grant relief from this broad automatic

stay on request and if the movant makes the requisite showing.

See 11 U.S.C. § 362(d); see also HealthproMed Found., Inc., 982

F.3d at 20.

- 15 - Appellants contend that PROMESA's automatic stay

provisions do not apply because they are not seeking to enforce a

"claim" against the Commonwealth. That is so, they argue, because

"[t]he deposits and the interest they accrue are vested" not with

the Commonwealth, but instead "upon each plaintiff" whose money

has been deposited. But Puerto Rico law authorizes OAT to deduct

an administrative fee from interest accrued on other funds in its

possession. See P.R. Laws Ann. tit. 7 § 253b. And Steidel has

consistently claimed "a direct, legal, and equitable interest on

the Administrative Fee object of the Fee Claim" by virtue of Puerto

Rico law and the judiciary's regulations. (Emphasis omitted.)

At one point in their appellate briefing, appellants

assert "the Government is not vested with any proprietary interest

over the money itself." But they do not dispute that the

government, after deducting the administrative fee, would keep it.

And appellants fail to explain why, given the provisions of Puerto

Rico law described above, the government lacks a proprietary

interest in the administrative fee specifically. Therefore, as

Steidel contends, the judiciary arguably has a proprietary

interest in the administrative fee.

In this instance, the request for the administrative fee

that would be deducted pursuant to Puerto Rico law is, in our

opinion, properly construed as a demand for the "property of the

debtor" and, as such, falls within the scope of the automatic stay.

- 16 - See In re Fin. Oversight & Mgmt. Bd. for P.R., 939 F.3d at 349;

see also In re City of Stockton, 499 B.R. 802, 807 (Bankr. E.D.

Cal. 2013) ("The City's money is property of the debtor within the

meaning of § 362(a)(3).").9 Because appellants filed their

administrative fee claim in federal court in violation of the

automatic stay, it is void and without legal effect. See

HealthproMed Found., Inc, 982 F.3d at 19; In re Fin. Oversight &

Mgmt. Bd. for P.R., 494 F. Supp. 3d 95, 104 (D.P.R. 2020) (citing

In re Soares, 107 F.3d 969, 976 (1st Cir. 1997)). Our court lacks

jurisdiction to review the merits of such void actions. See

HealthproMed Found., Inc, 982 F.3d at 19.10

For the reasons stated, we dismiss this portion of

appellants' appeal.

9 On September 21, 2022, the Title III court determined that claims against entities included in a list filed in the Title III proceedings are claims against the Commonwealth. In re Fin. Oversight & Mgmt. Bd. for P.R., 650 B.R. 286, 292 (D.P.R. 2022) (citing the "Central Government Entities List" at Title III docket entry 2828 which includes OAT); see also Cruz v. Puerto Rico, 558 F. Supp. 2d 165, 176 (D.P.R. 2007) (explaining that "[OAT] is not separately incorporated but is an integral part or an arm of the Puerto Rico Supreme Court, which in turn is an arm of the Commonwealth" for Eleventh Amendment purposes). 10Our inability to reach the merits of the administrative fee claim should not be read as endorsing the practice of retaining any percentage of a litigant's just compensation award. Furthermore, we do not decide whether appellants' administrative fee claim is subject to the Title III Plan's discharge.

- 17 - V

We adopt a different approach for appellants' interest

claim. Whether the automatic stay or discharge provisions apply

is a question of jurisdiction. See HealthproMed Found., Inc, 982

F.3d at 19 (citing Preiser v. Newkirk, 422 U.S. 395, 401 (1975)).

But given the arguments that appellants raise, their interest claim

has separate jurisdictional problems of its own. Because "we can

address jurisdictional issues in any order we choose," Acheson

Hotels, LLC v. Laufer, 601 U.S. 1, 4 (2023), we turn to those

arguments first.

We review the district court's dismissal under Federal

Rule of Civil Procedure 12(b)(6) de novo. Zhou v. Desktop Metal,

Inc., 120 F.4th 278, 287 (1st Cir. 2024). In doing so, we accept

the complaint's well-pleaded factual allegations as true and draw

all reasonable inferences in appellants' favor. Id. We will

affirm "if the complaint fails to allege facts sufficient to

demonstrate a plausible entitlement to relief." Id. (citation

modified).

In the proceedings below, the district court rested its

conclusion, at least in part, on its understanding that appellants

had alleged an injury arising not just from OAT's retention of the

accrued interest, but from the retention of that interest without

providing a transparent and manageable process for retrieving it.

The district court observed that, because appellants did not

- 18 - challenge the relevant Puerto Rico law or judicial regulations,

their challenge amounted to essentially an "objection

[to] . . . the supposedly opaque and unmanageable process -- or

lack thereof -- [for] calculating and disbursing [interest]

funds." From that premise, the district court reasoned that,

absent an allegation that appellants had sought to obtain the

interest, their injury was "abstract and hypothetical" and

resembled a "generalized grievance," in that appellants were

seeking "essentially a mandamus from the Court that the OAT

implement a clearer and more accessible system of notice,

calculation and disbursement."

In challenging the district court's conclusion that they

lacked standing, appellants fail to engage with that latter and

critical aspect of the district court's reasoning. Instead,

appellants simply contend that "[t]heir interest in the accrued

interest is not conjectural, contingent, or speculative." But

that proposition appears to have been conceded by Steidel below

(that the accrued interest is appellants' property) and accepted

by the district court. And appellants continue to press their

point that they "are entitled [to] but not provided a meaningful

procedure to petition for the payment of the interest" without

explaining why they have standing to challenge the adequacy of

those procedures absent an allegation that they requested the

interest be disbursed. Thus, appellants have not met their burden

- 19 - to show that the district court erred in concluding that they lack

standing. See McInnis-Misenor v. Me. Med. Ctr., 319 F.3d 63, 67

(1st Cir. 2003) ("The party invoking federal jurisdiction bears

the burden to establish standing."); see also In re Savage, 169

F.4th 45, 58 (1st Cir. 2026) (applying the "prophylactic rule"

that "[a] party who fails to develop an argument as to why a

particular order is erroneous waives their ability to do so").11

VI

For the reasons given above, we dismiss appellants'

appeal from the entry of summary judgment and affirm the district

court's dismissal. The parties shall bear their own costs.

11 Now seems as good a time as any to mention the fact that appellants do not develop any argument as to why the district court erred with respect to their due process claims specifically. We're not in the business of making arguments on a party's behalf, which means appellants have waived their due process claims for lack of development. See, e.g., Alaniz v. Bay Promo, LLC, 143 F.4th 18, 31-32 (1st Cir. 2025).

- 20 -