The bottom line in Hernandez-Castrodad v. Steidel-Figueroa, No. 23-1872 (July 1, 2026), is that the U.S. Court of Appeals for the First Circuit affirmed the dismissal of the plaintiffs’ takings claims, although it had at least partially different reasons than the district court.

First, let’s get to the district court’s reasoning. The takings claim stem from Puerto Rico’s practice of skimming some of the cream from the monies condemnors deposit as estimates of just compensation in eminent domain cases. The court keeps these funds in interest-bearing accounts. “In this scheme, OAT [Administrator of the Administration of Tribunals of the Commonwealth of Puerto Rico] takes a cut of the interest that accrued while the funds were in its possession.” Slip op. at 5. That “cut” is 15% of the total interest earned. Slip op. at 6.

Here, the Puerto Rico Highway and Transportation Authority took land and a Puerto Rico trial court ordered it to pay $2.4 million in just compensation, plus interest, less admin cut. Class action lawsuit followed, claiming the keeping of some of the interest, and that the retention of the admin fee were takings. The district court eventually entered summary judgment for the government, holding the owners lacked standing because they had not asked for their money.

First Circuit appeal followed. The court first noted that the Commonwealth was in bankruptcy, and had filed a petition to “restructure its debts in a specially designated court[.]” Slip op. at 10. We’ve been down the PROMESA path before, and although it isn’t a typical bankruptcy (but a special statute adopted by Congress to deal with the Commonwealth’s insolvency), it operates mostly like bankruptcy. This includes both the discharge and the automatic stay provisions.

The automatic stay on all proceedings when a debtor seeks bankruptcy protection is what the First Circuit focused on:

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).

Slip op. at 11. The district court didn’t address the issue, and “[a]ppellants did not file a proof of claim or seek relief from the automatic stay in the [PROMESA] court.” Id. Uh oh. True, the First Circuit has already concluded that the government’s obligation to provide just compensation when it takes property cannot be discharged or reduced in bankruptcy, but that doesn’t mean the automatic stay provisions don’t apply. The court asked for briefing on whether it had jurisdiction.

The owners asserted the stay provision in the PROMESA statute doesn’t apply because that only governs a “claim” against the Commonwealth, and their claim that the Commonwealth is unconstitutionally keeping the deposits and interest isn’t a “claim” because the Commonwealth doesn’t own the money on deposit. It’s ours, claimed the owners.

Fair enough. “But they do not dispute that the government, after deducting the administrative fee, would keep it [the deposit and the interest].” Slip op. at 16. So the Commonwealth at least has a “proprietary interest” in the admin fee, and thus it is property of the debtor, which means that the claim that it belongs to the owners is a “claim” against the Commonwealth. Thus, the owners’ claim that the admin fee was a taking was subject to the stay, and the First Circuit dismissed the appeal as it related to the fee.

But “[w]e adopt a different approach for appellants’ interest [takings] claim[,]” even though the court reached the same outcome (affirming the district court’s dismissal). Slip op. at 18. On this issue, the court reached the standing question:

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 to show that the district court erred in concluding that they lack standing.

Slip op. at 19-20.

Hernandez-Castrodad v. Steidel-Figueroa, No. 23-1872 (1st Cir. July 1, 2026)