S.F. Daily Journal - Mar 5, 2002
SF Hotel Loses 'Takings' Suit

By Peter Blumberg
Daily Journal Staff Writer

SAN FRANCISCO - The California Supreme Court on Monday upheld a San Francisco affordable housing law that forces hotel owners to pay a fee for every room they convert from residential to tourist use.

In a 4-3 decision, the high court rejected a constitutional challenge from the owners of a historic North Beach hotel who claim the city took away their property rights by collecting a $567,000 fee they paid to comply with a hotel conversion ordinance.

But, buoyed by dissenting opinions from three justices, a lawyer for the brothers who own the 62-room San Remo Hotel vowed to pursue their Fifth Amendment "takings" claim in the federal courts. The Field brothers and their lawyers maintain the ordinance violates the Constitution's ban on confiscating or taking private property without just compensation. San Remo Hotel v. City and County of San Francisco, 2002 DJDAR 2463.

The case has been closely watched by property rights advocates, on the one side, and by local government agencies, on the other, as a test of whether zoning regulators can impose fees on private building owners who want to change the use of their property.

"In California, if you're a property owner and you want to bring a takings claim in state court, you'd better think long and hard about it, because I don't know how you're going to win," said Andrew Zachs, a San Francisco attorney representing the Field brothers, Tom and Robert. "The California Supreme Court seems to be going out of its way to rule against property owners in these cases."

Zachs praised Monday's stinging dissent from Justice Janice Rogers Brown, who declared that "private property, already an endangered species in California, is now entirely extinct in San Francisco."

A lawyer who defended the city's 1990 hotel ordinance said a significant source of revenue would have been in jeopardy if the San Remo had won the case. More importantly, he said, Monday's decision sets a broad precedent for how courts will review legislatively enacted land use regulations in the future.

"This decision ratifies the development impact fees used by more than 100 California public entities to mitigate environmental impact and to fund infrastructure, the demand for which is created by development," Deputy City Attorney Andrew Schwartz said.

The Supreme Court's majority concluded the Field Brothers have no basis for demanding a refund of the conversion fee they paid under protest in 1993 so that the hotel could continue to rent rooms primarily to tourists on short stays rather than to low-income residents. The ordinance mandating the fee applies to about 500 hotels with a total of about 18,000 rooms.

Writing for the majority, Justice Kathryn Mickle Werdegar found that the city properly required the Fields brothers to obtain a conditional use permit from the city of San Francisco to convert to tourist use a number of rooms that previously had been designated for long-term rentals.

Overturning an August 2000 decision by the 1st District Court of Appeal in favor of the Fields brothers, Werdegar refused to apply heightened constitutional scrutiny to the hotel ordinance. She concluded instead that the law passes muster because the imposition of the fee on hotel owners is rationally related to the city's goal of preserving low-cost housing.

Werdegar's opinion was joined by Chief Justice Ronald George and Justices Joyce L. Kennard and Carlos R. Moreno.

Justice Marvin Baxter, joined by Justice Ming Chin in a concurring and dissenting opinion, argued that both the Court of Appeal and Monday's majority applied the wrong analysis to the hotel ordinance. They said the constitutionality of the law should have been evaluated according to an intermediate standard of scrutiny.

Zachs said that under the standard articulated by Baxter, the Field brothers probably would win their case and the hotel ordinance would be struck down.

Brown, the court's most conservative member, filed a spirited dissent that accused the majority of eviscerating property rights. She argued that it is unfair for the city of San Francisco to place so much of the burden to provide affordable housing on one group of property owners.

"San Francisco has redefined the American dream," she wrote. "Where once government was closely constrained to increase the freedom of individuals, now property ownership is closely constrained to increase the power of government. Where once government was a necessary evil because it protected private property, now private property is a necessary evil because it funds government programs."

The case drew a slew of amicus briefs, with real estate agents and developers supporting the San Remo Hotel and organizations representing cities, counties and Attorney General Bill Lockyer weighing in on behalf of San Francisco.

The San Remo Hotel also had assistance from Pacific Legal Foundation, a Sacramento-based conservative advocacy group that has spearheaded a nationwide property rights legal movement.

PLF attorney R.S. Radford said a case similar to San Remo's was turned away by the U.S. Supreme Court two years ago. But the fact that three justices favored granting review to the case then was a good sign that the nation's high court is interested in the high-stakes issue, he said It takes four votes for the court to accept a petition for certiorari.

"From the local government point of view, it's a bread and butter issue. Face it, any source of revenue is important because they are under tax limitations," Radford said. "Conversely, if you are a group that is primarily involved in building and developing, you're not going to want to be the group that has provided that revenue to local government."

Zachs said he now will focus on his suit pending in U.S. District Court in San Francisco.

"We're hopeful that the federal court will review this case more favorably than the state court has," he said.