The Recorder - April 18, 2003
City Loses Bid to Dismiss Landlord Suit
By Pam Smith

Plaintiffs lawyers in a landlord class action against San Francisco won a few battles this week in superior court, where Judge Richard Kramer denied the city's motion for summary judgment.

About 62,000 small property owners with one to six rental units are eligible to join the class action, Small Property Owners of San Francisco v. San Francisco, 406692.

The plaintiffs say city law forced landlords to pay tenants more interest on their security deposits than the landlords could have earned investing the security deposits during the recession. The suit alleges an illegal "taking" of an estimated $7.8 million in 16 months.

Kramer made his decision Tuesday.

"We haven't decided yet what we're going to do," Deputy City Attorney Andrew Schwartz said Thursday. Seeking a writ of mandamus in the First District Court of Appeal is "certainly an option."

"I don't know whether there's a possibility of settlement or not," said San Francisco solo Paul Utrecht, one of the lead plaintiffs' attorneys. He is working with solo Andrew Zacks and Mark Anderson, a name partner at Kemnitzer, Anderson, Barron & Ogilvie.

Kramer cited the 2001 case Action Apartment Association v. Santa Monica Rent Control Board, 94 Cal.App.4th 587 as a basis for the denial, according to a court transcript. That ruling held that a landlord group had properly stated a takings claim over a 3 percent interest requirement. San Francisco's law set the amount at 5 percent.

Deputy City Attorney Martin Greenman had argued that the interest landlords earned versus what they had to pay tenants should be compared "during the entire history of the ordinance."

From the time the San Francisco ordinance took effect in September 1983 until it was amended in August 2002, money-market investments on average would have earned landlords more than what they were required to pay their tenants, so there was no net loss to landlords during the life of the law, he argued. In contrast, he said, Santa Monica's landlords couldn't get as much money from their deposits as they were required to pay their tenants over the life of that city's law.

But Kramer disagreed. He also denied without prejudice the city's motions to decertify or redefine the class, and gave the city 30 days to amend a cross-complaint.

Utrecht said his case "probably would have been less likely to succeed 20 years ago than it is today," noting that takings law has moved more in the direction of protecting property rights.

Schwartz was quick to note that three of the attorneys on this case recently battled each other in another case.

Schwartz came out on the winning side against Utrecht and Zacks when a federal judge decided San Remo Hotel v. San Francisco, C-93-1644-DLJ, in favor of the city Wednesday, Schwartz said. "It just so happens that some of the same lawyers are involved."

Deputy City Attorney Greenman sounded frustrated by Kramer's ruling. "There are so many times when I'm unhappy with what a judge ruled, your honor; today is no special moment in that regard," Greenman said, according to the transcript.

"That's what used to happen to me, so I became a judge; so now I just get thrilled with the way this judge rules unless somebody tells me I made a mistake," Kramer replied.