S.F. Daily Journal - Dec 13, 2004
Justices Will Examine Hotel's 'Takings' Claim
By Tyler Cunningham and David Pike

SAN FRANCISCO - The U.S. Supreme Court has stepped into an 11-year battle between the city of San Francisco and a local hotel, agreeing to hear the hotel owners' claim that federal courts deprived them of the opportunity to litigate claims that the city essentially took their property.

Owners of the San Remo Hotel originally filed their takings lawsuit in federal court, only to be told they must press the claim in state courts first. When the state Supreme Court decided in the city's favor, the hotel shifted its focus back to federal courts.

But a federal judge ruled the California Supreme Court's decision was the final word in the case, and the 9th U.S. Circuit affirmed in April.

On Friday, the nation's highest court agreed to hear the case. Argument was scheduled for March. San Remo Hotel v. City and County of San Francisco, 04-340.

Paul Utrecht, a San Francisco lawyer representing the hotel owners, said he was glad to have the high court review a system that property owners say has locked them out of federal courts. Commentators have described the legal scheme as "Kafkaesque," "absurd," "nonsense" and "worse than chaos," Utrecht said.

"Federal courts deprived [the San Remo hotel owners of] the opportunity to have a decision whether their property was taken under the 5th Amendment," he said. "We had a chance to litigate under state law, but not under the federal Constitution."

In a written statement issued Friday, San Francisco City Attorney Dennis Herrera said the city hotel conversion ordinance was a thoughtful and effective piece of legislation and that San Remo was not entitled to challenge it twice.

"Allowing litigants to shop for favorable forums and endlessly re-litigate decisions they don't like imposes enormous burdens on municipalities in an era of dwindling resources," he said.

The hotel conversion ordinance was designed to preserve the city's stock of housing for the very poor. It requires hotel owners to pay a fee for every room they convert from residential to tourist use.

The San Remo, a 62-room North Beach hotel, applied in 1990 to convert from residential to tourist use. The city's planning commission gave the hotel a conditional use permit for the conversion, but required, among other things, that it pay 40 percent of the cost of replacement housing for the 62 units and offer lifetime leases to existing long-term tenants.

The hotel owners filed suit in federal court, seeking damages under the civil rights statute, 42 U.S.C. 1983, for an unconstitutional taking of their property.

The 9th Circuit concluded the owners' challenge was not ripe because they had not sought compensation in state court, as required by Williamson County Regional Planning Commission v. Hamilton Bank, 473 U.S. 172 (1985).

The hotel owners lost in the state trial court, won on appeal, but lost again in 2002 before the California Supreme Court. Writing for the majority, Justice Kathryn Mickle Werdegar concluded that, unlike federal law, the state constitution does not require courts to give heightened scrutiny to exactions - such as the cost of replacement housing and lease requirement in this case - imposed by local legislation.

The court then found that that the city's exaction bore a reasonable relationship, in both its intended use and its amount, to the impact of the owners' proposed change in use.

The owners then returned to federal court.

There, U.S. District Judge D. Lowell Jensen ruled that the challenge was barred by the statute of limitations and by "issue preclusion," because substantive California takings law was coextensive with federal takings law.

The 9th Circuit, in an opinion by Judge Michael Daly Hawkins, affirmed.

"The facial and as-applied takings challenges raised in state court are identical to the federal claims asserted by the plaintiffs, and are based on the same factual allegations," Hawkins said. "The California Supreme Court decision was a final judgment on the merits, and the plaintiffs were a party to the state court adjudication."

Hawkins acknowledged that the 2nd Circuit in New York has ruled that "a plaintiff who must proceed in state court to ripen his takings claim under Williamson County should not be precluded from raising an identical claim in federal court." But, he said, "we are not free to simply disregard [our circuit's precedent] in favor of out-of-circuit precedent."

Amicus briefs supporting the hotel's petition were filed by Meriem L. Hubbard, of the Pacific Legal Foundation in Sacramento; Kenneth B. Bley, of Cox, Castle & Nicholson on Los Angeles, on behalf of the National Association of Home Builders; and by Daniel J. Popeo, of the Washington Legal Foundation, on behalf of the foundation, the U.S. Chamber of Commerce and several property owners' organizations.

San Francisco Deputy City Attorney Andrew W. Schwartz filed the city's opposition brief. The city's position has drawn support from amici such as the California State Association of Counties, the League of California Cities and the International Municipal Lawyers Association.

Daily Journal Staff Writer Tyler Cunningham reported from San Francisco and David Pike reported from Washington, D.C.