The Daily Journal - March 29, 2005
High Court Considers If S.F. Hotel Can Press Federal Suit
By Brent Kendall

WASHINGTON - Stepping into a seemingly never-ending dispute over San Francisco's hotel conversion ordinance, the Supreme Court on Monday considered whether owners of a North Beach hotel can go forward with their takings lawsuit against the city in federal court, after having lost their claims during a lengthy battle in state court.

"We have never had an opportunity to have a federal takings claim decided on the merits," Paul Utrecht, a San Francisco attorney representing the owners of the San Remo Hotel, told the justices.

But former Solicitor General Seth P. Waxman of Wilmer Cutler Pickering Hale and Dorr, arguing for the city, told the court that the hotel owners "had a full and fair opportunity to litigate every issue relevant to their federal claims" in front of state judges.

The owners' federal claims, Waxman said, "are based on the exact same facts and circumstances argued in the state courts."

San Francisco's 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. San Remo Hotel v. City and County of San Francisco, 04-340

The San Remo 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.

That replacement cost amounted to $567,000.

The San Remo's owners originally filed suit in federal court, saying the ordinance amounted to an unconstitutional taking of their property.

However, the 9th U.S. Circuit Court of Appeals told the owners they must press the lawsuit in the state system first.

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 state Supreme Court.

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.

Last April, the 9th Circuit affirmed, in an opinion by Judge Michael Daly Hawkins.

"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."

It was unclear from Monday's argument whether the justices thought issue preclusion barred the hotel owners' federal case.

Justice Ruth Bader Ginsburg asked Utrecht, "Is it your position that issue preclusion doesn't apply at all," or is it that nothing from the state court proceedings carries over?

"Our primary position is that issue preclusion does not apply," Utrecht responded.

Justice Stephen G. Breyer said that the state Supreme Court "did seem to decide" the issues relevant for a federal takings claim.

Utrecht said that federal courts must be able to look at the facts underpinning a federal takings analysis. The Williamson County decision, he said, wasn't meant to bar takings claims in federal court.

Justice Sandra Day O'Connor at times appeared to agree.

"What's a takings claimant supposed to do?" she asked.

The court might need to reconsider some aspects of the Williamson County decision, O'Connor suggested.

A decision in the case is expected by June.