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Court Blocks San Francisco Hotel Owners' Takings Lawsuit

Los Angeles Daily Journal
June 21, 2005
Brent Kendall

WASHINGTON - Ending a 12-year legal dispute over San Francisco's hotel conversion ordinance, the U.S. Supreme Court ruled Monday that owners of a North Beach hotel who challenged the regulation cannot go forward with their takings lawsuit in federal court after losing their claims in state court.

In siding with the city, the justices voted unanimously to affirm a 9th U.S. Circuit Court of Appeals ruling that the San Remo Hotel's federal challenge was barred by issue preclusion because the takings claims had been litigated fully at the state level.

Justice John Paul Stevens, writing for the court, said federal judges are not free to disregard the full faith and credit statute, which prohibits the re-litigation of issues resolved by courts of competent jurisdiction, "simply to guarantee that all takings plaintiffs can have their day in federal court." San Remo Hotel v. City and County of San Francisco, 2005 DJDAR 7265 (U.S. Sct., June 20, 2005).

Stevens said the San Remo owners' case depended on the incorrect assumption that they have a right to vindicate their federal claims in a federal forum.

"We have repeatedly held, to the contrary, that issues actually decided in valid state-court judgments may well deprive plaintiffs of the 'right' to have their federal claims relitigated in federal court," Stevens wrote. "This is so even when the plaintiff would have preferred not to litigate in state court, but was required to do so by statute or prudential rules."

The San Remo filed a federal challenge to San Francisco's conversion ordinance in 1993 after the city's planning commission granted the hotel a conditional-use permit to convert its rooms from residential to tourist use but required the owners to pay 40 percent of the cost for replacement housing necessitated by the lost residential units.

That replacement fee amounted to $567,000.

The hotel owners argued that the ordinance, designed to preserve affordable housing for low-income residents, constituted an unconstitutional taking of their property.

A 9th Circuit panel ruled that the owners first had to pursue their case in state court.

The panel held that the takings claim was unripe because the owners had not sought, and been denied, compensation in state court as required by Williamson County Regional Planning Commission v. Hamilton Bank, 473 U.S. 172 (1985).

The hotel owners then lost in the state trial court, won on appeal, but lost again in 2002 before the state Supreme Court.

The owners returned to federal court, but U.S. District Judge D. Lowell Jensen ruled that the San Remo's challenge was barred by issue preclusion because substantive California takings law was coextensive with federal takings law.

Jensen also ruled that the suit was barred by the statute of limitations.

In April 2004, the 9th Circuit affirmed on issue-preclusion grounds, in an opinion written by Judge Michael Daly Hawkins and joined by Judges Ferdinand Fernandez and Sidney R. Thomas.

Stevens wrote in the high court's decision that, even if the Williamson County ripeness rule forced takings plaintiffs into state court involuntarily, exceptions to the full faith and credit statute, 28 U.S.C. Section 1738, are justified only when they are explicitly called for by Congress.

Federal lawmakers, he wrote, have not expressed any intent to exempt federal takings claims from issue-preclusion rules.

Despite the unanimous ruling, Chief Justice William H. Rehnquist wrote separately to suggest that the court's Williamson County decision "may have been mistaken."

Rehnquist had joined the Williamson County opinion, but he wrote Monday that "further reflection and experience lead me to think that the justifications for its state-litigation requirement are suspect, while its impact on takings plaintiffs is dramatic."

He said that, in an appropriate case, the court should reconsider whether plaintiffs asserting a federal takings claim should be required to go to state court first.

Justices Sandra Day O'Connor, Anthony M. Kennedy and Clarence Thomas joined Rehnquist's concurring opinion.

San Francisco City Attorney Dennis Herrera praised the court's ruling, saying it "solidifies the legal foundation" on which the city's hotel conversion ordinance stands.

"Had the result in this case been otherwise, the enormous costs of a duplicative defense of social and economic regulation would have a chilling effect on essential environmental, health and safety regulation for all local governments," Herrera said.

Former Solicitor General Seth P. Waxman of Wilmer Cutler Pickering Hale and Dorr argued the city's case before the high court. Waxman was unavailable to comment.

Paul Utrecht of Zacks Utrecht & Leadbetter in San Francisco, who argued the case for the San Remo's owners, Tom and Robert Field, said he was very disappointed by the ruling but added that the decision had "bits of good news" in it.

Utrecht pointed to the four likely votes for overturning Williamson County, and he guessed that Justice Antonin Scalia some day could provide a fifth.

Utrecht also said that the ruling would prevent state courts from refusing to consider federal takings claims at the same time as state-law claims.

Washington Legal Foundation chief counsel Richard Samp, who filed an amicus brief in support of San Remo, said he was "encouraged" by Rehnquist's concurring opinion.

Williamson County is "the whole problem" for takings plaintiffs, Samp said.

He added that they are treated like "second-class citizens" by being forced to file lawsuits in state courts first.

Samp said there was "no question" that takings plaintiffs do better in a federal forum.

Whether state courts must consider federal takings claims along with state-law claims is "still an open question," he said.

The U.S. Chamber of Commerce, the Pacific Legal Foundation and the National Association of Homebuilders were among the other groups supporting San Remo.

Groups filing amicus briefs in support of San Francisco included the National Association of Counties, the National League of Cities, the Conference of Chief Justices and the Community Rights Counsel.

"The Supreme Court wisely put to rest the attempt by the national developers' lobby to get something no other claimant receives: two bites at the litigation apple," Community Rights Counsel attorney Timothy J. Dowling said.

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