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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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