October 6, 2000
 

The Honorable Chief Justice Ronald M. George
Honorable Associate Justices
California Supreme Court
350 McAllister Street, Room 1295
San Francisco, California 94102-4712 

            Re:      San Remo Hotel, L.P. v. City and County of San Francisco
                        Supreme Court Number S091757
                        Support for Review or, in the Alternative, Depublication 

Dear Chief Justice George and Associate Justices: 

The League of California Cities and the International Municipal Lawyers Association[1] respectfully urge this Court to grant the petition for review filed in the above-referenced case.  As explained below, the case merits review to settle important questions of constitutional law and secure uniformity of decision thereon.  (See Cal. R. Ct. 29(a).)  In the alternative, we request the Court to order the appellate opinion in this case decertified from publication.  (See Cal. R. Ct. 979(a).) 

I.      The Court of Appeal's Decision 

San Francisco's Hotel Conversion Ordinance (HCO) is a legislative enactment of general applicability that applies equally to 500 hotels and more than 18,000 residential hotel units.  The HCO requires proportionate mitigation of the harm to the City's affordable housing stock when any of these 500 hotels seeks to convert a unit from residential to tourist use.  Under the HCO, a hotel must replace residential units lost to conversion either by building new units or paying a conversion fee to assist in funding the construction of new units.  The HCO specifies that the fee for every hotel is a fixed percentage of estimated replacement costs.[2] 

The Court of Appeal held that the constitutionality of the HCO is subject to heightened scrutiny under Dolan v. City of Tigard (1994) 512 U.S. 374, Nollan v. California Coastal Comm'n (1987) 483 U.S. 825, and Ehrlich v. City of Culver City (1996) 12 Cal.4^th 854.  Applying heightened scrutiny, the appeal court reversed the trial court's ruling in favor of the City, concluding that federal and state law "both indicate an unconstitutional taking has occurred under the facts as alleged by the [San Remo] Hotel."  (Slip op. at p. 16 fn. 6.)  

II.      Review is Necessary to Settle Important Questions of Law. 

The San Remo Hotel urged the appeal court "to stake out its own views" on fundamental questions of constitutional law in this case.[3]  The Court of Appeal did exactly that, formulating a new heightened standard of judicial review for legislatively imposed impact fees in contravention of binding precedent.  The ruling threatens constitutional havoc for legislatively imposed fees.  It also directly calls into question the ability of California municipalities to use mitigation fees to provide for roads, schools, and other infrastructure, to protect sensitive resources, and to enhance public health, safety, and welfare. 

In Nollan, the U.S. Supreme Court held that courts should carefully review government-compelled dedications of land under the Takings Clause, stating that such scrutiny is appropriate "where the actual conveyance of property is made a condition to the lifting of a land use restriction, since in that context there is a heightened risk that the purpose is the avoidance of the compensation requirement, rather than the stated police power objective."  (483 U.S. at p. 841.)  In Dolan, the Court further held that government-compelled dedications must be roughly proportional to the harm expected from the proposed land use, emphasizing that such dedications infringe the landowner's right to exclude, "one of the most essential sticks in the bundle of rights that are commonly characterized as property."  (512 U.S. at p. 384.)  Last Term, the Court unanimously reaffirmed that Dolan's "rough proportionality" test is limited to the unique context of government-compelled dedications of property.  (City of Monterey v. Del Monte Dunes at Monterey, Ltd. (1999) 526 U.S. 687, 702-03.) 

In Ehrlich, this Court carefully extended Dolan and Nollan to impact fees, providing clear guidance as to when heightened scrutiny applies to those fees.  Ehrlich holds that heightened scrutiny applies only to exactions imposed on a single landowner "on an individual and discretionary basis."  (12 Cal.4^th at p. 876.)  Moreover, the Ehrlich Court concluded that Dolan and Nollan do not apply to "legislatively formulated development assessments imposed on a broad class of property owners."  (Id.)  The Court so held because when the legislature imposes a generally applicable fee, "the heightened risk of 'extortionate' use of the police power to exact unconstitutional conditions is not present."  (Id.)  The Ehrlich Court then applied heightened scrutiny to invalidate a recreation fee imposed on an individual landowner, but it applied deferential scrutiny to uphold an art enhancement fee of general applicability.  (Id. at pp. 881-86.)  This Court twice reaffirmed the critical nature of the distinction between individual fees and generally applicable fees.  (Santa Monica Beach, Ltd. v. Superior Court (1999) 19 Cal.4^th 952, 966, cert. denied, 526 U.S. 1131 ["The most deferential review of land use decisions appears to be for those that pertain to 'essentially legislative determinations' . . . ."]; Landgate v. California Coastal Comm'n (1998) 17 Cal.4th 1006, 1022, cert. denied, 525 U.S. 876 [greater deference required when land use conditions are "not requirements that the property owner . . . pay development fees imposed on a property owner on an individual and discretionary basis . . . ."].)  Even the appeal court seemed to recognize this distinction.  (Slip op. at pp. 12-13.) 

Remarkably, however, the appeal court eviscerated this Court's careful distinction between legislative fees and individualized fees by ruling that heightened scrutiny applies to all fees unless they are imposed on every parcel of property within the relevant jurisdiction.  The appeal court's only justification for applying heightened scrutiny to the HCO is that the ordinance is limited only to hotels and does not apply to every parcel of property in the City: 

[T]his ordinance is not a general zoning law which, for example, forbids the building of new factories on all properties in San Francisco.  To the contrary, appellants allege that the HCO affected only them and a small group of other property owners, leaving unregulated all of the many thousands of other commercial and residential properties in the City.  The $567,000 mitigation fee obviously was not imposed on every other property in the City.  Consequently, a heightened level of scrutiny is proper because this is the type of particularized governmental exaction imposed upon a property owner which was seen in Ehrlich.

 

(Slip op. at p. 14 fn. 5 [citation omitted].)  In other words, the sole reason for this ruling is that the HCO fee is inapplicable to office buildings, single-family homes, and other non-hotel properties unrelated to the harm caused by residential hotel conversion.  In direct contravention of Ehrlich, Santa Monica, and Landgate, the appeal court applied heightened scrutiny even though the HCO fee is calculated under a formula (a fixed percentage of estimated replacement costs) that applies uniformly to all City residential hotels and leaves no discretion to San Francisco as to its application or amount. 

This dramatic expansion of Dolan to cover legislatively imposed fees of general applicability seriously threatens fees routinely required by municipalities throughout the State of California.  Even the art enhancement fee in Ehrlich -- upheld by this Court as akin to traditional land use regulations -- would fall victim to the appeal court's analysis because it applied only to new developments, not to all landowners in Culver City.  Although this Court stressed that heightened scrutiny is warranted only for "a relatively narrow class" of cases (Ehrlich, 12 Cal.4^th at p. 868), the Court of Appeal effectively has applied this standard to exactions across the board. 

The appeal court's ruling not only contravenes this Court's precedents, but also the basic premise of Dolan.  The Dolan Court addressed the precise issue raised by this case regarding whether the rough-proportionality standard applies to legislative enactments of general applicability.  In response to the dissent, which argued that municipal land use regulations should be reviewed under a deferential standard, the Dolan majority agreed that municipalities should not be subjected to heightened scrutiny for generally applicable controls.  (Dolan, 512 U.S. at p. 391 fn. 8.)  Instead, the rough-proportionality test was designed to address and is limited to cases where the municipality makes "an adjudicative decision to condition [an] application for a building permit on an individual parcel."  (Id. at pp. 381-82)  

Because this Court is thoroughly familiar with Dolan and its progeny, there is no need to repeat an extended analysis of them here.  But it does bear repeating that the central concern in Dolan was the possibility that the government was singling out a landowner to exact an illegitimate concession in an individualized, adjudicative proceeding.  (Dolan, 512 U.S. at p. 385 [unlike traditional land use regulations that involved legislative determinations, "here the city made an adjudicative decision to condition petitioner's application for a building permit on an individual parcel."])  As this Court has recognized, this potential for abuse of municipal discretion is the "sine qua non" of heightened scrutiny under Dolan.  (Ehrlich, 12 Cal.4^th at p. 869; accord Santa Monica, 19 Cal.4^th at p. 967 ["generally applicable development fees warrant the more deferential review that the Dolan court recognized is generally accorded to legislative determinations."].)  By effectively applying Dolan's heightened scrutiny to all legislatively imposed fees, the appeal court has improperly extended it far beyond its original purpose.  

The practical implications of this ruling cannot be overestimated.  More than 125 California municipalities have enacted legislation imposing impact fees and other exactions.  (Exs. A and B to City's Request for Judicial Notice.)  These fees are necessarily and appropriately tailored to the class of properties giving rise to the harm that the fee is designed to address.  Under the appeal court's reasoning, however, all impact fees would be subject to heightened scrutiny under Dolan unless they apply to every landowner in the relevant jurisdiction.   

In good faith reliance on Ehrlich, California cities and counties have come to expect that legislatively imposed fees imposed on a broad class of property owners will be given appropriate deference by the courts.  These fees rarely, if ever, apply to every parcel of property within a given jurisdiction.  The appeal court's analysis now threatens the ability to assess legislatively imposed impact fees of general applicability to address the economic burdens caused by new development, including the need for new roads, schools, parks, sewers, and water treatment facilities.  Legislative fees to protect ecologically sensitive areas and to promote public health and safety also are threatened.  

So too for municipalities across the country.  The overwhelming majority of U.S. municipalities impose impact fees or other exactions.[4]  As this Court well knows, the rulings of California courts in Ehrlich and other takings cases have been influential in other jurisdictions.   If allowed to stand, the appeal court ruling would create vast confusion regarding the appropriate level of judicial review for impact-fee programs in any jurisdiction that follows California's lead on these issues.

The Court of Appeal not only improperly applied heightened scrutiny, but it did so in a way that goes far beyond the nature and degree of review contemplated by Dolan.  The appeal court's approach threatens a resurrection of untoward judicial activism in at least two significant respects. 

First, the appeal court employed heightened scrutiny to allow the hotel to challenge a key component of the fee calculation: namely, the number of residential units in the hotel, a figure the hotel itself had reported to the City more than twenty years ago.  (Slip op. at pp. 17-18).  Such challenges typically are resolved in local administrative processes subject to reasonable time constraints.  One is left to wonder how a municipality could "prove" at trial the accuracy of a landowner's own land use report twenty years after the fact, and why a landowner should be allowed to challenge the accuracy of its own report simply by bringing a takings challenge to the applicable law.   To impose such a burden on a municipality would turn land use law on its head.  To force trial courts to look behind reasonable legislative assumptions would compel them to assume a "distinctively legislative role," a usurpation of power condemned by this Court.  (Santa Monica, 19 Cal.4^th at p. 973).   

Second, under the guise of heightened scrutiny, the appeal court second-guessed the basic purpose of the HCO, suggesting that the fee fails to advance any legitimate public interest because some of the San Remo Hotel's residential guests are subject to lifetime leases.  (Slip op. at pp. 17-18.)  But the express purpose of the HCO is to promote affordable housing stock,[5] which it indisputably does.  Accordingly, the HCO's means-end fit survives any appropriate level of judicial review.  But in imposing heightened scrutiny, the appeal court engaged in precisely the kind of improper second-guessing of the legislative purpose this Court deemed "indeed novel" and worthy of review.  (Santa Monica, 19 Cal.4^th at p. 964.)  Just as the claimant's mischaracterization of the purpose of the rent control law in Santa Monica led this court to sustain the demurrer in that case (19 Cal.4^th at pp. 969-70), the appeal court's mischaracterization of the HCO's purpose portends an improper judicial activism at the expense of the public interest that warrants immediate correction by this Court.[6] 

            Review is warranted not only by the inherent significance of the issues, but also by three recent jurisprudential developments in the U.S. Supreme Court.  First, just last year, that Court unanimously and unequivocally stated that Dolan's "rough proportionality" test is limited to the unique context of a government-compelled dedication of property.  (Del Monte Dunes, 526 U.S. at p. 702.)  Second, five Justices have seriously questioned whether the Takings Clause should ever be applied to a government-imposed financial obligation.  (Eastern Enterprises v. Apfel (1998) 524 U.S. 498, 540-47 [Kennedy, J., concurring in the judgment and dissenting in part]; id. at pp. 554-58 [Breyer, Stevens, Souter, & Ginsburg, JJ., dissenting].)  Third, the same five Justices have disavowed altogether the use of the Takings Clause to examine the reasonableness of government regulation.   Id.   

All three of these key developments, discussed in the Petition for Review at pp. 19-25, occurred since this Court's consideration of impact fees under the Takings Clause in Ehrlich.   In view of these critical developments in takings jurisprudence by the U.S. Supreme Court, this Court should grant review in this case to reconsider Ehrlich's continued viability, or to consider whether Ehrlich should be limited to its unique facts.[7]  
 

III.      The Opinion Makes a Negative Contribution to the Legal Literature.

For the reasons set forth above, the Court of Appeal's opinion is not a useful model for other courts to follow.  By distorting the precedents of this Court and the U.S. Supreme Court, the ruling threatens confusion among municipalities, the regulated community, and the public regarding the constitutional standards that apply to legislatively imposed impact fees.  The Court of Appeal's core ruling -- that heightened scrutiny applies to all impact fees unless they are imposed on every parcel of property in the jurisdiction -- is so wrong on its face that its mere articulation constitutes its own refutation.  If allowed to stand, the ruling might well prove to be the death knell for any impact fee reviewed by a trial court that adheres to the appeal court ruling.  The practical effect would be chaos, with legislatively imposed impact fees surviving or falling depending on whether trial courts follow the appeal court's lead or the precedents of this Court.  As such, the opinion should not be published.  (See Cal. R. Ct. 976(b)(4) [publication is warranted when the opinion makes a significant contribution to the legal literature].)
 

            The appeal court ruling departs from unanimous precedent by radically and inappropriately expanding Dolan's carefully tailored rough-proportionality test in a way that threatens legislatively imposed impact fees throughout the State of California.  Review by this Court is necessary to maintain uniformity of decision on critically important questions of constitutional law.  As in Santa Monica, review and reversal is necessary not to consider whether the HCO is good policy, but rather to affirm "the constitutional propriety of having the political process, through state and local legislative bodies, determine that policy."  (19 Cal.4^th at pp. 973-74)  Amici urge this Court to grant San Francisco's petition for review or decertify the appeal court opinion from publication.

 

Respectfully submitted,

                                                                 

Timothy J. Dowling                             William Higgins                 
Community Rights Counsel                  League of California Cities
1726 M. Street NW                            1400 K Street, Suite 400
Suite 703                                             Sacramento, CA 95814
Washington, D.C. 20036                     (916) 658-8208
(202) 296-6889                                  California Bar Number: 183214