The long-running legal fight between a hotel and San Francisco has finally reached the U.S. Supreme Court. The high court agreed in December to review the Ninth U.S. Circuit Court of Appeals' most recent decision in San Remo Hotel v. San Francisco.
The North Beach hotel and the city have been locked in legal combat since the early 1990s over San Francisco's hotel conversion fee. After the city first adopted its hotel conversion ordinance 25 years ago, the San Remo was classified as a 62-unit residential hotel. When the owners sought to convert the hotel to tourist use, the city levied a fee of $9,000 per room to help fund replacement housing. The owners paid the fee but ever since have been challenging the levy as an unconstitutional taking of private property (see CP&DR Legal Digest, April 2002, October 2000, July 1998).
The litigation started out in federal court, but the Ninth Circuit said the hotel owners had to press their claims in state court first. The case then made its way through Superior Court, the First District Court of Appeal and finally the state Supreme Court. The state's high court ruled that no taking had occurred.
After the state Supreme Court's early 2002 decision, the San Remo owners returned to federal court. This time, the Ninth Circuit refused to rule on the case, saying that the state Supreme Court had already decided the claims.
"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," the Ninth Circuit ruled. "The California Supreme Court decision was a final judgment on the merits."
However, the Ninth Circuit's theory of “issue preclusion” - which has arisen in a few other recent cases, too - was counter to a 2003 ruling by the Second Circuit in Santini v. Conn. Hazardous Waste Mgmt. Serv., 342 F3d 118.
The question that the U.S. Supreme Court will decide is this: “Is a Fifth Amendment takings claim barred by issue preclusion based on a judgment denying compensation solely under state law, which was rendered in a state court proceeding that was required to ripen the federal takings claim?”
The high court will not consider the question of the proper constitutional standard for weighing the government exaction. The hotel owners have sought to use the “heightened scrutiny standard,” which requires a closer relationship between an exaction and a project's impact than the typical, deferential standard of review. The state Supreme Court said the deferential standard applied because of the general applicability of the regulation.
The case is San Remo Hotel v. San Francisco, No. 04-340.
