From the July 2005 Newsletter:

Supreme Court rules against San Remo Hotel; property rights cases now 0-3

IN THE THIRD VICTORY FOR GOVERNMENT REGULATION of property rights, the U.S. Supreme Court ruled in favor of the City in San Remo Hotel v. City and County of San Francisco. That decision followed Lingle v. Chevron, which held that gasoline station rent control is constitutional, and preceded Kelo v. City of New London, which held that the government can take your home and give it to a private developer who will increase the city's tax base.

The decision in San Remo ends 12 years of convoluted litigation that still did not resolve the merits of the case. The hotel's owners, Thomas and Robert Field, originally filed suit in federal court, but the Ninth Circuit Court of Appeals held that they were required to first bring state claims in state court. The Ninth Circuit relied on the Supreme Court's prior decision in Williamson County v. Hamilton Bank, which held that a federal takings claim is not "ripe," i.e., ready for judicial resolution, until the plaintiff has first sought compensation under state law. Both the Ninth Circuit's opinion in San Remo and the Supreme Court's opinion in Williamson stated that the federal claims could be considered in federal court after the state court litigation.

The Field Brothers then went to state court (where the rule was that they could not bring their state and federal claims at the same time). Ultimately, the California Supreme Court rejected their state law claims by a vote of 4-3, with a stirring dissent by Justice Janice Rogers Brown who stated that "private property, already an endangered species in California, is now entirely extinct in San Francisco," and that, "Theft is theft even when the government approves of the thievery. Turning a democracy in-to a kleptocracy does not enhance the statute of the thieves; it only diminishes the legitimacy of the government." (Justice Brown's appointment to the D.C. Circuit Court of Appeals was recently confirmed by the Senate. During the confirmation process, her dissent in San Remo was cited by opponents of her nomination.)

Because the California Supreme Court did not (and, under the then-existing law, could not) decide any federal claims, the Field Brothers could not ask the U.S. Supreme Court to review the state court's decision. Thus, they returned to federal court, only to be told by the Ninth Circuit that their claims were barred by res judicata, meaning that the issue had already been decided upon by the state courts. The normal rules of res judicata provide that a party can only litigate an issue in one lawsuit and any subsequent lawsuit is barred. The Second Circuit found that this normal rule created a "Catch-22" for takings plaintiffs, but the Ninth Circuit disagreed and in the end, so did the Supreme Court.

The defeat was most disappointing for the Field Brothers because the merits of their federal takings claims were never decided by any court—state or federal. However, there are two glimmers of hope for future takings plaintiffs. First, the Supreme Court appears to have ruled that takings plaintiffs can bring their federal takings claims in state court at the same time as their state law claims. This means that the federal takings claims will be decided on the merits in state court and thus can be reviewed by the Supreme Court on the merits. Second, the concurring opinion in San Remo (by Rehnquist, O'Connor, Kennedy and Thomas) suggests that there are four votes to over-rule the decision in Williamson. If a fifth vote can be found (presumably, Scalia) that would mean that future takings plaintiffs could bring their federal takings claims directly in federal court, just as every other federal civil rights plaintiff is allowed to do, and as the Fields tried to do when they first filed suit in 1993.

There is one last ironic twist to the San Remo saga: Fior d'Italia, the restaurant that recently had a disastrous fire at its previous 50-year location, just signed a lease to move into the San Remo Hotel. Fior d'Italia also took a case to the Supreme Court, challenging unfair government regulations, and also lost. Fior d'Italia's case challenged IRS regulations requiring waiters to pay income tax on "assumed" tips, i.e., whether or not they actually were tipped the amounts the IRS "assumed." The motto of both stories is that fighting the government is an uphill battle. While these cases are a setback for all citizens who care about protecting and preserving the rights of property owners, we at the SPOSF Institute will continue to mount legal challenges and continue to explore other avenues.

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