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Chalk up another loss for the owners of San Francisco’s San Remo Hotel. On Wednesday, the Ninth Circuit U.S. Court of Appeals upheld a 14-year-old San Francisco ordinance that forces residential hotel owners to replace lost housing stock or come up with a hefty fee for conversion rights if they change to tourist use. Two years ago, the California Supreme Court in a 4-3 vote also approved the ordinance at the conclusion of a bitterly fought state suit over the controversial takings law. In Wednesday’s decision, the Ninth Circuit held that U.S. District Judge D. Lowell Jensen was correct in finding that the state court’s 2002 adjudication of the state takings claim was an “equivalent determination” of the federal takings claim subsequently raised by the San Remo owners. “In analyzing the state takings claim,” Judge Michael Daly Hawkins wrote, “the California Supreme Court noted that the California constitution protects a �somewhat broader range of property values’ than the corresponding federal provision, but that it otherwise generally construes the clauses congruently.” Thomas and Robert Field, owners of the North Beach-based San Remo, sued in 1993, challenging the constitutionality of the city’s Residential Hotel Unit Conversion and Demolition Ordinance. Faced with having to replace lost housing stock, the Fields paid a $567,000 conversion fee, under protest. San Francisco’s First District Court of Appeal sided with the owners, saying that the city had to meet a tough heightened scrutiny standard in showing that its law didn’t constitute an illegal taking. The Supreme Court, in reversing, said the appeal court had invoked an “impossible standard” by suggesting that an ordinance must apply to “every other property” in the city. “The [ordinance] applies to all property in the class logically subject to its strictures, that is to all residential hotel units,” Justice Kathryn Mickle Werdegar wrote in San Remo Hotel v. City and County of San Francisco , 27 Cal.4th 643. “No more can rationally be demanded of local land use legislation in order to qualify for deferential review.” Because the state Supreme Court had fully litigated the takings issue, Judge Jensen said the federal takings claim should be dismissed under the doctrine of issue preclusion. But the hotel owners had argued that there should be no issue preclusion where they had been required to litigate in the state court pursuant to the so-called Pullman abstention doctrine — which says federal courts should abstain from jurisdiction until a state court has decided state law questions — and where they had specifically reserved their federal claim under the U.S. Supreme Court’s 1964 ruling in England v. La. State Bd. of Med. Exam’rs , 375 U.S. 411. The Ninth Circuit disagreed. The takings challenges “raised in state court are identical to the federal claims asserted by the plaintiffs, and are based on the same factual allegations,” Judge Hawkins wrote. “The California Supreme Court decision was a final judgment on the merits, and the plaintiffs were a party to the state court adjudication.” Senior Judge Ferdinand Fernandez and Judge Sidney Thomas joined in the ruling. Deputy City Attorney Andrew Schwartz, who argued San Francisco’s case before the California Supreme Court and the Ninth Circuit, was on vacation Wednesday and could not be reached for comment. But solo practitioner Paul Utrecht, who argued in both courts for the San Remo owners, said the Ninth Circuit’s reasoning was “flat-out wrong.” “They ignored the United States Supreme Court ruling in England ,” he said, “which says that after a Pullman abstention order there is neither issue preclusion nor claim preclusion. They say that the law of takings is the same in California and in the federal courts, and that’s also wrong.” Utrecht said he would seek an en banc Ninth Circuit hearing, and if that fails, seek review by the U.S. Supreme Court. In the meantime, he said, the San Remo is operating as a fully licensed tourist hotel. “The issue at this point,” he said, “is about whether [the owners] get their money back.” The ruling is The San Remo Hotel L.P. v. San Francisco City and County , 04 C.D.O.S. 3231.

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