Supreme Court Upholds Local Regulations on Private Property

Dealing another setback to the property rights movement, the Supreme Court on Monday upheld a San Francisco ordinance that required building owners to pay the city a fee when they converted rental units into hotel rooms.

The owners of the San Remo Hotel said the $567,000 fee they were forced to pay violated the Constitution’s guarantee that “private property [shall not] be taken for public use without just compensation.”

Three years ago, the California Supreme Court upheld the ordinance. But in a dissent, Justice Janice Rogers Brown called it an example of “thievery” by the government. The city said the law’s purpose was to preserve rental units for low-income people and the homeless.

On Monday, the U.S. Supreme Court ruled unanimously that the hotel’s owners did not have a right to challenge such fees in federal court once they had lost in state courts. The decision ended a 12-year legal battle.

The California and U.S. Supreme Court rulings made clear that local and state governments had broad power to regulate private property and to charge special fees for developers. They also dashed the hopes of property rights advocates who believed they could fare better in federal courts.

“In state courts, and in particular in California, it is very difficult for property owners to win a ‘takings’ claim,” said Meriem L. Hubbard, a lawyer for the Pacific Legal Foundation in Sacramento. “There are a lot of extreme land-use ordinances in California, and these opinions are making it very hard to challenge them.”

But lawyers for planning groups and environmental causes applauded the ruling.

“The Supreme Court has wisely put to rest the attempt by the national developers’ lobby to get something no other claimant receives: two bites at the litigation apple,” said Timothy J. Dowling, a lawyer for Community Rights Counsel in Washington. “The ruling will allow local officials and planners to protect our communities through reasonable land-use controls.”

Last month, the high court unanimously upheld a peculiar rent control law in Hawaii and said that such regulations should not be second-guessed by federal judges. The Hawaii statute limited the rents charged to operators of gasoline stations. It was intended to hold down gasoline prices paid by motorists.

The rulings leave a surprising legacy for the Rehnquist court.

In 1986, when William H. Rehnquist became chief justice and Antonin Scalia joined the court, both signaled that they intended to strengthen the rights to private property. Rehnquist once said there was no reason that private property rights in the Constitution should take a back seat to the rights to free speech or freedom from unreasonable searches.

But the property rights movement has faded in recent years.

One major property rights case is pending. The justices will decide in a Connecticut case whether cities can seize private homes to make way for business development.

The San Francisco housing ordinance drew the attention of property rights advocates because it looked to be an extreme example of local regulation.

In 1979, the city’s Board of Supervisors said it had a “severe shortage” of affordable rental housing for elderly, disabled and low-income people. It later barred owners of residential hotels from converting units into rooms for tourists. However, they could obtain a permit to convert units if they agreed to build units for renters or if they paid a fee to the city.

The San Remo Hotel is a three-story, 62-unit hotel in the Fisherman’s Wharf neighborhood. Its owners paid the $567,000 fee under protest and filed a suit contending it was unconstitutional. They argued that hotel owners should not be forced “to bear the public burden of housing the poor.”

The state high court upheld the ordinance. Property could be highly regulated and the hotel fees were “reasonably related” to the loss of low-income housing in the city, the 4-3 majority said.

“Private property, already an endangered species in California, is now entirely extinct in San Francisco,” wrote Justice Brown in a dissent that was criticized by Democrats who unsuccessfully opposed her nomination to the U.S. Court of Appeals for the District of Columbia.

The hotel owners sued in the federal courts but lost. Last year, the Supreme Court agreed to hear the case of San Remo Hotel vs. San Francisco to decide whether property owners had a right to have their federal claims decided in a federal court.

They do not, the justices ruled Monday.

“State courts are fully competent to adjudicate constitutional challenges to local land-use decisions,” said Justice John Paul Stevens.

Paul F. Utrecht, a San Francisco lawyer for the hotel owners, said the decision was a defeat for his clients but it might be helpful to others in the future by shortening the legal process.

“There is a bit of good news. It is now clear you can bring all your claims in one state court proceeding,” Utrecht said.