Part II: San Remo Hotel, L.P. v. City & County of San Francisco (04-340), American Trucking Ass'ns v. Michigan Public Service Comm'n (03-1230), Mid-Con Freight Systems, Inc. v. Michigan Public Service Comm'n (03-1234) and order list

June 21, 2005 Supreme Court Update

In San Remo Hotel, L.P. v. City & County of San Francisco (04-340), the Court unanimously affirmed a Ninth Circuit decision (shocking, but true) dismissing San Remo's Fifth Amendment takings case because of issue preclusion due to prior California court rulings on state-law takings claims. In a nutshell, the Court found that, while the California courts did not specifically address the federal takings claim, the state courts had interpreted California's takings doctrine as co-extensive with federal doctrine and relied on federal law in denying San Remo's claims. Therefore, federal courts were required to give full faith and credit to this determination. This case is about as juicy as dust and the procedural history in incredibly tortured, so only the intrepid need read on.

To preserve affordable rental housing, a San Francisco ordinance required hotels to pay a fee when converting residential hotel rooms to tourist rooms -- resulting in a $567,000 fee for San Remo! San Remo brought a mandamus action in state court, which the parties agreed to stay in favor of San Remo seeking relief in federal court. San Remo did just that, but the district court dismissed its facial takings claim as untimely and its as-applied claim as unripe because San Remo had not exhausted its state-court options for obtaining just compensation (such as an inverse condemnation action), as required by the Court's ruling in Williamson County Regional Planning Comm'n v. Hamilton Bank of Johnson City. Rather than seeking to overturn the district court's decision, San Remo asked the Ninth Circuit to abstain under Pullman because a return to state court might moot the federal issues. The Ninth Circuit obliged as to San Remo's facial takings claims, but noted that San Remo had to reserve its federal claims in state court to retain its right to return to federal court. The state case traveled all the way to the California Supreme Court, which found no state-law takings violation, noting that California "appear[ed] to have construed the [state and federal] clauses congruently." It also stated that San Remo had reserved its federal claims and sought no relief under federal law. San Remo then went back to federal court, which dismissed on the basis of issue preclusion -- finding that the "federal claims constituted the same claims that had already been resolved in state court," and the Ninth Circuit affirmed. The Stevens-led Court easily agreed. A federal reservation only works where state law claims are distinct from federal issues, and is appropriate where federal issues can be avoided if a state court construes a law in a particular manner. Here, San Remo presented issues to the state court that were "functionally identical" to the federal questions. San Remo had every right to do so, but could not get a second bite at the apple in federal court.

The Chief, joined by O'Connor, Kennedy and Thomas, concurred in the judgment to argue that Williamson County (which the Chief had joined) was wrongly decided. A government entity's final decision with respect to a claimant's property is all that should be required before a federal as-applied takings case can be filed. The additional requirement that claimant must seek compensation through all available state procedures is not supported by constitutional or prudential principles and undermines the federal courts' ability to determine federal takings claims. Thus, though this issue was not before the Court, these four Justices are on record that Williamson County's "state litigation" requirement should be jettisoned.

Finally, yesterday was a bad day for interstate truckers in Michigan, as they went 0-for-2. First, in the Court's second "dormant" Commerce Clause case of the term, American Trucking Ass'ns v. Michigan Public Service Comm'n (03-1230), the Court upheld Michigan's $100 fee on trucks engaged in point-to-point hauling within the state. The petitioners argued that the fee imposed an unconstitutional burden on interstate commerce because, as a per-truck fee as opposed to a per-mile fee, it imposed a heavier burden on interstate carriers who also carry intrastate loads (e.g., by "topping off" their trucks carrying loads across Michigan with intrastate cargo) than it did on purely intrastate carriers. A unanimous Court led by Justice Breyer disagreed because the fee applied only to activities taking place within Michigan, and it applied evenhandedly to all carriers making these domestic journeys. Moreover, the record contained no evidence that the fee imposed a significant burden on interstate commerce or discriminated against interstate truckers (unlike a previous case invalidating a flat fee, American Trucking Ass'ns v. Scheiner, where the fee applied even to trucks doing no intrastate business). Finally, the fee passed the "internal consistency" test (AKA the "What if every state did this?" test), because a carrier would pay such fees only where it engaged in purely local business, just as other businesses with local outlets pay uniformly assessed local fees and taxes. Justices Scalia and Thomas each concurred in the judgment. Scalia would eschew the internal consistency test (and any other test from "our wardrobe of ever-changing negative Commerce Clause fashions") and uphold the law because it did not facially discriminate and was distinguishable from Scheiner. Thomas would simply chuck the dormant Commerce Clause altogether as atextual, nonsensical, and unworkable.

In the second trucking case of the day, Mid-Con Freight Systems, Inc. v. Michigan Public Service Comm'n (03-1234), the Court, again led by Justice Breyer, upheld another $100 fee imposed on Michigan-plated trucks that operate entirely in interstate commerce. This case did not concern the dormant Commerce Clause, but rather a claim that the law was preempted by a federal trucking statute. For the closet "BJ and the Bear" fans and masochists among you, here are the details: Interstate truckers must obtain federal permits, and individual states used to be able to require truckers to "register" their federal permits and pay a fee to get a stamp they would affix to a multistate "bingo" card as proof of registration. Winning a rare victory for efficiency, Congress replaced this with the Single State Registration System, under which a trucker could file in one state, pay a $10 fee, and thus register his federal permit in every state where he does business, with the "base state" parceling out shares of the fee accordingly. The SRSS statute specifies that states cannot impose additional "registration requirements" on truckers, but the Michigan law required any Michigan carrier doing purely interstate business to pay a $100 annual fee, identify its trucks, and carry a decal on the truck. At first blush, you might think this was an open-and-shut preemption case, but you would be wrong. The Court held that the SRSS statute did not preempt every state "registration requirement" covering interstate carriers, but only those that concerned SRSS registration -- that is, registration with a state of the carrier's federal permit. The Michigan law makes no reference to federal permits, and Michigan carriers can comply with the state's SRSS registration process even if they do not comply with this separate requirement (and vice versa). The Court did not even find it interesting that Michigan waived the $10 SRSS fee for truckers who paid the "separate" $100 interstate carrier fee, regarding that as "an effort to provide modest, administratively efficient (because Michigan itself is handling both fees) recompense" to Michigan-plated truckers who also used Michigan as their SRSS base state. Because the Michigan law does not concern SRSS matters, it is not preempted.

Justice Kennedy (joined by the Chief and O'Connor) dissented, arguing that the plain text of the SRSS statute does not authorize a "subject matter exemption" for preemption analysis. Congress replaced the old bingo-card system with a new law containing a broad preemption clause, and is not required to say: "We really mean it." Kennedy would hold that the SRSS preempts only registration requirements that single out interstate carriers for additional burdens, as opposed to general requirements that apply only incidentally to interstate carries, and he would remand the case for Michigan courts to consider that issue.

The Court's order list included two new cert grants, in the following cases:

Buckeye Check Cashing, Inc. v. Cardegna (04-1264): Did the Florida Supreme Court err by holding, consistent with the Alabama Supreme Court but in direct conflict with six federal courts of appeals, that the Federal Arbitration Act allows a party to avoid arbitration by claiming that the underlying contract containing the arbitration clause (but not the arbitration clause itself) is void for illegality?

Il Tool Works Inc. v. Independent Ink, Inc. (04-1329): In an action under Section 1 of the Sherman Act, 15 U.S.C. 1, alleging that the defendant engaged in unlawful tying by conditioning a patent license on the licensee's purchase of a non-patented good, must the plaintiff prove as part of its affirmative case that the defendant possessed market power in the relevant market for the tying product, or is marketing power instead presumed based solely on the existence of the patent on the tying product?

That's it for now -- but the Court comes back Thursday with more opinions (and as we noted at the outset, some big ones are looming . . . .). Until then, thanks for reading!

Kim & Ken

From the Appellate Practice Group at Wiggin and Dana. For more information, contact Kim Rinehart, Ken Heath, Aaron Bayer, or Jeff Babbin at 203-498-4400