CITY HALL — Santa Monica officials are challenging an appellate court decision issued last month that could mean the loss of 19 rent-controlled apartment units at the Embassy Hotel Apartments, a residential building in the Wilmont neighborhood near Downtown.

A state appellate court on June 14 said the property owner, Embassy LLC, is allowed to take the units off the rental market, despite having signed a settlement agreement in 2000 that required 19 of the building’s 38 units to be operated as rent-controlled dwellings. The other 19 units were permitted to be rented out as hotel rooms under the settlement, which resolved a prior land use and tax dispute with City Hall.

City Hall lawyers on June 28 filed a motion asking the court to reconsider the case, arguing the decision by a three-judge panel from the Second District, Division Five Court of Appeals was “erroneous” because it was based on the “omission of issues and facts and mistakes of law and fact.”

The court is expected to rule on the motion within two weeks. If it rejects the motion, the last remaining option for City Hall would be to ask the California Supreme Court to rule on the case.

At issue in the case is whether the 2000 settlement is enforceable under the state law known as the Ellis Act, which forbids cities from compelling land owners to stay in the rental housing business. Embassy sued City Hall in 2008 after its application to remove the 19 units from the rental market was rejected.

In determining the settlement violated the Ellis Act, the appellate court reversed a trial court’s earlier finding in City Hall’s favor.

In its motion for rehearing, lawyers for City Hall argue Embassy is trying to wriggle out of a binding settlement it had willingly entered into to resolve the prior litigation. The appellate court, City Hall attorneys argue, failed to recognize that the settlement should be exempt from Ellis Act requirements under state law.

Also in its motion for rehearing, City Hall lawyers asked that the appellate decision be “depublished” in order to limit its influence on future cases. City Hall argued that the published decision would set a precedent that would “lead to unintended consequences to private agreements between tenants and landlords.”

Tony Oliva, who represented Embassy in the case, said most motions for rehearing are rejected.

“We certainly believe the original decision was proper and that there’s no basis for a rehearing,” he said.

Stephen Lewis, a spokesman for Santa Monica’s rent control agency, didn’t rule out the possibility of asking the state Supreme Court to review the case if the motion for rehearing is unsuccessful.

“The board gave its approval to challenge this decision, and this is the first means by which it’s being challenged,” he said.

The Embassy Hotel and Apartments is located at 1001 Third St.

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