SAN FRANCISCO — A U.S. Supreme Court decision barring racial discrimination by private schools and the federal status of Hawaiians as a racial group, not a political entity, emerged yesterday as issues facing a federal appeals court deciding the fate of Kamehameha Schools' admissions policy.

Fifteen members of the 9th U.S. Circuit Court of Appeals yesterday heard arguments on whether the charitable trust's admissions policy that grants preference to Hawaiian applicants violates federal civil rights laws.

At least two of the appeals court judges appeared sympathetic to the school's mission.

Yesterday's hearing followed a 2-1 ruling in August by a panel of the court that threw out the school's practice.

During oral arguments, Appeals Judge Diarmuid O'Scannlian said, "I'm sympathetic to the goals of the trust, but I'm stuck on Runyon," referring to Runyon v. McCrary, a 1976 U.S. Supreme Court decision that said excluding blacks from private school violated civil rights law.

Another judge wondered whether Kamehameha Schools was trying to convince the court that its policy was justified even though Hawaiians had not yet been found by Congress to be a political entity.

"I think you are trying to get us to pass the Akaka bill after the Senate defeated it," appeals Judge Andrew Kleinfeld told the school's lawyer.

The panel grilled the lawyers for both sides for a little more than an hour, and then adjourned, as is customary. A ruling could take months.

The hearing drew an overflow crowd of more than 90 to the main courtroom. About the same number heard the arguments in another courtroom, among them more than 15 Kamehameha Schools supporters who live in the San Francisco area.

Also attending were the five Kamehameha Schools trustees, chief executive officer Dee Jay Mailer and President Mike Chun.

Robert Kihune, chairman of the trustees, thanked the supporters after the hearing, saying it was "a very historic day for us and a very, very significant milestone."

At stake is the school's admissions policy, which supporters say lies at the heart of the $6 billion charitable trust that gives preference to applicants with Hawaiian blood. But the lawyer challenging the policy calls it an "absolute bar" that excludes anyone who isn't Hawaiian.

While lawyers Kathleen Sullivan for Kamehameha Schools and Sacramento, Calif., attorney Eric Grant each expressed hope that their side would prevail, it was far from clear during the hearing which way the court will rule.

After the three-member panel of the court ruled the school's policy violated federal law, the court withdrew the decision and granted a re-hearing of the case before the 15 judges, 14 of whom were present at the hearing. The 15th participated through a telephone hookup.

Grant and Honolulu attorney John Goemans, who also was present, represent an unnamed non-Hawaiian teenager who sued the schools three years ago.

Grant told the judges they faced the "stark choice" of upholding a "racially segregated" school under the nation's oldest civil rights law first adopted in 1866.

Sullivan countered that the law, passed to protect newly freed slaves, does not apply to the school's unique circumstances. It was established in 1887 under the will of Princess Bernice Pauahi Bishop to help Hawaiians while Hawai'i was still a kingdom.

Several judges questioned whether the school falls under the 1866 civil rights law that bars discrimination in private contracts. They noted that the school's students might be considered beneficiaries of the princess's will, a point that could distinguish it from the private school in the Runyon case.

"This is not a for-profit enterprise," Chief Appeals Judge Mary Schroeder said.

Another judge, Alex Kolinsky, reinforced that point. "This is not a commercial enterprise," he said.

But another judge pointed to the difficulty in upholding the policy.

"Kamehameha is a wonderful school and Runyon is the law of the United States," Kleinfeld said.

He wondered whether there was any way the court could rule on preliminary issues rather than decide whether the school's policy violates federal law.

Sullivan and Grant agreed that the court must face the issue head-on.

Both sides were confident that they presented their arguments clearly enough to give each side hope.

And both sides said they would appeal to the U.S. Supreme Court if they don't win.

"I thought it went well," Grant said. "I think it's fair to say the court is divided. It will probably be a close case either way."

Grant said the issue of whether the admissions policy could be considered a contract under the civil rights law was a "relatively new" point raised during the hearing. But he said he believes the court will resolve the issue in his favor.

Grant's client and his mother did not show up at the hearing and remain anonymous. Although the teenager lost his bid for a court order to be enrolled at the school and graduated from a public high school in June, Grant said his clients are still seeking an undetermined amount of money damages, a request that he contended keeps the case alive.

Sullivan, a former dean of Stanford Law School, said she detected one theme from the judges:

"The one trend we could distill is that all the judges think Kamehameha Schools is a wonderful institution that does great work for the Hawaiian people," she said. "Their question will be how to rule on the legality."

Sullivan said the school provided many reasons to uphold the policy — the school is a gift under a will, it is a private charitable institution that doesn't get any government money and the school's policy is remedial for Hawaiians.

Douglas Ing, a Kamehameha Schools trustee, said the past week and listening to the arguments has been very emotional as well as "very difficult" because the court is looking at the case "through a lens that was not intended at the time."

"For us, it's such a huge issue," he said. "The preference policy is needed by the schools in order to pursue our vision."

Bill Fernandez, a 1949 Kamehameha graduate and a retired Santa Clara Superior Court judge, also saw sympathy from the judges for Kamehameha Schools.

"Their problem is trying to find the correct legal path," he said.

The two stumbling blocks, he said, are the U.S. Supreme Court's Runyon case and the lack of recognition (of Hawaiians) by the U.S. Supreme Court. The relevant ruling is the Rice v. Cayetano case, which led to the push for the Native Hawaiian recognition bill.

"The Native Hawaiians are at the bottom of the socio-economic indicators in Hawai'i," she said. "The school is really important to help them become successful."

Kihune also applauded Sullivan for her arguments yesterday.

"Now, we just have to wait and pray that we have the right decision," he told supporters.