I have been told that he had a terrible time with some major law suit and perhaps this has been one of the reasons his tenure as Arch-bishop has been rocky. Some of us back here in Michigan have been wondering if Bishop Vignoran will be tapped as his replacement.
I going to go out on a limb and take a guess that maybe, just maybe there's things we don't know. I get the idea that BXVI is the sort that would keep friends close and enemies closer. That could be a motivation. It could be that Levada showed promise at some point and was practically hamstrung under Mahoney's metropolitan. That might be closer to the mark. But as well as BXVI knows the bishops over here, and everywhere else for that matter, he's not going to pick someone just for the sake of picking someone and I doubt he would be afraid to replace that person somewhere down the road if the appointment turned out to be a mistake.
Yes, I recall that there was some kind of lawsuit there - but basically, I think the sharks in SF just ate him alive. Another unfortunate thing was that the Jesuit leadership changed during his tenure (this was not his responsibility, of course). The Jesuits have always been very influential in SF, but the few Jesuits who might have provided some support and encouragement to Levada, such as Fr. Buckley and Fr. Fessio, were basically kicked out of their positions and even out of the diocese.