New Court of Appeal Opinion Concerning Sign Rights Highlights Need for Diligence on the Part of Billboard Companies

November 18, 2012

By Matthew Hinks

The billboard wars rage on. In the latest battle, the court in West Washington Properties, LLC v. California Department of Transportation narrowly interpreted a provision of the Outdoor Advertising Act ("OAA"), which provides a rebuttable presumption of legality to advertising displays erected for more than five years without Caltrans enforcement, rejected equitable defenses and dismissed at the pleading stage plaintiff's inverse condemnation claims. The opinion should be a wake up call for companies engaged in or considering transactions involving the transfer of sign rights.

The OAA requires billboard companies to obtain a permit from the director of Caltrans before erecting an advertising display within 660 feet of an interstate as primary highway. In 1999, West Washington Properties, LLC ("West Washington") purchased a building in Los Angeles. A "wallscape," originally erected in 1984 in connection with the Olympic Games, was located on the side of the building. Prior to purchasing the building, West Washington located a permit issued by the City of Los Angeles for the wallscape, but did not search for a Caltrans permit even though the display was visible from the 10 Freeway.

The wallscape proved to be very valuable -- perhaps even more valuable than the building itself. West Washington asserted that the display was a "significant motivation" for its purchase of the building. It contended that it had received and rejected offers in the "millions of dollars" for the sale of the display. An agreement by West Washington to temporarily reduce the size of the sign was alleged to have cost West Washington $50,000 per month. The "capitalized future value of the gross revenue (net of agency commissions) generated by the wallscape" was said to be $12,000,000.

In 2006, Caltrans issued a Notice of Violation ("NOV") in respect to the wallscape given the lack of a permit and also because it was too large per the OAA. West Washington challenged the validity of the NOV in administrative proceedings and in a subsequent writ of administrative mandamus action in the superior court, and was unsuccessful both times. An appeal followed.

West Washington's chief argument on appeal was that the wallscape must be considered lawful under Section 5216.1 of the OAA given the length of time the display had remained without objection from Caltrans. Section 5216.1 provides:

"Lawfully erected" means, in reference to advertising displays, advertising displays which were erected in compliance with state laws and local ordinances in effect at the time of their erection or which were subsequently brought into full compliance with state laws and local ordinances...

Further:

There shall be a rebuttable presumption pursuant to Section 606 of the Evidence Code that an advertising display is lawfully erected if it has been in existence for a period of five years or longer without the owner having received written notice during that period from a governmental entity stating that the display was not lawfully erected.

West Washington argued that the presumption afforded by Section 5216.1 could not be rebutted simply by proving the lack of a permit, but only by providing a reason for its non-enforcement. The court rejected the argument.

The court noted that the presumption supplied by Section 5216.1 was rebuttable and merely serves to shift the burden of proof to Caltrans to establish unlawful erection. "It neither renders a display lawful as a matter of law, nor estops Caltrans from proving the display was not lawfully erected." West Washington had stipulated in the administrative proceedings, among other things, that "no one had ever applied for a permit for the wallscape." This, the court found, was substantial evidence of unlawful erection effectively rebutting the presumption provided by Section 5216.1.

The court also rejected West Washington's estoppel and laches defenses. Government inaction, according to the court, rarely forms a proper basis to estop the government from enforcing a law intended to benefit the public. Thus, the mere failure to enforce the law, without more will not estop the government from subsequently enforcing it. Similarly, laches will not apply when its application would nullify an important policy adopted for the public benefit.

Finally, the court also rejected West Washington's inverse condemnation argument. Citing to nuisance principles, the court determined that, since the sign was not lawfully erected in the first place, West Washington could not claim a protectable property interest in the sign. Thus, Caltrans' enforcement of the OAA was not an unlawful deprivation of a property right, but an authorized exercise of its police power. The inverse condemnation claim therefore failed.

The West Washington case highlights the competing forces at play in billboard and other sign-related cases. Outdoor advertising is subject to a host of regulations and sometimes from multiple overlapping agencies. Nevertheless, outdoor signage with off-site advertising rights can be extremely valuable. Diligence is the order of the day in any deal involving a transfer of sign rights or real property transactions of which sign rights are a part.

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Matthew Hinks is a litigator with a wide-ranging practice that focuses primarily on the representation of real estate developers in difficult land use cases. Matt has extensive experience litigating complex mandamus actions and other claims involving signage disputes, governmental takings, CEQA challenges, planning and zoning law, civil rights violations, eminent domain issues, title disputes, lease disputes and community redevelopment and density bonus law. He has extensive experience in both federal and state courts, including trial courts and courts of appeal, as well as in arbitration, mediation and administrative settings. Contact Matt at MHinks@jmbm.com or 310.201.3558.