Turn Out the Lights: New Court of Appeal Opinion Invalidates Settlement Agreement Allowing for Digital Conversion of Billboards

December 14, 2012

By Matthew Hinks

For those of us involved or merely interested in the seemingly endless spate of sign-related litigation, the Court of Appeal's opinion in Summit Media LLC v. City of Los Angeles has been long anticipated. The Summit case was unlike many of the sign cases winding their way through California's state and federal courts, which have largely involved constitutional challenges to various sign-related laws and actions or enforcement actions by local municipalities against non-complying signs. Summit involved litigation between sign companies -- including two of the largest sign companies in the country. The court of appeal's opinion in the Summit case, which holds that a city may not enter into a settlement agreement allowing for digital billboards when they are expressly prohibited by ordinance, is a stunning defeat for those two particular companies, but surely will not be the last we hear of digital sign conversions in the City of Los Angeles.

Complex Procedural Background

The procedural history leading to the court's opinion was long and complicated. In 2000, the City of Los Angeles passed a temporary prohibition on new off-site signs (i.e., outdoor advertising signs such as billboards), made permanent by a general ban on new off-site signs throughout the City in 2002. The 2002 sign ban also included a prohibition on "alterations or enlargements of legally existing off-site signs." Also in 2002, the City passed new ordinances establishing an off-site sign inspection program and annual inspection fee.

In October 2002, Vista Media Group, another outdoor sign company, filed suit in Los Angeles Superior Court seeking to invalidate the sign inspection program and fee and reached a settlement with the City two years later, which Vista moved to have incorporated into a stipulated judgment. Two prominent sign companies, CBS Outdoor, Inc. and Clear Channel Outdoor, Inc., which had previously intervened in the action, objected to the Vista settlement alleging it was "ultra vires and void" because the City was allegedly "contracting away its police power by creating a reduced inspection fee schedule and enforcement program applying only to Vista". The trial court (Judge Dau) eventually entered a revised stipulated judgment.

Subsequently, CBS and Clear Channel entered into a settlement of their own with the City in the Vista action. That agreement is the subject of the Summit court's opinion and provided CBS and Clear Channel with enormous concessions. Among other things, the agreement granted CBS and Clear Channel an exemption from the 2002 sign ban, the off-site sign inspection program and numerous other zoning and building laws regulating off-site signs in the City. It allowed CBS and Clear Channel to maintain all of their pre-1986 off-site signs regardless of whether they were lawfully erected, ever permitted or comply with present or future building ordinances. It permitted CBS and Clear Channel to add 200 new off-site signs to their existing sign structures. And, perhaps most significantly, required the City to issue new permits to allow CBS and Clear Channel to convert up to 840 of their post-1986 off-site signs to very lucrative digital displays.

Shortly after executing the settlement agreement, CBS and Clear Channel began converting many of their existing billboards to digital. Like the Vista settlement, the CBS/Clear Channel settlement agreement was also reduced to a stipulated judgment, also entered by Judge Dau. Upon learning of the stipulated judgment and settlement, yet another outdoor advertising company, Summit Media LLC, filed suit seeking to invalidate it and all permits that have been issued to date pursuant to the agreement. Judge Green ultimately ruled that the settlement agreement was illegal and therefore void, but refused to invalidate permits, holding that matters respecting the permits should be decided through individualized administrative proceedings.

Court of Appeal Opinion

The court of appeal upheld Judge Green's decision as to the illegality of the settlement agreement but went even further and directed Judge Green to invalidate the previously-issued permits. Initially, the court dismissed certain procedural arguments raised by CBS and Clear Channel urging that the stipulated judgment entered by Judge Dau prevented a separate attack on the settlement agreement and that Summit was required and failed to exhaust administrative remedies prior to filing suit.

As to the merits of the settlement agreement, the court had little trouble concluding that the settlement agreement allowed the City, CBS and Clear Channel to circumvent the Los Angeles Municipal Code's signage regulations in several respects, and that the agreement was ultra vires because it amounted to the City "contract[ing] away its rights to exercise [its] police power". The City was without power, the court held, to enter into a settlement agreement giving the settling parties an exemption from ordinances currently in effect. The settlement agreement did just that, according to the court, which determined that the municipal code's ban on "alterations or enlargements of legally existing off-site signs" prevented them from being digitized. Thus, the court determined, Judge Green correctly voided the entire settlement agreement.

The court, however, disagreed with the portion of Judge Green's decision refusing to revoke existing permits. The court rejected CBS and Clear Channel's argument that they should be afforded individualized opportunities to make showings in an administrative setting that the City should be equitably estopped to require removal of the digital signs. Digital conversions, the court reasoned, were "unambiguously prohibited by the municipal code at the time of the settlement agreement". Accordingly, the court held, no estoppel argument could be sustained in these circumstances.

Consequences of Decision

The consequences of the court's opinion in Summit are enormous. Once the opinion becomes final, Judge Green is directed to amend his order on Summit Media's petition for writ of mandate so that it invalidates all digital conversion permits previously issued by the City to CBS and Clear Channel. One should not, however, expect those digital signs currently in place to go dark anytime soon. Those signs are far too valuable for CBS and Clear Channel to accept the consequences of the Summit decision and remove the signs without further fight. A Petition for Review to the California Supreme Court seems inevitable. So too does further political jockeying with the City Council.

And what if CBS and Clear Channel are ultimately forced to relent and take down their digitized signs? Further litigation between those parties and the City of Los Angeles will surely follow. The final chapter in this lengthy saga has not yet been written.
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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