Adams Outdoor Advertising v. City of East Lansing

• Decision Date: 20 November 1998
• Docket Number: Docket No. 200655
• Citation: 591 N.W.2d 404,232 Mich.App. 587
• Parties: ADAMS OUTDOOR ADVERTISING, Plaintiff-Appellee, and Outdoor Advertising Association of Michigan, Amicus Curiae, v. CITY OF EAST LANSING, Defendant-Appellant.
• Court: Court of Appeal of Michigan — District of US

Page 404

591 N.W.2d 404

232 Mich.App. 587

ADAMS OUTDOOR ADVERTISING, Plaintiff-Appellee and Outdoor Advertising Association of Michigan, Amicus Curiae, v. CITY OF EAST LANSING, Defendant-Appellant.

Docket No. 200655.

Court of Appeals of Michigan.

Submitted May 5, 1998, at Grand Rapids.

Decided Nov. 20, 1998, 9:20 a.m.

Released for Publication Feb. 16, 1999.

Fraser Trebilcock Davis & Foster, P.C. (by Michael H. Perry), Lansing, for Adams Outdoor Advertising.

McGinty, Jakubiak, Frankland, Hitch & Henderson, P.C. (by Thomas M. Hitch), East Lansing, for the city of East Lansing.

Bodman, Longley & Dahling LLP (by James J. Walsh), Detroit, amicus curiae for Outdoor Advertising Ass'n of Mich.

Before SAWYER, P.J., and MICHAEL J. KELLY and SMOLENSKI, JJ.

SMOLENSKI, J.

Defendant city of East Lansing appeals as of right a final order granting declaratory and injunctive relief in favor of plaintiff Adams Outdoor Advertising. We affirm in part, reverse in part, and remand.

Adams is a company engaged in the business of owning off-premises billboards ¹ and leasing the space on these billboards for advertising purposes. In East Lansing, Adams has billboards placed at three different locations. Specifically, at 111 North Harrison and 1108 East Grand River, Adams has three and two, respectively, billboards located on building rooftops pursuant to leases. And, on a narrow strip of property owned by Adams at 1502 West Grand River (the Point), Adams has a total of seven sign faces on five freestanding billboards. All the free-standing billboards at the Point measure twelve feet by twenty-five feet (three hundred square feet) except for one "rotary" or "bulletin" billboard, which measures fourteen feet by forty-eight feet.

In 1975, East Lansing adopted a comprehensive sign code. Under the code, Adams' previously lawful rooftop and freestanding billboards became nonconforming. Specifically, Adams' rooftop billboards were prohibited by the code. The seven sign faces at the Point exceeded the number of signs permitted at this location under the code and violated the code's spacing and setback requirements. In addition, the rotary billboard at the Point exceeded the code's height and three hundred square foot maximum display area requirements. Subsection 8.39(8) of the code, as subsequently amended, gave Adams until May 1, 1987, to eliminate its nonconforming signs: ²

8.39 Alterations to Signs. Any existing sign on the effective date of this Chapter or any amendment hereto, which does not at that time comply with all of the provisions hereof, including any amendment:

* * *

(8) Shall not be placed, maintained, or displayed by any person on or after May 1, 1987.

The code did not provide for the payment of any compensation for the removal of Adams' nonconforming billboards.

In early 1987, East Lansing informed Adams that it would be cited for a violation if its nonconforming signs were still in place after the May 1, 1987, deadline. After Adams applied for and was denied a variance by East Lansing's Building Board of Appeals, Adams and others filed suit against East Lansing, seeking declaratory and injunctive relief.

As relevant to this case, Adams contended that subsection 8.39(8) was enacted without statutory authority and constituted a taking without just compensation. The trial court subsequently found that subsection 8.39(8) was enacted without legislative authority and granted Adams' motion for partial summary disposition. This Court affirmed. Adams Outdoor Advertising v. East Lansing, unpublished opinion per curiam, decided April 20, 1990 (Docket Nos. 110816-110818).

In Adams Outdoor Advertising v. East Lansing, 439 Mich. 209, 212, 219, 483 N.W.2d 38 (1992) (Adams I ), our Supreme Court reversed the decision of this Court on the ground that East Lansing had the authority under subsection 4i(5) of the home rule city act, M.C.L. § 117.4i(5); MSA 5.2082(5), ³ to enact its sign code, including subsection 8.39(8). The Court remanded to the trial court to resolve the taking issue.

On remand, the taking issue proceeded to a trial. At the outset of the trial, the court initially ruled that subsection 8.39(8), as applied to Adams' rooftop billboards, constituted a taking because Adams was deprived "of all economically viable use of the property...." ...." The court ruled that it would defer its ruling with respect to Adams' freestanding billboards at the Point until it heard the evidence with respect to the amount of economic loss that Adams would sustain at this location as a result of complying with the sign code.

Although emphasizing that East Lansing had not offered to pay any compensation and that Adams was not seeking any compensation but, rather, was seeking a ruling regarding the enforceability of subsection 8.39(8), Adams offered the testimony of an expert in the appraisal of off-premises billboards for the purpose of establishing the amount of economic loss that it would sustain. Adams' expert testified that he had used the income capitalization method to arrive at an estimated value of each of Adams' three sign locations in East Lansing as of November 1996. With respect to the Point, the expert testified that he estimated that the present gross income for the seven sign faces at the Point was approximately $64,500, with a significant portion of this figure (approximately $33,000) attributable to the income produced by the rotary billboard. The expert testified that he understood that under the code Adams would still be permitted to maintain four sign faces at the Point. The expert testified that in going from seven sign faces to four sign faces Adams would lose approximately $44,500 in gross income, which, after applying a 32.6 percent expense ratio (approximately $14,500 in estimated expenses), yielded a loss of $30,000 in net income. The expert testified that $30,000 net income capitalized at a ten percent rate of return yielded an estimated loss at the Point of $300,000. The expert testified that he estimated that the value of the losses that Adams would incur at 111 North Harrison and 1108 East Grand River was $57,500 and $55,000 respectively.

Following the proofs, the court ruled that subsection 8.39(8), as applied to the billboards located at the Point, constituted a taking. Reducing the capitalization rate from ten percent to seven percent, ⁴ the court determined that the loss to Adams at the Point, 111 North Harrison, and 1108 East Grand River was $200,000, $40,250, and $38,500, respectively. The court subsequently entered a final order (1) declaring that subsection 8.39(8), as applied to Adams' billboards, constituted a taking of Adams' property without just compensation in violation of the United States and Michigan Constitutions, and (2) permanently enjoining East Lansing from enforcing subsection 8.39(8) against Adams. East Lansing appeals as of right from this order.

On appeal, East Lansing raises numerous grounds in support of its contention that the trial court erred in determining that subsection 8.39(8), as applied to Adams' billboards, constitutes a taking. Specifically, East Lansing argues that no taking has occurred because the billboards are personal property and the United States Supreme Court has recognized that "in the case of personal property, by reason of the State's traditionally high degree of control over commercial dealings, [an owner] ought to be aware of the possibility that new regulation might even render his property economically worthless...." Lucas v. South Carolina Coastal Council, 505 U.S. 1003, 1027-1028, 112 S.Ct. 2886, 120 L.Ed.2d 798 (1992). This argument demonstrates the importance of precisely identifying the property interest claimed to have been taken.

In In re Acquisition of Billboard Leases & Easements, 205 Mich.App. 659, 661, 517 N.W.2d 872 (1994), governmental entities had condemned not only billboards but also leaseholds on which the billboards were located. The issue on appeal to this Court was the determination of just compensation for these property interests. Id. With respect to the condemned billboards, there was no dispute that just compensation was owed for their full value, and the parties apparently agreed that "this can be determined by estimating the cost of the billboards as 'new less depreciation.' " Id. at 661, n. 1, 517 N.W.2d 872. With respect to the leaseholds on which the billboards were located, this Court recognized that "[r]egardless of whether a billboard is classified as personal property or a fixture, the leaseholds and air rights that were taken from defendants are real property. This Court has previously held that income capitalization is a proper method of estimating the value of income-producing real property." Id. at 662, 517 N.W.2d 872.

In Adams' trial brief in this case, Adams specifically relied on Acquisition of Leases for its assertions that the billboards were income-producing real property and that the income capitalization method was the proper method for determining the value of this property. At the outset of the trial, the court ruled as follows:

The Court finds no merit to Defendant's assertion that there is no right to compensation for leasehold interests such as those possessed by Adams Outdoor Advertising....

As to the proper method of calculating the amount of compensation, the Court finds that the income capitalization method, that is the present value [sic] the future cash flows, is the proper method to be employed.

In light of these rulings and this Court's decision in Acquisition of Leases, supra, Adams then successfully moved to have excluded from evidence exhibits pertaining to the cost and depreciation of the billboards, which, we note, would be relevant in establishing the value of the billboards themselves. See Acquisition of Leases, supra at 661, n. 1, 517 N.W.2d 872.

Thus, despite whatever imprecise characterizations have been used in this case, i.e., that the property taken by ...