Adams Outdoor Advertising v. City of East Lansing

• Decision Date: 26 July 2000
• Docket Number: Docket No. 113674, Calendar No. 6.
• Parties: ADAMS OUTDOOR ADVERTISING, Plaintiff-Appellee, v. CITY OF EAST LANSING, Defendant-Appellant.
• Court: Michigan Supreme Court

614 N.W.2d 634

463 Mich. 17

ADAMS OUTDOOR ADVERTISING, Plaintiff-Appellee, v. CITY OF EAST LANSING, Defendant-Appellant.

Docket No. 113674, Calendar No. 6.

Supreme Court of Michigan.

Argued April 5, 2000.

Decided July 26, 2000.

Fraser, Trebilcock, Davis & Foster, P.C. (by Michael H. Perry), Lansing, for plaintiff-appellee.

McGinty, Jakubiak, Frankland & Hitch, P.C. (by Thomas M. Hitch and Dennis E. McGinty) East Lansing, for defendant-appellant.

Jennifer M. Granholm, Attorney General, Thomas L. Casey, Solicitor General, A. Michael Leffler, Assistant Attorney General in Charge, and S. Peter Manning, Assistant Attorney General, Lansing, amici curiae for the Attorney General.

Bodman, Longley & Dahling, L.L.P. (by James J. Walsh), Ann Arbor, amicus curiae for Michigan Chamber of Commerce and Outdoor Advertising Association of Michigan.

Secrest, Wardle, Lynch, Hampton, Truex & Morley (by Gerald A. Fisher and

Thomas R. Schultz), Farmington Hills, amici curiae for Michigan Municipal League.

McClelland & Anderson, L.L.P. (by Gregory L. McClelland, Kelly A. Myers, and Marc D. Matlock), Lansing, amici curiae for Small Business Association of Michigan.

Plunkett & Cooney, P.C. (by Mary Massaron Ross), Detroit, amici curiae for American Planning Association.

John F. Rohe, Petoskey, and John T. Bagg, Salem, OR and John D. Echeverria, Washington, D.C., of counsel, amici curiae for Scenic America and Scenic Michigan.

AFTER REMAND

Opinion

TAYLOR, J.

At issue is whether application of East Lansing's sign code to Adams Outdoor Advertising's rooftop signs effects a taking. The trial court and Court of Appeals concluded that the code resulted in a taking with respect to Adams' rooftop signs. We reverse.

In 1975, East Lansing adopted its current sign code. As pertinent to this appeal, the code prohibited rooftop signs. Subsection 8.38(12). The code's amortization provision required removal of nonconforming signs by May 1, 1987. Subsection 8.39(8).

Adams acquired Central Advertising in 1983. It renewed the leases associated with the off-premises rooftop signs at issue several times after the enactment of the 1975 sign code, most recently in 1993 and 1996.

Adams and other entities (who had nonconforming on-premises signs) sued East Lansing for relief from denial of their requests for variances from the sign code. The trial court granted plaintiff's motion for summary disposition on the basis that East Lansing lacked statutory authority for the code's amortization provision. The Court of Appeals affirmed. Unpublished opinion per curiam, issued April 20, 1990 (Docket No. 110816). This Court reversed, holding that East Lansing has authority under the home rule act to regulate signs, including eliminating nonconforming signs through the use of an amortization provision. 439 Mich. 209, 219, 483 N.W.2d 38 (1992) (Adams I). We remanded this matter to the trial court to determine whether application of the code to the signs at issue effected a taking.

On remand, the trial court concluded that application of the sign code to Adams' rooftop signs and to certain of its freestanding signs effected a taking.¹ The Court of Appeals affirmed regarding the rooftop signs, but reversed and remanded regarding the freestanding signs. 232 Mich.App. 587, 591 N.W.2d 404 (1998). This appeal relates only to the application of the sign code to the rooftop signs.

In Adams I, this Court concluded:

We are simply holding that the amortization provision of the East Lansing sign code is a police power ordinance, properly enacted under M.C.L.§ 117.4i(5); MSA 5.2082(5), that enables cities the authority to regulate signs and billboards in the interest of the health, safety, and welfare of the community and to promote the aesthetic value of the city. [439 Mich. at 218, n. 14, 483 N.W.2d 38.]

It is therefore established that the code is a legitimate exercise of East Lansing's police power. The only question is whether this regulation goes so far as to result in a taking.² U.S. Const., Am. V and Const. 1963, art. 10, § 2 prohibit the taking of private property for public use without just compensation. Drawing on United States Supreme Court precedent, this Court recently reiterated the appropriate analyses for determining whether a taking has occurred in K & K Construction, Inc. v. Dep't of Natural Resources, 456 Mich. 570, 575 N.W.2d 531 (1998). The K & K Court noted that land use regulations effect a taking in two general situations: when they do not substantially advance a legitimate state interest or when they deny an owner "economically viable use of his land." Id. at 576, 575 N.W.2d 531. It then differentiated the second type of taking further at 576-577, 575 N.W.2d 531:

The second type of taking, where the regulation denies an owner of economically viable use of land, is further subdivided into two situations: (a) a "categorical" taking, where the owner is deprived of "all economically beneficial or productive use of land," Lucas v. South Carolina Coastal Council, 505 U.S. 1003, 1015, 112 S.Ct. 2886, 120 L.Ed.2d 798 (1992); or (b) a taking recognized on the basis of the application of the traditional "balancing test" established in Penn Central Transportation Co. v. New York City, 438 U.S. 104, 98 S.Ct. 2646, 57 L.Ed.2d 631 (1978).

It defined categorical takings at 577, 575 N.W.2d 531:

In the former situation, the categorical taking, a reviewing court need not apply a case-specific analysis, and the owner should automatically recover for a taking of his property. Lucas, supra at 1015, 112 S.Ct. 2886. A person may recover for this type of taking in the case of a physical invasion of his property by the government (not at issue in this case), or where a regulation forces an owner to "sacrifice all economically beneficial uses [of his land] in the name of the common good...." Id. at 1019, 112 S.Ct. 2886 (emphasis in original).

Next, it explained the balancing test analysis at 577, 575 N.W.2d 531:

In the latter situation, the balancing test, a reviewing court must engage in an "ad hoc, factual inquir[y]," centering on three factors: (1) the character of the government's action, (2) the economic effect of the regulation on the property, and (3) the extent by which the regulation has interfered with distinct, investment-backed expectations. Penn Central, 438 U.S. at 124, 98 S.Ct. 2646.

However, before we apply these tests, there is a preliminary question: does the claimant possess the interest that he alleges is being taken by the regulation? Here, the Court of Appeals clarified that Adams' theory at trial was that the sign code effected a taking of its real property interests in the rooftop leaseholds. 232 Mich.App. at 596, 591 N.W.2d 404. As a lessee, Adams' property interest rights are limited to the rights possessed by the lessors, i.e., the owners of the buildings who leased the two rooftop sites at issue to Adams.³ It is fundamental property law that a lessor can transfer no greater rights than he possesses. See, e.g., McMillan v. Mich. S. & N.I.R. Co., 16 Mich. 79 (1867). Here, the lessors never had an absolute right to display signs on the rooftops of their buildings. They had no right to prevent the imposition of regulations that represented reasonable exercises of the police power and that did not effect a taking.⁴ Thus, they could not convey to Adams an absolute right to display signs on the leased rooftops because they never possessed such a right in the first place. Accordingly, even before enactment of the sign code, the leases at issue did not include an absolute right to display signs on the rooftops. At most, the leases included a right to display signs on the rooftops subject to reasonable police power regulations that did not effect a taking of the lessors' interests.

A property owner cannot determine the efficacy of a regulation by the manner in which he structures leases of his property. For example, a property owner, with respect to whom a particular regulation would not constitute a taking, cannot transform such regulation into a taking simply by transferring a narrow parcel or interest in his property to a lessee.⁵ Under the constitution, we do not believe that a property owner, confronted with an imminent property regulation, can nullify such a legitimate exercise of the police power by leasing narrow parcels or interests in his property so that the regulation could be characterized as a taking only because of its disproportionate effect on the narrow parcel or interest leased.

Here, East Lansing enacted a sign code in 1975. As noted above, this Court has previously concluded that the code represents a valid exercise of East Lansing's Police power. 439 Mich. at 218, n. 14, 483 N.W.2d 38. The code's provision prohibiting rooftop signs only removes one "stick" from the lessors' total "bundle" of rights in their property because the vast majority of the lessors' property is unaffected by this provision. Because this provision does not deprive the lessors of "all economically beneficial or productive use of land," it would not effect a categorical taking of the lessors' interests. Nor would it effect a taking under the three-part balancing test. Regarding factor 1 (the character of the government's action), this Court has concluded that the code is a reasonable police power regulation. Regarding factor 2 (the economic effect of the regulation on the property), any economic effect would be limited because the rooftop is only a small portion of the lessors' property. Regarding factor 3 (interference with investment-backed expectations), any interference would be limited because the rooftop is only a small portion of the lessors' property and because they never had an absolute right to display signs on the rooftop. For these reasons, the provision of the code prohibiting rooftop signs would not effect a taking of the lessors' interests under either the categorical test or the balancing test.⁶ Thus, the lessors would...