City of Scottsdale v. Eller Outdoor Advertising Co. of Ariz., Inc.

• Decision Date: 04 May 1978
• Docket Number: No. 1,CA-CIV,1
• Parties: CITY OF SCOTTSDALE, a Municipal Corporation, Appellant, v. ELLER OUTDOOR ADVERTISING COMPANY OF ARIZONA, INC., Appellee. 3084.
• Court: Arizona Court of Appeals

Page 590

579 P.2d 590

119 Ariz. 86

CITY OF SCOTTSDALE, a Municipal Corporation, Appellant, v. ELLER OUTDOOR ADVERTISING COMPANY OF ARIZONA, INC., Appellee.

No. 1 CA-CIV 3084.

Court of Appeals of Arizona,Division 1,Department B.

May 4, 1978.

Patrick E. Burke, Asst. City Atty., Richard R. Filler, Scottsdale City Atty., Scottsdale, for appellant.

Snell & Wilmer by Guy G. Gelbron, Ted J. Thayer, Charles K. Ayers, Phoenix, for appellee.

OPINION

JACOBSON, Judge.

This appeal calls into question the type of damages recoverable for the removal of outdoor advertising signs and the proper methodology for ascertaining those damages under the Uniform Relocation Assistance and Real Property Acquisition Policies Act of 1970, 42 U.S.C. § 4601, et seq.

This action was instituted by the appellant, City of Scottsdale, a municipal corporation (Scottsdale), seeking to determine the amount of damages to be paid appellee, Eller Outdoor Advertising Company of Arizona (Eller), caused by the forced removal of six outdoor advertising poster panels (billboards) from property acquired by Scottsdale for urban renewal purposes. The jury returned a verdict awarding Eller the sum of $15,600 as damages for the taking and $31,400 for "severance" damages. Scottsdale has appealed.

In order to adequately understand the procedural posture of the present litigation it is necessary to refer to a prior lawsuit between Eller and Scottsdale. In 1971, as part of a federally funded redevelopment program, Scottsdale acquired the real property upon which Eller had erected six billboards pursuant to a lease with the prior owner.

Eller's lease provided that ". . . in the event the property is sold . . . you (Eller) will remove your signs upon thirty days written notice from me, accompanied by unearned rental." The original term of the lease was for three years but at the time of the acquisition by Scottsdale, the term had been reduced to a year to year tenancy. Pursuant to the lease, Scottsdale notified Eller to remove its billboards. Eller refused. After extended negotiations, Eller instituted an action in Maricopa County Superior Court, ¹ seeking to enjoin Scottsdale from removing Eller's billboards or interfering with its occupancy of the property. This suit alleged that Scottsdale's attempt to remove the billboards without payment of just compensation violated the Uniform Relocation Assistance and Real Property Acquisition Policies Act of 1970, 42 U.S.C. § 4601, et seq. (1970).

This prior action was tried to the court, without a jury, and upon findings of fact and conclusions of law, Scottsdale was enjoined from removing Eller's property without payment of compensation. Among the conclusions of law pertinent here, the court found:

"2. That the Uniform Relocation Assistance & Real Property Acquisition Policies Act of 1970 (citation omitted) is applicable to the defendant CITY OF SCOTTSDALE by virtue of defendant's compliance assurances contained in its City Council Resolution No. 868.

"4. That Section 302 of the (Uniform Act) provides that defendant CITY OF SCOTTSDALE since it purchased the property and required removal of plaintiff's outdoor advertising structure, must also acquire plaintiff's structure, notwithstanding the right or obligation of plaintiff to remove its structure at the expiration of its term, and in acquiring the structure must pay to plaintiff either the fair market value of the structure or the fair market value which said structure contributes to the fair market value of the real property, whichever is the greater.

"5. That Section 302 of the (Uniform Act) provides that plaintiff's outdoor advertising structures shall be deemed to be a part of the real property to be acquired and hence requires defendant CITY OF SCOTTSDALE to comply to the greatest extent practicable under state law, with the acquisition practices and policies set forth in Sections 301(1) through 301(9) (of the Uniform Act).

"8. That plaintiff ELLER OUTDOOR ADVERTISING COMPANY OF ARIZONA is entitled to possession of the property until defendant CITY OF SCOTTSDALE pays the agreed purchase price for the structures or deposits with the proper court, for the benefit of the plaintiff, an amount not less than the defendant's approved appraisal of the fair market value of the outdoor advertising structure or the amount of the award of compensation in the condemnation proceeding for such structure."

No appeal was taken from this judgment and it became final. On November 21, 1973, Scottsdale filed this action as a "complaint in condemnation," seeking the immediate possession of the billboards and their removal, an order determining the amount of compensation to be paid to Eller, and a determination of the reasonable rental of the property to be paid by Eller and to be used as a setoff against compensation. The billboards in question were located within the city limits of Scottsdale on the south side of McDowell Road, one of the primary east-west streets between Phoenix and Scottsdale. Prior to the taking of the six billboards (the parties stipulated that November 21, 1973 was the date of taking and valuation date) Eller owned a total of thirty-three billboards in Scottsdale. A Scottsdale ordinance prohibits the erection of new outdoor advertising structures such as the ones in question. This ordinance provides, however, that existing billboards are valid non-conforming uses, but once removed or destroyed, cannot be replaced within Scottsdale city limits.

Eller's billboards are not utilized singularly by advertisers, but are utilized as part of "showings" whereby the same advertisement is displayed at the same time on a number of billboards at various locations throughout the greater Phoenix metropolitan area, including Scottsdale. Each billboard in the Eller system is assigned a Daily Effective Circulation factor (D.E.C.) which is simply a determination, based upon traffic patterns, as to the average number of persons who can be expected to see the particular billboard within a specific time frame. Based upon this factor, Eller is able to assure a potential advertiser that a certain percentage of the population in a given market area will see the ad. This is expressed as a designated number showing. Thus, a number 25 showing means that a particular ad placed on certain billboards at various locations in the market area will be seen by approximately 25% of the total market population during a specified time.

At the time of trial, the primary opinion evidence concerning the fair market value of the billboards taken was offered by two experts one employed by Scottsdale and one employed by Eller. Eller's expert developed a method of appraisal which he called a market-income approach to value. He first determined that billboards did not normally sell individually or in groups as small as six, and therefore, there was no comparable sales data. He did determine, however, that there had been 13 sales of entire outdoor advertising systems. (In all of these sales, Combined Communications Company, Eller's parent company, was the purchaser.) He determined that four of these were comparable to Eller's greater metropolitan Phoenix area operation. ² He then took the sales price of these systems (which price included items other than billboards, such as buildings, rolling stock inventories, etc.) and divided that by the net income (gross income less agency commissions and discounts) of these companies to arrive at what the expert designated as a "net income multiplier," that is, the relationship between income and market value. ³

Taking the average net income multiplier of the four comparable sales, he determined that the fair market value of a billboard was 2.16 times the income generated by that billboard. The expert then determined that a No. 25 showing was the common denominator for the sale of outdoor advertising by Eller in the Phoenix metropolitan area. Based upon Eller's income figures, he then determined that Eller received an average of $15,671 for each No. 25 showing. Using the D.E.C. factor for the particular billboards in question, he determined that each illuminated poster panel (four involved here) contributed to 81/2 percent of the total average income for a No. 25 showing. Thus, each illuminated panel generated $1,332 in income. Multiplying this figure by the net income multiplier (2.16) he determined that each poster panel had a fair market value of $2,877. The same procedure was utilized on the two unilluminated panels, arriving at a fair market value of $2,030 per panel. His opinion as to the total fair market value of the six poster panels taken was $15,600.

Eller objected to the opinion of Scottsdale's expert, a real estate appraiser, on the grounds that his opinion concerning the depreciated reproduction costs of the structures was based upon hearsay. Because he was unfamiliar with the reproduction costs of billboards, Scottsdale's expert had contacted a specialist in sign appraisals. This individual supplied the expert with a schedule developed by auditors for both state and federal agencies and billboard companies dealing with the cost of materials involved in billboard structures. The expert then personally reviewed the audit procedures utilized in determining that the schedule represented costs formulas for standard poster panels. In this expert's opinion, these schedules were more reasonable than the actual cost of production.

The trial court sustained Eller's objection and Scottsdale's expert was not allowed to give his opinion as to the fair market value based upon reproduction cost less depreciation. Consequently, the trial court granted a directed verdict for $15,600 as the fair market value of the billboards the valuation presented by Eller's expert.

Eller's expert, over objection, was also allowed to testify as to the "severance" damages suffered by Eller as the result of the loss of these six poster panels. The basis of the "sever...