Contest Promotions, LLC v. City & Cnty. of S.F.

• Decision Date: 22 April 2015
• Docket Number: Case No. 15–cv–00093–SI
• Parties: Contest Promotions, LLC, Plaintiff, v. City and County of San Francisco, Defendant.
• Court: U.S. District Court — Northern District of California

100 F.Supp.3d 835

Contest Promotions, LLC, Plaintiff

v.City and County of San Francisco, Defendant.

Case No. 15–cv–00093–SI

United States District Court, N.D. California.

Signed April 22, 2015

Matthew David Hinks, Talya Goldfinger, Jeffer Mangels Butler and Mitchell LLP, Los Angeles, CA, for Plaintiff.

James Moxon Emery, City Attorney's Office, Thomas Spencer Lakritz, Office of the City Attorney, San Francisco, CA, for Defendant.

ORDER GRANTING IN PART DEFENDANT'S MOTION TO DISMISS

Re: Dkt. No. 15

SUSAN ILLSTON, District Judge

Before the Court is a motion to dismiss filed by the defendant City and County of San Francisco (“the City”), seeking dismissal of Contest Promotions, LLC's complaint for failure to state a claim, currently set for argument on April 24, 2015. Pursuant to Civil Local Rule 7–1(b), the Court finds this matter appropriate for resolution without oral argument and hereby VACATES the hearing. For the reasons stated below, the Court GRANTS the City's motion as to Contest Promotions' federal law claims, and DEFERS ruling on its state law claims.

BACKGROUND

This is the second lawsuit plaintiff has brought against the City to challenge the legality of its signage ordinances. Plaintiff is a corporation that organizes and operates contests and raffles whereby individuals are invited to enter stores for the purpose of filling out an application to enter a contest. Complaint ¶ 6. Plaintiff leases signage space from the store in order to promote its contests to passersby. Id. ¶ 7. The business model drives increased foot traffic to the stores, while also promoting the product or event which is the subject of the raffle or contest. Id. Plaintiff operates in many cities across the United States including San Francisco, Los Angeles, New York, Seattle, and Houston. Id. ¶ 8.

I. First Law Suit

In early 2007, Contest Promotions approached the City to discuss its business model in light of the City's restriction on certain types of signage. At the time, as is still the case today, the City banned the use of “off-site” signage, known as General Advertising Signs, but permitted “on-site” signage, known as Business Signs. The primary distinction between the two types of signage pertains to where they are located. Broadly speaking, a Business Sign advertises for the business to which it is affixed, while a General Advertising Sign advertises for a third-party product or service which is not sold on the premises to which the sign is affixed.¹ The quintessential example of an off-site (or General Advertising) sign would be a billboard.

Beginning in late 2007, the City began citing all of Contest Promotions' signs with Notices of Violation (“NOVs”), contending that they were General Advertising Signs in violation of the Planning Code. In all, over 50 NOVs were issued, each ordering that the signage be removed under penalty of potentially thousands of dollars in fines per sign. Complaint ¶¶ 14–15.

In response, on September 22, 2009, Contest Promotions filed its first lawsuit in this Court, challenging—both facially and as applied—the constitutionality of the City's ordinance prohibiting its signage. Case No. 09–cv–4434, Docket No. 1. On May 18, 2010, the Court granted in part and denied in part the City's motion to dismiss. Case No. 09–04434, Docket No. 32. In its order, the Court reasoned that Contest Promotions had adequately alleged that the “incidentally” language employed in the ordinance was unduly broad, vague, and could potentially invite unbridled discretion on the part of City officials. Contest Promotions, LLC v. City & Cnty. of San Francisco, No. C 09–04434 SI, 2010 WL 1998780 (N.D.Cal. May 18, 2010). The Court denied defendant's motion as to all of Contest Promotions' First Amendment Claims, but granted with leave to amend as to its Equal Protection claim. Id. On February 1, 2013, the parties reached a settlement. The terms of the settlement required the following actions: (1) the City would construe plaintiff's signs as Business Signs, as the Planning Code defined them at the time; (2) Contest Promotions would re-permit its entire inventory of signs to ensure compliance with the Planning Code and the settlement agreement, despite the fact that plaintiff already had previously received permits for these signs; (3) Contest Promotions would dismiss its lawsuit against the City; and (4) Contest Promotions would pay the City $375,000. Complaint ¶¶ 20–23. On July 8, 2014, the City's Board of Supervisors approved the settlement and Contest Promotions made an initial payment of $150,000. Id. ¶ 24.

II. The Present Lawsuit

Soon after approving the settlement, on July 19, 2014, the Board of Supervisors passed legislation to amend the definition of Business Sign under Planning Code § 602.3. Id. ¶¶ 26–28. Section 602.3 now defines a Business Sign as “[a] sign which directs attention to a the primary business² , commodity, service, industry or other activity which is sold, offered, or conducted, other than incidentally,on the premises upon which such sign is located, or to which it is affixed.” (amendments emphasized). When Contest Promotions submitted its signs for re-permitting pursuant to the Settlement Agreement, the City denied its applications for failure to comply with the Planning Code as amended. Complaint ¶ 32. Plaintiff alleges that the Planning Code was amended “for the specific purpose of targeting Contest Promotions and denying Contest Promotions the benefit of its bargain under the Settlement Agreement and to prevent Contest Promotions from both permitting new signs and obtaining permits for its existing inventory as it is required to do under the Settlement Agreement.” Id. ¶ 29. The City contends that the ordinance was amended to address the concerns the Court expressed in its 2010 order. Docket No. 15, Def. Mot. at 14.

On January 8, 2015, Contest Promotions filed the present action alleging a number of constitutional³ and state law claims. Docket No. 1. The Complaint alleges causes of action for (1) violation of the First Amendment, (2) denial of Due Process, (3) inverse condemnation, (4) denial of Equal Protection, (5) breach of contract, (6) breach of implied covenant of good faith and fair dealing, (7) fraud in the inducement, (8) promissory estoppel, and (9) declaratory relief. Id. ¶¶ 36116. On March 13, 2015, the City filed a motion to dismiss the complaint for failure to state a claim. Docket No. 15.

LEGAL STANDARD

To survive a Rule 12(b)(6) motion to dismiss, the plaintiff must allege “enough facts to state a claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). This “facial plausibility” standard requires the plaintiff to allege facts that add up to “more than a sheer possibility that a Defendant has acted unlawfully.” Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009). While courts do not require “heightened fact pleading of specifics,” a plaintiff must allege facts sufficient to “raise a right to relief above the speculative level.” Twombly, 550 U.S. at 544, 555, 127 S.Ct. 1955. “A pleading that offers ‘labels and conclusions' or ‘a formulaic recitation of the elements of a cause of action will not do.’ ” Iqbal, 556 U.S. at 678, 129 S.Ct. 1937 (quoting Twombly, 550 U.S. at 555, 127 S.Ct. 1955 ). “Nor does a complaint suffice if it tenders ‘naked assertion[s]’ devoid of ‘further factual enhancement.’ ” Id. (quoting Twombly, 550 U.S. at 557, 127 S.Ct. 1955 ). “While legal conclusions can provide the framework of a complaint, they must be supported by factual allegations.” Id.

In reviewing a Rule 12(b)(6) motion, a district court must accept as true all facts alleged in the complaint, and draw all reasonable inferences in favor of the plaintiff. See al-Kidd v. Ashcroft, 580 F.3d 949, 956 (9th Cir.2009). However, a district court is not required to accept as true United States District Court Northern District of California “allegations that are merely conclusory, unwarranted deductions of fact, or unreasonable inferences.” In re Gilead Scis. Sec. Litig., 536 F.3d 1049, 1055 (9th Cir.2008). As a general rule, the Court may not consider any materials beyond the pleadings when ruling on a Rule 12(b)(6) motion. Lee v. City of L.A., 250 F.3d 668, 689 (9th Cir.2001). However, pursuant to Federal Rule of Evidence 201, the Court may take judicial notice of “matters of public record,” such as prior court proceedings, without thereby transforming the motion into a motion for summary judgment. Id. at 688–89. If the Court dismisses a complaint, it must decide whether to grant leave to amend. The Ninth Circuit has “repeatedly held that a district court should grant leave to amend even if no request to amend the pleading was made, unless it determines that the pleading could not possibly be cured by the allegation of other facts.” Lopez v. Smith, 203 F.3d 1122, 1130 (9th Cir.2000) (citations and internal quotation marks omitted).

DISCUSSION

I. First Amendment

Plaintiff posits two theories for why Section 602.3 violates the First Amendment. First, plaintiff contends that it unconstitutionally abridges plaintiff's right to commercial speech. Complaint ¶¶ 36–47. Second, plaintiff contends that the ordinance invites unbridled discretion by City officials and thus constitutes an unconstitutional prior restraint on speech. Complaint ¶¶ 4857.

A. Commercial Speech

The First Amendment provides that “Congress shall make no law ... abridging the freedom of speech.” U.S. Const. amend. I. States and local governments are bound by this prohibition through the Fourteenth Amendment to the Constitution. Near v. State of Minnesota ex rel. Olson, 283 U.S. 697, 707, 51 S.Ct. 625, 75 L.Ed. 1357 (1931) (“It is no longer open to doubt that the liberty of the press and of speech is within the liberty safeguarded by the due process clause of the Fourteenth Amendment from invasion by state action.”). Although commercial speech is afforded First...