Lamar Advertising v. Heavy Constructors

Citation2008 SD 10,745 N.W.2d 371
Decision Date06 February 2008
Docket NumberNo. 24454.,24454.
PartiesLAMAR ADVERTISING OF SOUTH DAKOTA, INC., Plaintiff and Appellant, v. HEAVY CONSTRUCTORS, INC., Defendants and Appellees. and Epic Outdoor Advertising, L.L.P., Defendants.
CourtSupreme Court of South Dakota
745 N.W.2d 371
2008 SD 10
LAMAR ADVERTISING OF SOUTH DAKOTA, INC., Plaintiff and Appellant,
v.
HEAVY CONSTRUCTORS, INC., Defendants and Appellees. and
Epic Outdoor Advertising, L.L.P., Defendants.
No. 24454.
Supreme Court of South Dakota.
Considered on Briefs November 6, 2007.
Decided February 6, 2008.

[745 N.W.2d 372]

John K. Nooney of Thomas, Nooney, Braun, Solay & Bernard, L.L.P., Rapid City, South Dakota, Attorneys for plaintiff and appellant.

David E. Lust, Amy K. Koenig of Gunderson, Palmer, Goodsell & Nelson, L.L.P., Rapid City, South Dakota, Attorneys for defendant and appellee.

ZINTER, Justice.


[¶ 1.] Lamar Advertising of South Dakota, Inc. appeals the circuit court's denial of Lamar's request for specific performance of a billboard/sign lease. In the alternative, Lamar appeals the circuit court's calculation of damages arising from Heavy Constructors, Inc.'s breach a the lease. We affirm the denial of specific performance, but reverse and remand for a new trial on damages.

[¶ 2.] Lamar is engaged in the outdoor advertising business. The business involves leasing, purchasing, or otherwise acquiring rights to real property in order to construct billboard signs (hereinafter "sign" or "billboard") for lease to entities interested in advertising. Lamar's predecessor in interest obtained a permit to construct a sign on real property owned by Heavy Constructors' predecessor in interest. The sign was constructed in Rapid City, South Dakota, near an exit on an interstate highway that experiences a large traffic volume. Lamar acquired the lease from Heavy Constructors in 1998, and the parties renewed the lease for March 1, 1999 through March 1, 2009, at an annual rent of $1,000. The lease prohibited Heavy Constructors from allowing other billboards to be constructed within 1,000 feet of Lamar's sign. It also allowed Lamar to relocate its sign on Heavy Constructors'

745 N.W.2d 373

premises.1

[¶ 3.] In late 2002, Epic Outdoor Advertising, LLP, also obtained leases for signs from Heavy Constructors on the same property. Epic began construction of its signs in February of 2003. Two of Epic's signs were constructed in violation of Lamar's 1,000 foot restriction: one was 830 and the other 525 feet from Lamar's sign. Heavy Constructors admitted that it made a mistake when it allowed Epic to construct the signs in violation of the 1,000 foot restriction.

[¶ 4.] All parties attempted to negotiate a resolution. During negotiations the parties learned that Lamar's sign had been inadvertently constructed on an unopened section line right-of-way. Additionally, Rapid City annexed the property. City officials ordered that the Lamar sign be removed from the section line.2 To further complicate matters, pre-existing county ordinances required only 500 feet between outdoor advertising signs, but the city ordinances required a 1,000 foot separation. Consequently, there is no dispute that because of the city's restriction and without the removal of one or more of Epic's signs, Lamar was unable to relocate its sign on the property.3 Ultimately, despite the city's demand, Lamar failed to. remove the sign and Heavy Constructors removed it.

[¶ 5.] Lamar subsequently brought this action against Heavy Constructors and Epic seeking damages or specific performance requiring the removal of one or more of the Epic signs so that Lamar could reconstruct its sign on Heavy Constructors' property. All parties moved for summary judgment. The circuit court ruled that: Heavy Constructors allowed Epic to erect its, signs in "direct . . . violation of [Heavy Constructors'] responsibilities under its Lease with Lamar"; the lease "clearly envisions and allows a potential relocation of [Lamar's] sign at the discretion of [Lamar] in the vicinity of the existing

745 N.W.2d 374

sign," yet Lamar could not exercise its right to relocate its sign under the lease "solely because of the placement of the Epic signs." The court then requested briefing on Lamar's remedies.

[¶ 6.] After a clarifying ruling, the court ultimately denied Lamar's request for specific performance and determined the measure of damages it would allow at trial. The court determined that Lamar would only be allowed damages for the difference between the fair market value of the unexpired term of the lease (market rent) and the rent reserved in the lease (the contract rent). This measure of damages is often referred to as the lease "bonus value." The court specifically ruled that "lost profits, income flow, and `net operating income generated by the billboard' [were] not recoverable [as a matter of law,]" and evidence of those losses would not be permitted at trial. The circuit court reasoned that "[t]o whatever extent income or profits from the established signs can be considered in determin[ing] the fair market value of the lease, they have been appropriately considered in the bonus value. . . . I have not seen a single lease agreement between Lamar and any other lessor which remotely approaches the damages claimed." The circuit court continued, ". . . profits based upon third party contracts seem irrelevant to me in determining the fair market value of the leasehold between landowners and sign companies."

[¶ 7.] Following these rulings, a trial date was scheduled, and the parties retained experts to calculate Lamar's damages. Lamar retained Dr. Rudolfo Aguilar,4 and Heavy Constructors retained Ken Simpson, SRA. Aguilar prepared a detailed appraisal of Lamar's leasehold interest. He first calculated the lease's bonus value in accordance with the court's ruling. Aguilar opined that market rents in the area were $2,781 per month and Lamar's contract rent was $1,000 per month. He then calculated the present value of the difference (the bonus value) over the 102 months remaining on the lease, which was $10,950.48 (rounded to $11,000). In contrast, Simpson opined that there was no bonus value because he opined that market rents were $1,000—the same as Lamar's contract rent. Because he opined the market rent and contract rent were equal, Simpson concluded that Lamar suffered no damages.

[¶ 8.] Aguilar's opinion of Lamar's damages was not limited to the bonus value. Aguilar also considered lost income based upon the leasing history of the sign. He specifically analyzed the sign's occupancy and rent history and Lamar's comparative statement of operations, including existing advertising contracts with third parties. Based upon that analysis, Aguilar opined that Lamar also suffered a loss of "net operating income generated by [Lamar's sign] [in] an additional $57,000." Ultimately, Aguilar opined that Lamar's total loss was $68,000 ($57,000 in lost net income plus $11,000 bonus value).

[¶ 9.] The parties submitted the issue of damages to the court on stipulated facts. After considering the parties' submissions, the court rejected Simpson's opinion of the lease's bonus value and adopted Aguilar's opinion on that issue. The circuit court did not, however, adopt Aguilar's opinion regarding Lamar's $57,000 loss of net income. The court therefore entered judgment for Lamar in the amount of $11,000.

745 N.W.2d 375

Lamar appeals, arguing that it was entitled to specific performance, or in the alternative, that the circuit court should have considered Aguilar's evidence of lost net income.

Specific Performance

[¶ 10.] Lamar argues that the circuit court should have granted specific performance ordering Heavy Constructors to continue leasing the property to Lamar under the terms of its lease. This remedy would have required Heavy. Constructors to remove one or more of the Epic signs in order for Lamar to relocate its sign under the city ordinances. The circuit court denied Lamar's request for specific performance on three grounds: laches, harm to a third party, and failure to demonstrate that the sign's location was sufficiently unique. We also observe that "Lain essential element to equitable relief is the lack of an adequate remedy at law." Rindal v. Sohler, 2003 SD 24, ¶ 12, 658 N.W.2d 769, 772. "Specific performance is an equitable remedy and this [C]ourt's standard of review addresses whether there has been an abuse of discretion by the circuit court after reviewing the facts and circumstances of each case." Amdahl v. Lowe, 471 N.W.2d 770, 773 (S.D.1991).

[¶ 11.] To support the affirmative defense of laches in this case:

[It] must be found that, (1) [Lamar] had full knowledge of the facts upon which the action is based, (2) regardless of this knowledge, [Lamar] engaged in an unreasonable delay before commencing this suit, and (3) that allowing [Lamar] to maintain the action would prejudice [Heavy Constructors and Epic].

Burch v. Bricker, 2006 SD 101, ¶ 15, 724 N.W.2d 604, 608. The record reflects that Lamar drafted the renewal lease, and therefore had knowledge of its provisions. Lamar also had knowledge of the Epic leases and the commencement of Epic's construction, but Lamar gave no notice of the lease violation until Epic's signs were substantially completed. Although Lamar argues that it acted with reasonable diligence, the circuit court found that Lamar unreasonably delayed in providing notice of the violation until Epic's signs were substantially completed. We agree.

[¶ 12.] The circuit court also found that specific performance would result in unjust harm to an innocent third party—Epic—as Lamar would be attempting to enforce a remedy under a contract to which Epic was not a party. The circuit court finally found that the claim for uniqueness was "questionable given the nature of Lamar's business."5 Considering these factors together with the fact that both parties' experts were able to calculate damages, the circuit court did not abuse its discretion in denying Lamar's request for specific performance.

Damages

[¶ 13.] Lamar argues that the circuit court erred in refusing to even consider evidence of lost net income. This raises a question of law. "Conclusions...

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