Metro. Dev. Comm'n v. Pinnacle Media, LLC

• Decision Date: 03 November 2005
• Docket Number: No. 49S05-0511-CV-510.,49S05-0511-CV-510.
• Parties: METRO. DEV. COMM'N OF MARION COUNTY, et al., Appellant (Defendant below), v. PINNACLE MEDIA, LLC, Appellee (Plaintiff below).
• Court: Indiana Supreme Court

836 N.E.2d 422

METRO. DEV. COMM'N OF MARION COUNTY, et al., Appellant (Defendant below), v. PINNACLE MEDIA, LLC, Appellee (Plaintiff below).

No. 49S05-0511-CV-510.

Supreme Court of Indiana.

November 3, 2005.

Anthony W. Overholt, Jeffrey S. McQuary, Office of Corporation Counsel, Indianapolis, for Appellant.

Alan S. Townsend, George T. Patton, Jr., Paul D. Vink, Indianapolis, for Appellee.

SULLIVAN, Justice.

Pinnacle Media, LLC, seeks a declaration that a change in the zoning ordinance of the City of Indianapolis concerning billboard location permits is not applicable to its plan to erect 10 billboards in Indianapolis. Because no construction or other work that gave Pinnacle a vested interest in the billboard project had begun on the billboards at the time of the ordinance change, the ordinance change did apply to the 10 billboards.

Background

Pinnacle Media, LLC, erects and leases advertising billboards. In July, 1999, after some period of discussion, the City of Indianapolis advised Pinnacle in writing that the City's billboard location permit regulation did not apply with respect to billboards proposed to be erected in interstate highway rights-of-way because those rights-of-way were not covered by the City's zoning ordinance.

Pinnacle thereupon embarked on a plan to erect billboards without applying to the City for a permit. Its plan consisted of three steps. First, it would lease land for this purpose from Hoosier Heritage Port Authority, an entity that owned abandoned railroad rights-of-way at points where the abandoned railroad rights-of-way intersected with or were otherwise coextensive with interstate highway rights-of-way. Second, it would seek permits from State government, specifically, the Indiana Department of Transportation ("INDOT"), which is responsible for interstate highways. Third, it would erect the billboards without seeking any approval from the City. Following this plan, Pinnacle erected two billboards in 1999, after leasing rights-of-way and obtaining INDOT permits.

Shortly thereafter, Pinnacle initiated efforts to erect 15 additional billboards by securing additional leases and submitting additional applications to INDOT. The last of these applications was submitted on April 19, 2000. A period of negotiation with the State followed during which INDOT initially denied all 15 of the applications. Pinnacle appealed the denials and ultimately entered into a settlement with the State. Well over a year later, on June 18, 2001, INDOT approved 10 of the applications and Pinnacle abandoned its request for the other five in accordance with the settlement.

Meanwhile, following the erection of the two initial billboards, the City re-examined its policy in respect of excluding interstate highway rights-of-way from the coverage of its zoning ordinance. On April 26, 2000, the City officially proposed an amendment to this effect to its zoning ordinance. Pinnacle and other interested parties received notice of the proposed amendment on April 28, and were given the opportunity to appear at a public hearing on the matter on May 17. On July 10, 2000, the City-County Council enacted into law an amendment to the zoning ordinance, assigning zoning classifications to the previously un-zoned land occupied by interstate highways. Indianapolis/Marion County Rev.Code §§ 730-100 through -103. This had the effect of making the City's billboard location permit applicable to billboards proposed to be erected in interstate highway rights-of-way.

Following receipt of the INDOT approvals in 2001, Pinnacle began erecting one of the billboards. The City issued a stop work order on grounds that Pinnacle had not obtained the permit for the billboard required by the amended zoning ordinance.¹ Pinnacle ceased construction and subsequently filed suit against the City, seeking a declaration that the amendment to the zoning ordinance was inapplicable to the 10 permits and that the stop work order was void and unenforceable. The City filed a motion to dismiss, which the trial court denied,² and both parties subsequently filed for summary judgment. The trial court granted summary judgment in favor of Pinnacle and also concluded that Pinnacle was entitled to attorney fees because the City engaged in "frivolous, unreasonable, or groundless litigation." Appellant's App. at 9-10. The Court of Appeals affirmed the determination of the trial court that the amendment to the zoning ordinance was inapplicable to the 10 permits but reversed the trial court on the attorney fees issue. Metro. Dev. Comm'n v. Pinnacle Media, LLC, 811 N.E.2d 404, 414 (Ind.Ct.App. 2004). We now grant transfer and reverse the judgment of the trial court.

Discussion

I

The question of whether Pinnacle's 10 billboards are subject to the 2000 zoning ordinance amendment implicates two disparate lines of Indiana cases. Both lines employ the term "vested rights" and generally stand for the proposition that a person's "vested rights" are protected against retroactive application of a change in law. But each line takes a quite different approach to defining or determining when a "vested right" exists, and these approaches can lead to different results.

A

The first line of cases arises under a zoning law principle called "nonconforming use." A nonconforming use is a use of property that lawfully existed prior to the enactment of a zoning ordinance that continues after the ordinance's effective date even though it does not comply with the ordinance's restrictions. Metro. Dev. Comm'n. v. Marianos, 274 Ind. 67, 408 N.E.2d 1267, 1269 (1980). The general rule is that a nonconforming use may not be terminated by a new zoning enactment. See Jacobs v. Mishawaka Bd. of Zoning Appeals, 182 Ind.App. 500, 501-02, 395 N.E.2d 834, 836 (1979) ("An ordinance prohibiting any continuation of an existing lawful use within a zoned area is unconstitutional as a taking of property without due process of law and as an unreasonable exercise of police power."). In these situations, it is often said that the landowner had a "vested right" in the use of the property before the use became nonconforming, and because the right was vested, the government could not terminate it without implicating the Due Process or Takings Clauses of the Fifth Amendment of the federal constitution, applicable to the states through the Fourteenth Amendment.³ U.S. Const., amends V & XIV. See generally, John J. Delaney and Emily J. Vaias, Recognizing Vested Development Rights as Protected Property in Fifth Amendment Due Process and Takings Claims, 49 Wash. U.J. Urb. & Contemp. L. 27, 31-35 (1996).

A relatively frequent subject of land use litigation is whether a developer can have a "vested interest" in a nonconforming use that is only intended—construction has not yet begun at the time of the new enactment—such that the government cannot terminate it. See Linda S. Tucker, Annotation, Activities in Preparation for Building as Establishing Valid Nonconforming Use or Vested Right to Engage in Construction for Intended Use, 38 A.L.R.5th 737, 752 (1996 & Supp.2005).

This Annotation reflects the fact that many courts, including ours, have been presented with cases where a developer encounters a zoning change after embarking on a project but before beginning construction. The leading Indiana case on this subject—discussed in the Annotation—is Lutz v. New Albany City Plan Comm'n, 230 Ind. 74, 101 N.E.2d 187 (1951).

As a general proposition, the courts have been willing to hold that the developer acquires a "vested right" such that a new ordinance does not apply retroactively if, but only if, the developer "(1) relying in good faith, (2) upon some act or omission of the government, (3) ... has made substantial changes or otherwise committed himself to his substantial disadvantage prior to a zoning change." Delaney & Vaias, supra, at 31-35 (citing Sgro v. Howarth, 54 Ill.App.2d 1, 203 N.E.2d 173, 177 (1964)).

Indiana law, as enunciated in Lutz, is consistent with these principles. In that case, the developer acquired real estate pursuant to an option agreement that required the seller to demolish a house on the property and clear the lots for construction of a gasoline service station. The developer secured a mortgage commitment to finance the construction and entered into an agreement by which a petroleum concern would lease and operate the service station when built. After all of these actions had been taken but before construction of the service station itself began, the city enacted a zoning ordinance that did not permit the erection of gasoline service stations on the real estate in question. Lutz, 230 Ind. at 78-79, 101 N.E.2d at 189.

When the developer's application for a zoning variance was denied by the Board of Zoning Appeals, the developer appealed, contending that by entering into the lease and proceeding to convert the real estate to a service station prior to the passage of the zoning ordinance, his rights to use of the property in that way had become vested and that the application of the zoning ordinance to him was unconstitutional. Id. at 77, 101 N.E.2d at 188. The trial court affirmed the decision of the Board of Zoning Appeals, as did this Court:

The zoning ordinance herein is, of course, subject to any vested rights in the property of appellants acquired prior to the enactment of the zoning law. But where no work has been commenced, or where only preliminary work has been done without going ahead with the construction of the proposed building, there can be no vested rights. The fact that ground had been purchased and plans had been made for the erection of the building before the adoption of the zoning ordinance prohibiting the kind of building contemplated, is held not to exempt the property from the operation of the zoning ordinance. Structures in the course of construction at the time of the enactment or the effective date of the zoning law are exempt from the restrictions of the...