Outdoor Graphics v. City of Burlington

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No. 95-2913
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Outdoor Graphics, Inc., an *
Iowa Corporation, *
*
Appellant, *
* Appeal from the United States
v. * District Court for the
* Southern District of Iowa.
City of Burlington, Iowa, *
*
Appellee. *
*
______________________ *
*
*
Outdoor Advertising Association *
of Iowa; Defenders of Property *
Rights, *
*
Amicus Curiae. *
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Submitted: March 13, 1996
Filed: December 27, 1996
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Before McMILLIAN, BEAM, and HANSEN, Circuit Judges.
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BEAM, Circuit Judge.
Outdoor Graphics, Inc. (Outdoor) appeals an adverse judgment
in an action for damages and injunctive relief in this takings
case. We affirm.
I. BACKGROUND
Outdoor asserts that the City of Burlington, Iowa (the City)
deprived it of property without just compensation, in violation of
the Fifth and Fourteenth Amendments to the United States
Constitution, by enacting an ordinance that requires removal of its
billboards from residential neighborhoods.
The City first adopted a residence district zoning ordinance
in 1949. The ordinance required a landowner to obtain permission
to erect any structure other than a residence, school, church or
similar building in areas zoned residential. Outdoor has presented
no evidence that its billboards were erected before this ordinance
took effect. The billboards were in place, however, in 1959, when
the City adopted a zoning ordinance that required all nonconforming
uses to obtain a certificate within a year. All but one of
Outdoor's billboards are located in residential zones.1 In 1960,
the City issued certificates of nonconforming use for the
billboards (which were then owned by Iowa Posting Company). The
certificates provide that any change in ownership requires
certification of a nonconforming use by the building inspector.
In 1986, Outdoor purchased the billboards and property from
Iowa Posting Company for $167,500. Outdoor purchased thirty-two
billboards at ten locations in Burlington.2 Payments on the
contract are due until the end of 1996. Outdoor's president,
Donald A. Brown, testified that he believed the business was
undervalued at that price. Outdoor purchased the company with the
knowledge that the billboards were nonconforming uses and were
subject to a recertification of such uses by the building
inspector. Despite the change in ownership, recertification of the
nonconforming uses was never sought by Outdoor.
1
The billboard that is not in a residential area is
nonetheless in violation of the City's set-back requirements. Our
holding applies equally to that property.
2
Outdoor owns the property on which all but three of the
billboards are placed and leases the property for those three
parcels of land. The leases provide for termination on thirty days
notice.
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Since the purchase, Outdoor Graphics has grossed approximately
$100,000 each year on its billboard business in Burlington, with
net profits averaging $13,000 each year.3 The value of the
billboard business is estimated by Outdoor's appraiser to be
$250,000. A real estate appraiser testified that because the real
property underlying the billboards is irregular in shape, it is
marketable only to adjacent landowners for a fraction of the cost
of the billboard business.
In 1988, the City enacted Chapter 17.66 of the Burlington
Municipal Code.4 The new ordinance prohibits billboards in any
residential neighborhood. It is undisputed that the ordinance was
duly passed and that Outdoor and other Burlington residents were
offered notice and an opportunity to be heard. The City's stated
reasons for enacting the ordinance were safety and aesthetics. It
provides a five-year "grace period," or amortization period.5 All
nonconforming billboards were to be removed five years after the
enactment of the ordinance, without any payment to the billboard
owners. On September 2, 1993, more than five years after the
ordinance was enacted, the City sent Outdoor a letter demanding
3
The net profit may seem low, but a major expense was Mr.
Brown's salary of over $80,000 per year.
4
Although Chapter 17.66 was later amended, those amendments
are not relevant to this case.
5
An amortization period allows a nonconforming owner to recoup
an investment and also sometimes affords the owner the additional
benefit of monopoly status during the period since no new
competitive nonconforming uses are allowed. 8A Eugene McQuillin,
Municipal Corporations § 25.190 (3d ed. 1994). It is in reality a
notice to owners that they have a period of time to make whatever
adjustments or other arrangements they can to accommodate the
regulation. Art Neon Co. v. City and County of Denver, 488 F.2d
118, 121 (10th Cir. 1973). An amortization period contains no
connotation of compensation nor any requirement of compensation.
Id. Amortization periods thus enable owners to recoup or minimize
losses. Naegele Outdoor Advertising, Inc. v. City of Durham, 844
F.2d 172, 177 (4th Cir. 1988).
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removal of the billboards. The City did not offer Outdoor any
compensation.
Outdoor then filed this action alleging that the City had
deprived it of property without just compensation in violation of
the Fifth and Fourteenth Amendments to the Constitution and
Sections 1 and 18 of the Iowa Constitution. It also alleged a
6
violation of Iowa Code Section 306. After a trial, the district
court found no constitutional or statutory violations. On appeal,
Outdoor contends that the ordinance completely destroys the value
of its property and that therefore the district court erred in
finding that there has been no taking.
II. DISCUSSION
We review the district court's findings of fact for clear
error and its legal conclusions de novo. Reich v. Avoca Motel
Corp., 82 F.3d 238, 240 (8th Cir. 1996). The Fifth Amendment, as
applied to the states through the Fourteenth Amendment, provides
that "private property [shall not] be taken for public use, without
just compensation." U.S. Const. amends. V & XIV. This guarantee
prevents the government from forcing a few people to bear economic
burdens that should be borne by the public as a whole. Penn
Central Transp. Co. v. City of New York, 438 U.S. 104, 122 (1978).
The takings clause reaches both direct appropriations of property
and some regulations that redefine a property owner's range of
interests in property. Lucas v. South Carolina Coastal Council,
505 U.S. 1003, 1014 (1992). Although property can be regulated, a
6
That section provides for compensation for billboards removed
near primary highways, which would include two of Outdoor's
billboards. The section applies only to billboards in compliance
with all "applicable state or local laws, regulations and
ordinances, including but not limited to zoning." Iowa Code
§ 306C.13(8)(f).
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regulation of land that "goes too far" is recognized as a taking.
Id. at 1015.
A. Per Se Taking
Two categories of regulatory takings do not require case-
specific inquiry into the public interest advanced in support of
the restraint. Id. The first category of these "per se takings"
includes regulations that involve a physical invasion of the
property. Id. The second category is where the regulation denies
a property owner all economically beneficial and productive use of
the land. Id.
Outdoor asserts that the City has deprived it of all
economically beneficial use of its land and that the billboard
regulation thus effects a per se taking. However, even where the
state enacts a regulation that deprives land of all economically
beneficial use, it has no duty to compensate "if . . . the
proscribed use interests were not part of [the owner's] title to
begin with." Id. at 1027. Such regulatory action may well have
the effect of eliminating the land's only productive use, but it
does not proscribe a productive use that was previously
permissible. Id. Essentially, this means that the use of that
property in what are now expressly prohibited ways was always
unlawful. Id. at 1030. The takings clause does not require
compensation when an owner is barred from putting land to a use
that is proscribed by "existing rules or understandings that stem
from an independent source such as state law." Id.
In other words, even if a regulation denies a landowner all
economically productive use of the land, there is no compensable
taking unless the landowner's "bundle of rights" previously
included the right to engage in the restricted activity. This
inquiry considers the reasonable investment-backed expectations of
the landowner at the time of his acquisition of, or capital
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expenditure on, the property in question. Any later limitation of
use by the government which could have been effected prior to the
reasonable investment-backed acquisition, cannot give rise to a
takings claim. Id. at 1029-30.
As noted, Outdoor purchased property subject to a
nonconforming use. A nonconforming use is one that lawfully
existed prior to the effective date of a zoning restriction and
that is allowed to continue to exist in nonconformity with the
restriction. 8A Eugene McQuillin, Municipal Corporations § 25.180
(3d ed. 1994). The burden of proof in establishing a nonconforming
use is on the party asserting it. Id. To establish a
nonconforming use, a landowner must show that a lawful use existed
before and at the time of the zoning change. Id. The goal of
zoning policy is to minimize and eventually eliminate nonconforming
uses. Incorporated City of Denison v. Clabaugh, 306 N.W.2d 748,
754 (Iowa 1981). Thus, reasonable amortization periods can be used
to gradually eliminate nonconforming uses. McQuillin, § 25.190.
See also supra at 3 n.5 & infra at 7-8 & 8 n.7.
Here, Outdoor has not shown that the billboards pre-date the
ordinance that restricted the types of structures allowed in a
residential zone. It purchased the business for a bargain price
and never renewed the certificates of nonconforming use. It bought
the business with the knowledge that the billboards were
nonconforming uses and that the parcels of land were irregularly
shaped and were not of much commercial value absent the billboards.
Outdoor has enjoyed the benefit of monopoly status during the
amortization period and during the pendency of this action. It
knowingly purchased property that had been subject to a
nonconforming use for a prolonged period--at least thirty-seven
years with a predicted life of fifteen more years.
We need not decide whether the regulation at issue completely
destroyed the economic value of Outdoor's property, for we find
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that even if it did, the City need not compensate Outdoor, under a
per se takings theory, since the right to erect a billboard did not
inure in Outdoor's title. Under these circumstances, we find no
compensable taking. See, e.g., Avenal v. United States, 100 F.3d
933, 937 (Fed. Cir. 1996) (claimant who, with an awareness of
proposed regulatory change, takes advantage of opportunities
afforded by government action, cannot have reasonable investment-
backed expectations that they would be protected from planned
government action); Hoeck v. City of Portland, 57 F.3d 781, 788-89
(9th Cir. 1995) (demolition did not amount to taking since, under
zoning law in effect at time landowner took title, he had no right
to use his property to maintain an abandoned structure), cert.
denied, 116 S. Ct. 910 (1996).
B. Ordinary Taking
An owner whose deprivation is less than complete, and thus
does not amount to a per se taking, may nevertheless be entitled to
compensation in some circumstances. Lucas, 505 U.S. at 1019 n.8.
Diminution of property value alone does not establish a taking.
See, e.g., Penn Central, 438 U.S. at 131; Scott v. City of Sioux
City, Iowa, 736 F.2d 1207, 1217 (8th Cir. 1984). There is
generally no set formula to determine when such compensation is
necessary. Penn Central, 438 U.S. at 124. Whether a particular
restriction amounts to a taking depends on the circumstances of
each case. Id. The inquiry is essentially an ad hoc, factual
inquiry that considers: (1) the economic impact of the regulation
on the claimant; (2) the extent to which the regulation has
interfered with distinct, investment-backed expectations; and (3)
the character of the government regulation. Id.; Armour & Co. v.
Inver Grove Heights, 2 F.3d 276, 278 (8th Cir. 1993).
Assessing the economic injury to a billboard owner and the
extent to which the regulation has interfered with his investment-
backed expectations involves weighing such factors as whether the
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land has any other economic use, the depreciation and life
expectancy of the billboards, the income from the billboards during
the amortization or grace period, the salvage value of the
billboards and whether any amortization period is reasonable.7
Naegele, 844 F.2d at 178. Outdoor's reasonable investment-backed
expectations have been satisfied.
It has long been recognized that reasonable zoning ordinances
are generally a lawful exercise of a state's police power to
regulate in the interest of public health, comfort, safety,
convenience and maintenance of property values. Board of
Supervisors of Cerro Gordo County v. Miller, 170 N.W.2d 358, 360
(Iowa 1969). A city may justifiably prohibit all off-premises
billboards for aesthetic or safety reasons, subject to First
Amendment guidelines. Metromedia, Inc. v. City of San Diego, 453
U.S. 490, 512 (1981). Community aesthetics and preservation of the
character of a neighborhood are valid bases for a regulation.
Georgia Outdoor Advertising, Inc. v. City of Waynesville, 900 F.2d
783, 785 (4th Cir. 1990) (aesthetics); Cerro Gordo, 170 N.W.2d at
361 (character of neighborhood).
Balancing these factors, we find that the ordinance at issue
does not amount to a taking of constitutional magnitude. Outdoor
has had the benefit of a five-year amortization period, during
which it has enjoyed monopoly status. Additionally, Outdoor bought
7
To determine the reasonableness of an amortization period, we
balance public good against private loss. Board of Supervisors of
Cerro Gordo County v. Miller, 170 N.W.2d 358, 362 (Iowa 1969). The
elimination of existing uses within a reasonable time does not
amount to a taking of property nor does it necessarily restrict the
use of property so that it cannot be used for any purpose. Id. at
363. As a method of eliminating existing nonconforming uses,
amortization affords owners the opportunity to make plans to offset
some losses they might suffer and spreads the loss out over a
period of years. Id. Thus, if the amortization period is
reasonable, then the loss is small when compared to the benefit to
the public. Id.
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the billboards at a bargain price and has made a considerable
profit from them. Although Outdoor's expert witness testified that
the billboards have a useful life of fifteen more years, the
district court noted that they were built more than thirty-seven
years ago and that some are in disrepair. The ordinance at issue
allows Outdoor to erect billboards in commercial districts that
include a substantial portion of the City and that include well-
traveled locations. Under the circumstances, we find no
unconstitutional taking. These findings apply with equal force to
Outdoor's claims under the Iowa Constitution and under Iowa Code
§ 306. Since the billboards are not a legal use under prior and
current zoning regulations, the Iowa statute does not protect them.
III. CONCLUSION
For the reasons stated above, the judgment of the district
court is affirmed.
A true copy.
Attest:
CLERK, U. S. COURT OF APPEALS, EIGHTH CIRCUIT.
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