Naegele Outdoor Advertising, Inc., D/B/A Naegele Outdoor Advertising Company of Raleigh-Durham v. City of Durham, the Outdoor Advertising Association of America, Inc. (Oaaa) North Carolina Restaurant Association, Amici Curiae

Citations: 844 F.2d 172; 1988 U.S. App. LEXIS 4848Docket: 87-1599

Court: Court of Appeals for the Fourth Circuit; April 15, 1988; Federal Appellate Court

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Naegele Outdoor Advertising, Inc. challenges the City of Durham's billboard ordinance, claiming it infringes on its First and Fifth Amendment rights. The ordinance, enacted in 1984 and amended in 1985, bans all new commercial off-premise advertising signs while allowing noncommercial signs. It includes a five-and-a-half-year amortization period before nonconforming signs are prohibited, affecting 85 Naegele billboards in Durham.

Naegele argues that the ordinance fails to achieve its stated objectives of traffic safety and aesthetics, presenting evidence that it would not enhance traffic safety and claiming the billboards are situated in industrial areas where aesthetic concerns are minimal. The appellate court affirms the district court's ruling on the First Amendment issue but vacates the summary judgment regarding the Fifth Amendment "taking" claim, remanding the case for further proceedings.

The court references the precedent set in Metromedia, Inc. v. San Diego, noting that ordinances prohibiting off-premise commercial advertising can be constitutional if they do not favor commercial over noncommercial speech. The Durham ordinance is found to align with this precedent and is similar to ordinances upheld in previous cases.

Evidence presented by Durham regarding traffic safety is inconclusive, yet aesthetics alone can justify police power regulations, as established in prior cases. The location of a billboard in commercial and industrial zones does not prevent the city from using aesthetics as a rationale for exercising its police power, as supported by the San Diego ordinance. The court finds no significant difference between the Durham ordinance and others deemed constitutional regarding sign owners' First Amendment rights, leading to the conclusion that the district court appropriately granted summary judgment in favor of the city against Naegele's claims.

Naegele contends the district court incorrectly ruled that the Durham ordinance does not constitute a taking of property under the Fifth Amendment. Both Naegele and the city recognize that the takings claim is ripe for consideration, though the Supreme Court has warned against premature decisions on such claims. The court emphasizes the necessity of a factual context for evaluating takings and cites precedent indicating that a property owner's claim is not ripe until state remedies have been exhausted. The Fifth Amendment prohibits taking property without just compensation but does not mandate that compensation be provided immediately or concurrently with the taking, provided there is a reasonable process in place for obtaining it.

The excerpt addresses the legal considerations surrounding Naegele's claim of an unconstitutional taking due to Durham's sign ordinance. The North Carolina Court of Appeals has recognized that a town's rezoning power includes enacting similar sign ordinances, and the state Supreme Court has upheld the use of amortization for nonconforming uses. This context suggests that pursuing an inverse condemnation suit may be futile for Naegele, especially since the city does not foresee a realistic chance of Naegele receiving a variance.

On remand, the district court is instructed to evaluate the maturity of Naegele's claim and provide clear findings before proceeding to the merits of the case. Naegele claims that prohibiting certain billboards severely impacts its integrated business model, estimating total losses around $2.8 million, including $1.5 million in market value for 85 billboards and $1.3 million in severance damages. Evidence is presented that the billboard sites have limited commercial alternatives and that relocating them is not feasible, with their lifespan exceeding the ordinance's five-and-a-half-year amortization period.

The city argues that since it will not physically seize the signs, Naegele retains full use of them for various purposes, including noncommercial advertising, and can relocate them where permitted. It defends the ordinance as a reasonable exercise of police power due to the amortization period. The district court found that the sign ordinance would restrict Naegele's signs but concluded that it does not constitute a regulatory taking, as Naegele could potentially relocate its billboard structures economically. The court's previous ruling in Raleigh affirmed that a five-and-a-half-year amortization period is not excessively unreasonable in determining whether such an ordinance constitutes a taking, while noting that investment recoupment within that timeframe is not guaranteed.

Recent Supreme Court cases highlight the issue of whether summary judgment on takings claims can be appropriately granted without a comprehensive factual record. In Naegele's case, genuine factual disputes exist regarding the ordinance's impact on his business, including disagreements over the economics of sign relocation, salvage value, and overall effects on sales. While the city argues that Naegele will benefit from the ordinance's intended economic development, Naegele disagrees. The existence of these factual discrepancies cannot be dismissed as immaterial solely due to the city's provision of a five-and-a-half-year amortization period.

The Court's precedent in Keystone Bituminous Coal Ass'n v. DeBenedictis establishes that land use regulations may constitute a taking if they do not significantly advance legitimate state interests or deny the owner economically viable use of their land. The opinion affirms that the Durham ordinance serves a legitimate state interest in aesthetics, thereby supporting the ordinance against Naegele's taking claim concerning the first prong of the test. The focus now shifts to whether the ordinance denies Naegele economically viable use of his property.

The determination of the specific unit of Naegele's property affected by the ordinance is crucial. Keystone emphasizes the need to compare the value taken from the property against what remains. In this context, the Court previously rejected the argument that separate segments of property (like coal and the support estate) could be considered independently for taking purposes. Instead, the Court considers the property as a whole when assessing governmental action's impact on property rights. The district court is instructed to identify the correct unit of Naegele's property through an evidentiary hearing, noting that the affected billboards do not constitute a separate segment for taking evaluations.

Naegele contends that the restriction on certain advertising signs will diminish the value of its remaining signs due to its shared marketing strategy, which involves selling advertising for the same product across multiple billboards. If this shared market is limited to the North Carolina triangle area, Naegele's business in that region would be the relevant unit of property. However, if Naegele's advertising contracts extend nationwide, the affected property unit may be larger. The analysis of Naegele's claim requires assessing whether the ordinance deprives it of economically viable use of its property, guided by three factors from Penn Central: 1) the economic impact of the regulation, 2) the extent of interference with investment-backed expectations, and 3) the character of governmental action. A full evidentiary hearing is necessary to resolve disputes regarding the ordinance's impact on Naegele’s business, emphasizing the need for detailed factual inquiries as articulated in Supreme Court precedents. 

The five-and-a-half-year amortization period provided by the ordinance does not inherently validate the regulation but is a factor in evaluating the character of governmental action. The court indicated that a taking is more likely when the regulation constitutes a physical invasion rather than an adjustment of economic benefits and burdens for public welfare. The balance of private and public interests is crucial in determining if a taking has occurred. Additionally, courts have generally supported amortization periods as a means for property owners to recover losses, highlighting that the reasonableness of such periods requires evidentiary hearings rather than summary judgments, as illustrated by precedent cases.

First English Evangelical Lutheran Church v. County of Los Angeles, Hodel v. Irving, and Nollan v. California Coastal Commission are distinguished from Naegele's case due to differences in the taking issues involved. First English established that a temporary regulatory taking, which denies all property use, necessitates just compensation for that period. Hodel ruled a statute unconstitutional for taking all fractional interests in Indian allotments without compensation, while Nollan invalidated a permit condition requiring a public easement unrelated to the permit's purpose. In contrast, the Durham ordinance does not deny Naegele all property use; it only affects part of it, aligning with the upheld statute in Keystone.

The Durham ordinance is found to promote the city's legitimate interest in aesthetics and does not infringe upon Naegele's First Amendment rights. The district court's judgment on these points is affirmed. On remand, the district court must assess the taking claim's maturity and determine if the ordinance denies Naegele 'economically viable use' of its property based on the ordinance's impact on a relevant unit of property, which is influenced by Naegele's sharing contracts.

The court should evaluate various factors, including the economic viability of billboards, lease terms, potential income, and depreciation, to inform the taking question. The complexity of this task is acknowledged, emphasizing the need for detailed factual inquiries regarding economic impact and reasonable investment-backed expectations. The district court's judgment is partially affirmed and partially vacated, with directions for further proceedings. Each party will bear its own costs, and the Supreme Court's prior dismissal regarding federal question jurisdiction does not set a precedent concerning the constitutionality of amortization periods without compensation.