Pima County v. Clear Channel Outdoor, Inc. – 1/31/2006

January 31, 2006

Division Two Holds That The State’s Governmental Function Exemption From Local Zoning and Building Regulations Did Not Transfer To A Private Company Using The Property For Commercial Billboards, Where State Transferred Real Property to The Company as Just Compensation In a Condemnation Action.

In 1998, to widen the Interstate 10 freeway (I-10) and construct new frontage roads along it in Pima County, the Arizona Department of Transportation (ADOT) condemned private property on both sides of I-10. Clear Channel owned billboards on several of the condemned parcels, which it was required to remove pursuant to the condemnation. In 2001, ADOT and Clear Channel entered into a settlement agreement in which ADOT agreed, in lieu of paying monetary damages for the condemnation, it would convey unneeded portions of the condemned parcels to Clear Channel on which Clear Channel could erect new billboards.

Immediately following the transfer of title, Clear Channel erected billboards on the parcels without first obtaining permits required by Pima County’s zoning ordinance. The billboards did not comply with Pima County building codes or zoning ordinances. Pima County filed suit against Clear Channel seeking injunctive relief, declaratory judgment, and civil penalties. Clear Channel counterclaimed, arguing that its billboards were not subject to Pima County’s ordinances.

Both parties moved for summary judgment. The trial court denied Pima County’s motion, and granted Clear Channel’s. On de novo review, and writing for a unanimous panel, Judge Howard reversed, rejecting Clear Channel’s argument that it was exempt from local zoning and building regulations because ADOT was acting in its governmental capacity when it entered into the settlement agreement. Clear Channel asserted that in the agreement, ADOT paid Clear Channel just compensation by transferring title to the parcels, thus Clear Channel was entitled to the state’s exemption from local regulations in using those parcels. The court reasoned that the state’s exemption “is not a transferable property right,” and that Clear Channel was in any event not seeking the exemption for a governmental function. Rather, Clear Channel’s erection of the billboards “is a commercial endeavor that directly competes with other commercial enterprises, is privately funded, and not something that can reasonably be considered fundamental or basic to the nature of government.”

The court also rejected Clear Channel’s alternative argument that the exemption arose from the state’s use of the property to pay just compensation. Distinguishing between the state’s “use” of the parcels to satisfy its condemnation obligation, and “use” of its own real property in a physical sense, the court stated that the exemption applies only to “the physical use of its real property.” The court held that the state’s governmental function exemption from local zoning and building regulations did not transfer to Clear Channel, which uses the property for commercial billboards when the state transferred the real property to it as just compensation in a condemnation action.

Judge Howard authored the opinion; Judge Brammer, Jr. and Judge Eckerstrom concurred.