Breakout Session E - Outdoor Advertising Signs

1. Breakout Session E - Outdoor Advertising Signs May 14, 2013 Chula Vista Resort Wisconsin Dells Joel V. Batha, J.D. Statewide Acquisition and Litigation Facilitator

2. Hot Deals on Wheels Presentation Contents: • History of WisDOT Process for Clearing • Outdoor Advertising Sign Interests • Pre-Vivid v. Fiedler (Dawn of time until mid 1990’s) • Vivid v. Fiedler (1993 through 1998) • Adams Outdoor v. Madison (2006) • “New” WisDOT Process – Application of Unit Rule • In re Countryside Restaurant (2012)

3. Part 1. WisDOT Billboard Acquisition and Relocation Advent of Highway Building until Vivid v. Fiedler, 219 Wis.2d 764, 580 N.W.2d 644 (Wis. 1998)

4. WisDOT Sign Acquisition Procedure Up to Mid 1990’s • Structure treated as personal property, subject to relocation • Fee owner paid present value of unexpired term of lease, if any • DOT paid sign owner for structure, based on cost approach, and • Leasehold value, where lease rate shown to be below market

5. Relocation Authority: Wis. Admin. Rule ADM 202.64, f/k/a COMM 202.64 • Where sign could be relocated, then paragraphs (1) & (2) applied: • Actual moving and related expense • Direct loss of tangible personal property • Actual expense incurred in searching for a replacement site (not to exceed $1,000) • Target site must be conforming • When sign could NOT be moved, then sub paragraphs (4) & (5) applied: • Direct Loss of Tangible Personal Property • Depreciated reproduction cost or the estimated cost of moving the sign – whichever is less.

6. Part 2. Vivid v. Fiedler, 219 Wis.2d 764, 580 N.W.2d 644 (Wis. 1998)

7. Sign Companies Vehemently Protested – Where’s the sign site value? • The conflict finally came to a head in a four part series of published and unpublished appellate court decisions culminating in the Wisconsin Supreme Court’s opinion in Vivid, Inc. v. Fiedler, 219 Wis.2d 764, 580 N.W.2d 644 Wis.,1998. (a/k/a “Vivid IV”) Hellacious procedural history – culminating in an weirdly structured written opinion. Ultimately concluding that: ¶ 52 […] all right, title, and interest in and to the sign and the leasehold interest includes not only the value of the sign structure itself and leasehold value, but also the value of the sign location. Opinion at 796.

8. Vivid IV – Determining Location Value • Minority would have reversed Circuit Court and allowed sign industry’s use of the Gross Income Multiplier (GIM) • Majority agreed with DOT that use of GIM incorporates non-compensable business profits into the equation, “The initial calculation of the GIM is derived not from the sale of one billboard, an unlikely prospect […], but rather from the sale of an entire advertising concern. In such cases, it can be “virtually impossible to determine the amount of income that should be attributed to the billboard and which portion should be attributed to the marketing and other aspects of the business.” Id. at 798-799.

9. Vivid IV – Cont’d. • Per majority, use of GIM could be available, […] “if a circuit court can determine from the facts that a GIM valuation in a particular case [excludes] components which are not otherwise compensable as part of “just compensation,” then it is for the court, not the trier of fact, to bar the evidence.” Opinion at paragraph 69. • Still, the Supreme Court could not find consensus. Consequently, Court upheld Ct. of Appeals’ reversal of the Circuit Court’s admission of the GIM was upheld. Use of Income Approach, along with comp sales and cost approach left to jury to weight evidence and determine just compensation. • Oddly, the affirmed Court of Appeals opinion is unpublished, and therefore, cannot be relied upon as having set any legal precedent.

10. Part 3. Then Came: Adams Outdoor Advertising, Ltd. v. City of Madison294 Wis.2d 441, 717 N.W.2d 803, (Wis. 2006)

11. Though Adams is a property tax assessment appeal, the Wisconsin Supreme Court made statements implicating how billboards are to be treated within the eminent domain context: • Chief among the court’s holdings is its view that a billboard permit is real property. • ¶ 64 […] Because a billboard permit confers a right or privilege to erect and operate a billboard on a designated piece of land and because a permit cannot be transferred to a different location, we conclude a billboard permit falls within the definition of real property. • ¶ 66 We conclude that a billboard permit should be assessed as a right or privilege appertaining to real property under Wis. Stat. § 70.03. Opinion at 473.

12. Adams v. Madison, cont’d. • The primary value of the permits is unrelated to the structures; rather, the primary value of the permits appertains to the location of the underlying real estate. Opinion at 480.

13. Adams v. Madison, conclusion ¶ 88 […] In eminent domain, fair market value of a billboard is the price “the aggregate asset—the lease, permit and sign—would bring in the marketplace[.]” Vivid, 219 Wis.2d at 780, 580 N.W.2d 644 (Minority opinion). Necessarily, this includes the value attributable to the location of the billboard. Id. at 803–04, 580 N.W.2d 644 (Majority opinion) (noting the value of the location is included in the value of the leasehold). Adams at 482.

14. Part 4. Now What? • What procedures will DOT follow when acquiring all right title and interest in an outdoor advertising sign site, including leasehold and permit value – if any? Answer: Application of the “Unit Rule,” also known as the “Undivided Fee Rule.”

15. Unit Rule. Sometimes called the “undivided fee rule,” is a method for valuing property in eminent domain proceedings where the property being acquired is subject to multiple ownership interests. Compensation is determined based on the fair market value of the property as a whole, as if there were only one owner. Once the property’s fair market value is determined, then that value is apportioned among all of those who hold an interest in the property. The division of the value of the fee into separate interests cannot exceed the amount of compensation to be paid by the condemning authority. The unit rule is designed to protect the interests of the condemnor and not to protect the interests of a condemnee.

16. Application of Unit Rule Involving Sign Site Affirmed - In re Country Side Restaurant, Inc., 340 Wis.2d 335, 814 N.W.2d 159, (Wis. 2012) • Restaurant leased a portion of its property to Lamar for the purpose of constructing and maintaining a billboard and that such billboard was permitted. • Under Wisconsin law, a lessee of more than one year is considered a joint owner of the leased property. • “[i]t is well settled that a lessee has a property interest; and, when that interest is completely taken by a condemning authority, the lessee is entitled to compensation.” • [T]his court has already determined that a billboard permit, which confers a right or privilege to erect and operate a billboard on a designated piece of land, constitutes an interest in real property.

17. Countryside – cont’d. Opinion at page 350 • […] Lamar is entitled to just compensation: its property interest, derived from both its lease and permit, was completely taken by the DOT […] • [B]ecause a billboard permit is valid only for a designated location and thus terminates once the billboard is moved, the primary value of a billboard permit appertains to the value of the designated location.

18. Countryside – cont’d. • ¶ 28 When, as here, the property condemned is held by multiple owners, the condemnor is generally required to value the property according to the “unit rule.” • Pursuant to the unit rule, the condemnor “provides compensation by paying the value of an undivided interest in the property rather than by paying the value of each owner's partial interest.” • [T]he condemnor “determines the fair market value as if only one person owned the property.” • When that value is determined, the condemnor makes a single payment which is then apportioned among the multiple owners. • In Wisconsin, acceptance of the unit rule is “beyond question.”

19. Next: Example Showing DOT Theory on Sign Site Acquisition and Valuation • Significance of recognizing sign site value in the appraisal problem: Ron Borree • Tracing acquisition methodology based on sign status – Flow Chart: AGC John Sobotik