Antitrust Law Daily Wrap Up, ADVERTISING NEWS—D. Md.: Baltimore charge for outdoor ad displays might impermissibly regulate commercial speech, (May 21, 2014)

By Greg Hammond, J.D.

The City of Baltimore, Maryland was denied dismissal of a claim that it violated the First and Fourteenth Amendments to the U.S. Constitution by imposing a charge on outdoor advertising displays. In reaching its decision to deny the City’s motion to dismiss, the federal district court in Baltimore determined that it had subject matter jurisdiction over the matter and that a question exists as to whether the charge directly advances the City’s interests in traffic safety (Clear Channel Outdoor, Inc. v Mayor and City Council of Baltimore, May 19, 2014, Russell, G).

Outdoor advertising display ordinance. Clear Channel Outdoor, Inc. is one of four companies that owns or operates outdoor advertising displays in Baltimore, Maryland. On June 20, 2013, the Mayor of Baltimore signed Ordinance 13-139 into law, imposing a levy on outdoor advertising displays. The recitals of the ordinance note that outdoor advertising displays are a public nuisance that harms the “health safety, convenience, and welfare of” City residents. In addition, according to the City, the outdoor advertising distracts the attention of drivers on the road, endangering public safety. The recitals also note that the advertising creates “visible clutter and blight” that limits the City’s ability to collect revenue from other sources.

The ordinance charges $15-per-square-foot for electronic displays that change images more than one time per day and $5-per-square-foot for all other displays. However, the charge does not extend to government entities that have outdoor advertising displays. In addition, “onsite” displays, which promote businesses, products, services, or events on the premises where the display appears, are not charged under the ordinance.

Clear Channel filed suit against the Mayor and City Council of Baltimore, arguing that the ordinance violates the First and Fourteenth Amendments to the U.S. Constitution by impermissibly regulating commercial speech. The case was before the district court on the City’s motion to dismiss for lack of subject matter jurisdiction and for failure to state a claim, as well as Clear Channel’s motion for leave to file a surreply to the City’s motion.

Subject matter jurisdiction. Under the Tax Injunction Act (TIA) (28 USC 1341), federal courts are prohibited from interfering with state tax collection if a speedy and efficient remedy is possible in state court. Consequently, the issue of subject matter jurisdiction is dependent on whether the charge is considered a tax or a fee under a three factor test: (1) what entity imposed the charge; (2) what population is subject to the charge; and (3) what purposes are served from the proceeds of the charge? In the event the three factors are inconclusive in determining whether the charge is a tax or a fee, the court may consider the purpose behind the statute imposing the charge.

According to the court, the three factors were inconclusive. First, the court noted that a legislature imposed charge that is not collected by the general tax assessor is more likely to be a fee than a tax. Second, it was determined that the ordinance was effectively imposed on a narrow class of taxpayers, as it was applicable to only four companies and Clear Channel owned approximately 95 percent of the City’s outdoor advertising displays. This determination made it less likely that the charge was a tax. However, the third factor was inconclusive, as it was unclear where the money from the charges would actually go, despite the City’s assertion it would benefit the general public.

Looking to the purpose of the ordinance, the district court determined that the recitals suggest the charges are fees, rather than taxes. Specifically, the court noted that the City’s ordinance attempts to: (1) discourage particular conduct by making the advertising displays more costly and (2) levy the displays to recoup revenue lost by the displays’ presence, which are two ways fees are used to serve regulatory purposes. Because the three factors and purpose of the ordinance suggest the charge is a fee, the court determined that it had subject matter jurisdiction over the matter.

First Amendment violation. In determining whether Clear Channel failed to state a claim, the court determined whether the ordinance directly advances an asserted interest. The court first noted that outdoor advertising displays pose “real and substantial” harms to traffic safety as a matter of law. However, it gave weight to Clear Channel’s argument that there is a distinction between an ordinance that simply prohibits displays and an ordinance that imposes charges. While prohibiting displays has the direct regulatory effect of alleviating identified harms to traffic safety, imposing charges for advertising displays, without any affirmative step to ensure compliance, does not have such a direct effect. Consequently, the court denied the City’s motion to dismiss.

Surreply. The district court also determined that the City did not raise any novel issues that would prompt the court to grant Clear Channel leave to file a surreply. Specifically, the court noted that the City only made new subject matter jurisdiction arguments that responded directly to Clear Channel’s response to the City’s motion to dismiss. Consequently, Clear Channel’s motion for leave to file a surreply was denied.

The case is Civil Action No. GLR-13-2379.

Attorneys: Benjamin Rosenberg (Rosenberg Martin Greenberg LLP) for Clear Channel Outdoor, Inc. Steven John Potter, Baltimore City Department of Law, for Mayor and City Council of Baltimore.

Companies: Clear Channel Outdoor, Inc.

Cases: Advertising MarylandNews