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Contest Promotions, LLC v. City and County of San Francisco

United States District Court, N.D. California

April 26, 2017

CONTEST PROMOTIONS, LLC, Contest Promotions,
v.
CITY AND COUNTY OF SAN FRANCISCO, The City.

          ORDER GRANTING DEFENDANT'S MOTION TO DISMISS WITHOUT LEAVE TO AMEND Re: Dkt. No. 40

          SUSAN ILLSTON United States District Judge

         On April 25, 2017, the Court held a hearing on the motion by defendant City and County of San Francisco to dismiss plaintiff Contest Promotions' first amended complaint. For the reasons set forth below, the Court GRANTS the City's motion and DENIES leave to amend.

         BACKGROUND

         This Court has presided over several disputes between plaintiff Contest Promotions LLC (“Contest Promotions”) and defendant City and County of San Francisco (“San Francisco” or “the City”) related to San Francisco's sign regulations.[1] Beginning March 5, 2002, the City banned construction of new “General Advertising Signs” but continued to allow the construction of new “Business Signs.” In short, a “Business Sign” advertises a product or service available at the adjoining business while a “General Advertising Sign” promotes a product or service that is available off-site. Contest Promotions' business model is to lease space on or near businesses to install signs for various promotional giveaways, for which it presumably receives advertising revenues. In 2007, the City determined that even though an interested party must enter the store to fill out an application for an advertised promotion, Contest Promotions' signs amount to “General Advertising Signs” because the prize is not awarded on site. As a result, Contest Promotions' signs were deemed to violate Article 6 of the S.F. Planning Code.

         In response, Contest Promotions filed suit against the City on September 22, 2009, challenging Article 6 on various constitutional grounds. The parties eventually settled the case on February 1, 2013. As part of the settlement, the City agreed to recognize Contest Promotions' signs as “business signs” subject to the condition that Contest Promotions apply for new sign permits and that the signs comply with the S.F. Planning Code at the time each permit application was filed. In July 2014, shortly after the agreement formally took effect, the City amended Article 6's definition of “Business Sign” as follows:

Business Sign. A sign which directs attention to a the primary business, commodity, service, industry or other activity which is sold, offered, or conducted, other than incidentally, on the premises upon which such sign is located, or to which it is affixed. Where a number of businesses, services, industries, or other activities are conducted on the premises, or a number of commodities, with different brand names or symbols are sold on the premises, up to 1/3 of the area of a business sign, or 25 square feet of sign area, whichever is the lesser, may be devoted to the advertising of one or more of those businesses, commodities, services, industries, or other activities by brand name or symbol as an accessory function of the business sign, provided that such advertising is integrated with the remainder of the business sign, and provided also that any limits which may be imposed by this Code on the area of individual signs and the area of all signs on the property are not exceeded. The primary business, commodity, service, industry, or other activity on the premises shall mean the use which occupies the greatest area on the premises upon which the business sign is located, or to which it is affixed.

         Under this amendment, no Contest Promotion sign qualifies as a business sign because the giveaway that a Contest Promotion sign advertises is not the “primary” service a given business offers. In response to the amendment, Contest Promotion filed a second action (the “January 2015 Action”) that challenged, among other things, the constitutionality of the City's new definition of “Business Sign.”

         Initially, the January 2015 Action only argued that Article 6 could not survive Central Hudson scrutiny. In particular, Contest Promotions argued that the regulation “neither directly advances the City's interests nor is it narrowly tailored to achieve its objectives.” Contest Promotions, LLC v. City & Cnty. of S.F., No. 15-0093, Dkt. 17 at 15-17. The Court rejected this argument and granted the City's first motion to dismiss, finding that Article 6 was appropriately tailored to the City's interests of aesthetics and safety. Id., Dkt. 25, at 6-8. On May 22, 2015, Contest Promotions filed an amended complaint, and on June 12, 2014, the City moved to dismiss the complaint. Id., Dkts. 29, 33. In between the filing of the amended complaint and the City's motion to dismiss, the U.S. Supreme Court decided Reed v. Town of Gilbert, Ariz., 135 S.Ct. 2218 (2015), a decision stressing that content-based distinctions are subject to strict scrutiny.

         In light of Reed, Contest Promotions' opposition brief argued that Section 602.3, the section of Article 6 defining “business sign, ” is a content-based regulation and is thus subject to strict scrutiny. Specifically, Contest Promotions argued that because section 602.3 distinguishes between on-site and off-site signs, prohibiting signs that advertise a product or service offered off site while allowing signs that advertise a product or service located on site, section 602.3 should undergo strict scrutiny after Reed. The Court disagreed and dismissed Contest Promotions' First Amendment claim with prejudice. Contest Promotions, No. 15-0093, Dkt. 43. The Court distinguished Reed on the ground that it involved non-commercial speech, whereas Section 602.3 addressed commercial speech. Id. at 6 (“However, Reed does not concern commercial speech, and therefore does not disturb the framework which holds that commercial speech is subject only to intermediate scrutiny as defined by the Central Hudson test.”). In addition, the Court found that the on-site/off-site distinction was not content based, but rather, was “fundamentally concerned with the location of the sign relative to the location of the product which it advertises.” Id. at 7. Because Section 602.3 did not “single out specific subject matter [or specific speakers] for disfavored treatment, ” the Court held that section 602.3 was not subject to anything beyond Central Hudson scrutiny. Id. (citing Reed, 135 S.Ct. at 2230) (alterations original). Having already found in its first dismissal order that Section 602.3 satisfies Central Hudson, the Court dismissed with prejudice Contest Promotions' First Amendment claims. Contest Promotions appealed the order. According to the parties, the appeal is fully briefed but not yet scheduled for oral argument.[2] Mot. (Dkt. 40) at 5.

         On August 27, 2015, Contest Promotion filed a number of state law claims in state court, alleging various breach of contract theories. It also alleged violation of the federal Contracts Clause. Based on the federal Contracts Clause claim, the City removed to this Court, and moved to dismiss. See Contest Promotions, LLC v. City & Cnty. of S.F., No. 15-4365 (filed Sept. 23, 2015). The Court dismissed the federal Contract Clause claim on res judicata grounds, and remanded the remaining state law claims. Those claims are currently being litigated in state court.

         On November 10, 2016, the City amended Section 603 of the S.F. Planning Code to exempt all non-commercial speech. Prior to the formal amendments, the City had long since interpreted the Code as exempting all non-commercial signs. The November 10, 2016 amendment codified this interpretation, making explicit that “[n]othing in this Article 6 shall apply to any of the following signs: (a) Noncommercial signs.” That same day, Contest Promotions filed this lawsuit, which, among other things, challenges the changes to section 603 on First Amendment grounds. Specifically, Contest Promotions argues that Article 6's provisions are “content-based because they exempt noncommercial signs.” Opp'n (Dkt. 41) at 5. As a result, Contest Promotions argues that the provisions warrant strict or “heightened” scrutiny and that the provisions fail heightened, as well as intermediate, scrutiny. On January 9, 2017, the Court's order denying Contest Promotion's motion for preliminary injunction in this case rejected these exact arguments. In that order, the Court reviewed the case law and concluded that Central Hudson continues to govern. Contest Promotions appealed the denial of the preliminary injunction to the Ninth Circuit. Accordingly, two appeals related to the constitutionality of Article 6 of the SF Planning Code are currently pending before the Ninth Circuit.[3]

         The City has now moved to dismiss the first amended complaint in this case with prejudice. At oral argument, the parties agreed that a dismissal with prejudice would moot the appeal of the preliminary injunction order.

         LEGAL STANDARD

         Federal Rule of Civil Procedure 12(b)(6) permits a court to dismiss a cause of action for “failure to state a claim upon which relief can be granted.” Fed.R.Civ.P. 12(b)(6). To survive a Rule 12(b)(6) motion to dismiss, a plaintiff must allege “enough facts to state a claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). This “facial plausibility” standard requires a plaintiff to allege facts that add up to “more than a sheer possibility that a defendant has acted unlawfully.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). While courts do not require “heightened ...


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