One of the plaintiffs’ billboards in Austin, Texas. Source: Reagan National Advertising.

Last week, the U.S. Fifth Circuit Court of Appeals issued a ruling that the City of Austin, Texas’s sign ordinance was content based and unconstitutional due to the fact it impermissibly distinguished between on-premises and off-premises signs.  The Fifth Circuit’s ruling follows a similar ruling by the Sixth Circuit in a challenge to a Tennessee state law governing billboards, and sets up the possibility of further confusion in the area of billboard regulation.

In the Austin case, two billboard companies sought permits to convert existing billboards to digital signs.  The city denied the permits on the ground that its sign code prohibits new off-premises signs (i.e. signs that advertise business or services not located on the property on which the sign is located) and that conversion of existing billboards to digital faces would change the technology of a nonconforming sign in violation of the code.  The billboard companies challenged the denial in state court.  The city removed the case to federal court.  During the pendency of the litigation, the city amended its sign code to allow the substitution of noncommercial messages on any commercial sign in the city.  Following a bench trial, the district court determined that the sign code was content neutral and denied the billboard companies’ request for declaratory judgment.

On appeal, the Fifth Circuit reversed.  The Fifth Circuit determined that the distinction between on- and off-premises signs was content based and thus, the sign code was subjected to strict scrutiny.  Citing Reed v. Town of Gilbert, the appellate court reasoned that, because the city’s definition of off-premises sign was facially dependent upon the content of the speech on a given sign, it was content based.  The Fifth Circuit rejected the city’s arguments that Justice Alito’s concurrence in Reed, which specifically identified the on-premises/off-premises distinction as being content neutral, governed the Austin case.  Because the Austin code allowed on-premises signs to be converted to digital displays, while off-premises signs could not be so converted, the court determined that the distinction singled out signs for disadvantageous treatment based on their content.  The Fifth Circuit specifically relied upon the Sixth Circuit’s analysis in Thomas and rejected other circuits’ post-Reed analysis of the on-premises/off-premises distinction.

The appellate court also questioned whether the regulation only applied to commercial speech, in light of the city’s decision to add a message substitution provision to the code following the initiation of this litigation.  In the event that the court determined that only commercial speech was implicated by the regulation, it would be subject to Central Hudson intermediate scrutiny.  Yet the Fifth Circuit disagreed with the city’s position that only commercial speech was involved in the decision.  The court concluded that the regulation of off-premises signage and prohibition on digitization of billboards applies with equal force to both commercial and noncommercial speech, and thus strict scrutiny was warranted.  Applying strict scrutiny, the court ruled that the city’s interests in aesthetic beautification and public safety were not advanced by the prohibition on digitization of off-premises signs.

The Fifth Circuit’s decision introduces additional confusion into an ongoing debate over the constitutionality of the on-premises/off-premises distinction in sign codes.  This distinction has been critical to local governments’ regulation of billboards, but this decision—combined with the Sixth Circuit’s decision in Thomas last year—appears to question its validity.  The Ninth Circuit and D.C. Circuit have determined that Reed did not upset prior case law holding the distinction to be constitutional, but the Fifth and Sixth Circuits have now held otherwise.  Barring any reversal by any federal circuit courts, it appears that the Supreme Court may need to step in to clarify its holding in Reed with respect to the distinction.

Reagan Nat’l Adver. of Austin, Inc. v. City of Austin, ___ F.3d ___, 2020 WL 5015455 (5th Cir. Aug. 25, 2020).