NY Court of Appeals affirms determination that corporations were “outdoor advertising companies” because they provided advertising space “to others”

This post was authored by Amy Lavine, Esq.

The New York Court of Appeals held in December that several corporations qualified as “outdoor advertising companies” because they made advertising space on their buildings “available to others,” even though in this case the advertiser was also an owner of each of the corporations. The court agreed with the New York City Environmental Control Board and the appellate court, which had both ruled against that the relevant issue was whether the corporations provided advertising to a separate legal entity, not whether they had a shared owner.

As the court explained: “the most natural reading of ‘others’ is distinct legal entities. Petitioner corporations, although admittedly owned either by Mr. Ciafone or by both Mr. Ciafone and his spouse, are indisputably distinct legal entities…. Thus, by advertising a distinct legal entity on their buildings, petitioner corporations made space available to others and are [outdoor advertising companies] under the Code.” The court also declined to look past the corporations’ formal ownership structures in order to take into account their shared ownership interest, since the “essential purpose behind corporations and other fictive entities is to give them a separate legal existence from the natural persons who own them and from other legal entities.” Moreover, there was simply “no statutory or equitable basis to disregard the corporate form chosen by Mr. Ciafone or other shareholders in these corporations.”

The court also rejected the argument that its decision would penalize the petitioner “for forming corporate entities to own the buildings for tax and liability purposes.” The court pointed out that various laws and regulations apply differently to corporations and natural persons, and “those are not ‘penalties’ for creating a corporate legal entity, but consequences of choosing that form of ownership.” One such consequence was that the fines for signage violations were higher for corporate “outdoor advertising companies” than for natural persons who provided advertising space to others, and the court found nothing amiss in this regulatory distinction. This was especially so in light of the regulations’ legislative history, which showed that “a primary concern of the legislature in passing and amending the Code was the key role that companies, ‘rather than individual property owners,’ play in creating the visual blight these signs represent.”

Matter of Franklin St. Realty Corp. v NYC Envtl. Control Bd., 2019 NY Slip Op 08976 (NY 12/17/19)