If they have adopted the NFPA life safety codes, yes it is illegal. Most local jurisdictions adopt the code as released, some add additional requirements though. ( I just looked and 43 states use NFPA 101 statewide, the others use it to a lesser extent I don't know about Cali specifically)
The phrasing is something along the lines of keeping exits and their pathways unobstructed. (Side question: Does the sign exist on a pathway to an exit? In other words there are some signs that lead you to an exit, but the doors the are in front of don't themselves exit to the exterior)
The next question is if the exit in question would be a required exit. This depends on the classification of occupancy, number of allowed persons, travel distances to other exits, etc. If it is not required they could simply remove the exit sign.
Most buildings I am familiar with are done to the minimum code requirements at the time of construction. Business usually don't put in extra exits, due to the costs. However, some may have redundant exits for convenience/aesthetic reasons.
If the exit is required by code, and it does not function as intended there are consequences. Where I work a repair order would be issued. If they did not comply within a reasonable timeline, civil fines would be placed. They start off small but I believe they ramp to $1000/per day/violation. So a business with 12 violations could be facing up to $12k per day until fixed. This is rare, and is usually for willful violations that are not making any effort to comply. The whole intent is to make it cheaper to comply, than simply pay the fines and ignore it.
Additionally, if there were an injury or death there could be civil liability and/or criminal charges against the responsible parties.
None of the above is an official opinion and/or legal advice. It is simply the best of my practical understanding of how it is applied where I am.
You could go with the email address Olds listed, or find out who your local Authority Having Jurisdiction is. Most will allow anonymous reporting of concerns, and will investigate.
Remember most of the elements of the life safety codes are lessons learned from multiple fatality fires. They are efforts to reduce loss of life in future fires.
Many are familiar with the
http://en.wikipedia.org/wiki/The_Station_nightclub_fire, but there are many, many more were blocked exits contributed to massive loss of life.
Take a look at
http://en.wikipedia.org/wiki/2003_E2_nightclub_stampede where the was no fire, but 23 people died in a stampede trying to get away from a fight and pepper spray. They had blocked exits there as well.