III. Property
D. Conflicting property rights
    1. Incompatible uses (cont'd.)
    b. In practice 

    Continue worksheet

    Fontainebleau Hotel Corp. v. Forty-Five Twenty-Five, Inc. 114 So.2d 357 (1959) -- Eden Roc will be harmed by Fontainbleau (name misspelled in citation title in Lexis-Nexis)

1. What are the facts of the case?
2. What was the remedy in this case?
3. May property owners use their property in ways which injure others?
4. Then what are they prevented from doing?
5. Did the court consider the combined welfare effects of the disputants?
6. What is the doctrine of "ancient lights"?
7. Is it relevant here?
8. What rights does custom in Florida grant to Fountainbleau?
9. Would you consider this a low transaction cost case or not? Why?

Illustrates easement remedy w/o liability for damages
Transaction costs may be high even in small-number cases.

    Estancias Dallas Corp. v. Schultz, 500 S.W. 2d 217 (1973)

1. What are the facts of the case?
2. What was the remedy in this case?
3. What does a "balancing of equities" refer to?
4. How does it fit with the notion of optimal pollution?
5. How does it illustrate the property rights assignment rule that Coase recommends?
6. When an easement is granted, what remedy does the suggest is available to the pollutee?
7. How large were the costs at issue in each side in this case?
8. So why didn't the courts rule for the apartments?
9. Why doesn't the court accept the "stern rule of necessity" argument in this case?

    Illustrates the injunction remedy without liability for damages.
    Considers joint value.

    Boomer v. Atlantic Cement Co. 26 N.Y.2d 219 (1970)

1. What are the facts of the case?
2. What was the remedy in this case?
3. How does the court think issues of this sort should be handled in general
4. Did the court consider combined welfare effects--a balancing of equities?
5. Was that consistent with past practice?
6. How much did the court consider the costs at stake on each side to be in this case?
7. What sort of economic cost is the cement industry investment?
8. So why consider it?
9. In theory would the cement plant necessarily have had to shut down in response to an injunction? Why or why not?
10. So why not award an injunction?
11. Why does the dissent feel that past precedents for awarding damages are not relevant to the present case?
12. How would you respond to that argument?
13. Did the court award temporary or permanent damages?
14. What adverse incentive effect does the dissent cite with respect to the assessment of permanent damages?

Illustrates easement with liability for damages
Raises the contrast between temporary and permanent damages
Expresses a preference for legislative policy for handling pollution

    Spur Industries v. Del E. Webb Development (1972)

1. What are the facts of the case?
2. What was the remedy in this case?
3. How does the court distinguish between a private and public nuisance?
4. From an economic perspective, should the difference matter?
5. What does "coming to the nuisance" mean?
6. Does the court apply it in this case? Why or why not?
7. What incentive effect results from imposing liability for damages on Del Webb?

Illustrates injunction with liability for damages
Illustrates the reciprocal nature of incentives to internalize externalities

    Legal costs include costs of (1) getting information and (2) court errors

    There is no perfect/universal set of rules--all rules face tradeoffs

    (1) Low transaction costs favor property right remedies--injunction/easement

    For private parties: Property and liability rights both --> efficient outcome
    For the courts: property rights are cheaper to administer
       Ex: difficult to determine damages when Windsong satellite strays into Orbitcom's satellite orbit. (CU105)

    "Bright line" rules: predictable and cheap
    "General rules that yield easily predictable results are sometimes referred to bright line rules (to reduce uncertainty and rent seeking); rules that require a case-by-case decision by the courts are referred to as standards. (F41)

    Ex: Coming to the nuisance.
   based on sunk costs: it is easier to relocate before building than after. (F41)
    in modern American law, courts mostly reject the doctrine.
    rejected in Spur Industries v. Del E. Webb Development (1972)
    Most states rightly reject "coming to the nuisance" doctrine (since relative values change) (P62)

    Ex: Ancient lights
    "ancient lights" in English but not US common law: could not obstruct neighbor's light in half of room closest to window if it hadn't been obstructed for 20 years. (P52)
    rejected in Fountainebleau Hotel Corp. v. Forty-Five Twenty-Five, Inc. 114 So.2d 357 (1959)

    (2) High transaction costs relative to legal costs favor damage remedies
    "Private bargaining is unlikely to succeed in disputes involving a large number of geographically dispersed people because communication costs are high, monitoring is costly, and strategic behavior is likely to occur. . . . In these cases, damages are the preferred remedy." (CU106)
    Calabresi, Guido, and A. Douglas Melamed. "Property rules, liability rules, and inalienability: One view of the cathedral." Harvard Law Review 85 (1972): 1089. (CU105)
    When there are free-rider problems (holdout or false valuations), "an argument can readily be made for moving from a property rule to a liability rule. If society can remove from the market the valuation of each tract of land, decide the value collectively, and impose it, then the holdout problem is gone. Similarly, if society can value collectively each individual citizen's desire to have a park and charge him a 'benefits' tax based upon it, the freeloader problem is gone." (LEA195)

    High transaction costs are commonplace
    Especially with large stakes: Ex: Boomer v. Atlantic Cement:
    cost to plaintiff = 185K; injunction cost to cement firm= 45M => much room to negotiate and bluff.
    "This expensive bargaining was avoided by the court's novel remedial approach, although a simple alternative would have been, by a balancing of the costs to the respective parties, to have found that the plant was not a nuisance." (P71)

    And even in small-number cases
    Fountainebleau Hotel Corp. v. Forty-Five Twenty-Five, Inc. 114 So.2d 357 (1959) <-- "spite"
    and bilateral monopoly

    (2.1) Permanent or temporary damages?

    Permanent in Boomer v. Atlantic Cement Co. 26 N.Y.2d 219 (1970)

    Advantage to permanent damages: eliminates future litigation costs
    Advantage to temporary damages: preserves incentive to innovate (Ex: pointed out in the dissent in Boomer v. Atlantic Cement Co.
    "[T]emporary damages tend to be more efficient given easily measured damages and rapid innovation. Conversely, permanent damages tend to be more efficient given costly measurement of damages and slow innovation." (CU170)

    Example: easements for overflights
    easements for overflights are hard because of incentives from alternative options (holdouts with easement purchases; no incentive to abate after eminent domain, etc.) (P63)