CASE NAME WALGREEN COMPANY, Plaintiff-Appellee, v. SARA CREEK PROPERTY COMPANY, B.V., a/k/a SARA CREEK BETA, and PHAR-MOR CORPORATION, Defendants-Appellants.
COURT UNITED STATES COURT OF APPEALS FOR THE SEVENTH CIRCUIT
CITATION, DATE

966 F.2d 273; 1992 U.S. App. LEXIS 14847. June 29, 1992, Decided
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PROCEDURAL HISTORY
TRIAL COURT: APPEAL COURT (for appeal cases only):
PLAINTIFF Walgreen Company APPELLANT Sara Creek Property Company
DEFENDANT Sara Creek Property Company RESPONDENT Walgreen Company
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DESCRIPTION OF EVENTS
    "Walgreen has operated a pharmacy in the Southgate Mall in Milwaukee since its opening in 1951. Its current lease, signed In 1971 and carrying a 30-year, 6-month term, contains, as had the only previous lease, a clause in which the landlord, Sara Creek, promises not to lease space in the mall to anyone else who wants to operate a pharmacy or a store containing a pharmacy. Such an exclusivity clause, common in shopping-center leases, is occasionally challenged on antitrust grounds."
    "In 1990, fearful that its largest tenant--what in real estate parlance is called the "anchor tenant"--having gone broke was about to close its store, Sara Creek informed Walgreen that it intended to buy out the anchor tenant and install in its place a discount store operated by Phar-Mor Corporation, a "deep discount" chain, rather than, like Walgreen, just a "discount" chain. Phar-Mor's store would occupy 100,000 square feet, of which 12,000 would be occupied by a pharmacy the same size as Walgreen's. The entrances to the two stores would be within a couple of hundred feet of each other."
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REMEDY SOUGHT an injunction against Sara Creek's letting the anchor premises to Phar-Mor.
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ARGUMENT FOR PLAINTIFF
    "Walgreen filed this diversity suit for breach of contract against Sara Creek and Phar-Mor..."
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ARGUMENT FOR DEFENDANT
    "Walgreen had failed to show that its remedy at law--damages--for the breach of the exclusivity clause was inadequate. Sara Creek had put on an expert witness who testified that Walgreen's damages could be readily estimated, and Walgreen had countered with evidence from its employees that its damages would be very difficult to compute, among other reasons because they included intangibles such as loss of goodwill."
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COURT OPINION
    "This appeal from the grant of a permanent Injunction raises fundamental issues concerning the propriety of injunctive relief"
    "Sara Creek reminds us that damages are the norm in breach of contract as in other cases. Many breaches, it points out, are "efficient," in the sense that they allow resources to be moved into a more valuable use.... Perhaps this is one--the value of Phar-Mor's occupancy of the anchor premises may exceed the cost to Walgreen of facing increased competition. If so, society will be better off if Walgreen is paid its damages, equal to that cost, and Phar-Mor is allowed to move in rather than being kept out by an injunction. That is why injunctions are not granted as a matter of course, but only when the plaintiff's damages remedy is inadequate.... Walgreen's is not, Sara Creek argues; the projection of business losses due to increased competition is a routine exercise in calculation. Damages representing either the present value of lost future profits or (what should be the equivalent ...) the diminution in the value of the leasehold have either been awarded or deemed the proper remedy in a number of reported cases for breach of an exclusivity clause in a shopping-center lease....Why, Sara Creek asks, should they not be adequate here?"
    "The plaintiff who seeks an injunction has the burden of persuasion--damages are the norm, so the plaintiff must show why his case is abnormal. But when, as in this case, the issue is whether to grant a permanent injunction, not whether to grant a temporary one, the burden is to show that damages are inadequate, not that the denial of the injunction will work irreparable harm."
    "The benefits of substituting an injunction for damages are twofold. First, it shifts the burden of determining the cost of the defendant's conduct from the court to the parties. If it is true that Walgreen's damages are smaller than the gain to Sara Creek from allowing a second pharmacy into the shopping mall, then there must be a price for dissolving the injunction that will make both parties better off. Thus, the effect of upholding the injunction would be to substitute for the costly processes of forensic fact determination the less costly processes of private negotiation. Second, a premise of our free-market system, and the lesson of experience here and abroad as well, is that prices and costs are more accurately determined by the market than by government. A battle of experts is a less reliable method of determining the actual cost to Walgreen of facing new competition than negotiations between Walgreen and Sara Creek over the price at which Walgreen would feel adequately compensated for having to face that competition."
    "That is the benefit side of injunctive relief but there is a cost side as well. Many injunctions require continuing supervision by the court, and that is costly.... A more subtle cost of injunctive relief arises from the situation that economists call "bilateral monopoly," in which two parties can deal only with each other: the situation that an injunction creates.... Walgreen can "sell" its injunctive right only to Sara Creek, and Sara Creek can "buy" Walgreen's surrender of its right to enjoin the leasing of the anchor tenant's space to Phar-Mor only from Walgreen. The lack of alternatives in bilateral monopoly creates a bargaining range, and the costs of negotiating to a point within that range may be high. Suppose the cost to Walgreen of facing the competition of Phar-Mor at the Southgate Mall would be $ 1 million, and the benefit to Sara Creek of leasing to Phar-Mor would be $ 2 million. Then at any price between those figures for a waiver of Walgreen's injunctive right both parties would be better off, and we expect parties to bargain around a judicial assignment of legal rights if the assignment is inefficient. R.H. Coase, "The Problem of Social Cost," 3 J. Law & Econ. 1 (1960). But each of the parties would like to engross as much of the bargaining range as possible--Walgreen to press the price toward $ 2 million, Phar-Mor to depress it toward $ 1 million. With so much at stake, both parties will have an incentive to devote substantial resources of time and money to the negotiation process. The process may even break down, if one or both parties wants to create for future use a reputation as a hard bargainer; and if it does break down, the injunction will have brought about an inefficient result. All these are in one form or another costs of the injunctive process that can be avoided by substituting damages."
    "The costs and benefits of the damages remedy are the mirror of those of the injunctive remedy. The damages remedy avoids the cost of continuing supervision and third-party effects, and the cost of bilateral monopoly as well. It imposes costs of its own, however, in the form of diminished accuracy in the determination of value, on the one hand, and of the parties' expenditures on preparing and presenting evidence of damages, and the time of the court in evaluating the evidence, on the other."
    "The weighing up of all these costs and benefits is the analytical procedure that is or at least should be employed by a judge asked to enter a permanent injunction, with the understanding that if the balance is even the injunction should be withheld. The judge is not required to explicate every detail of the analysis and he did not do so here, but as long we are satisfied that his approach is broadly consistent with a proper analysis we shall affirm; and we are satisfied here. The determination of Walgreen's damages would have been costly in forensic resources and inescapably inaccurate.... The lease had ten years to run. So Walgreen would have had to project its sales revenues and costs over the next ten years, and then project the impact on those figures of Phar-Mor's competition, and then discount that impact to present value. All but the last step would have been fraught with uncertainty."
    "Sara Creek presented evidence of what happened (very little) to Walgreen when Phar-Mor moved into other shopping malls in which Walgreen has a pharmacy, and it was on the right track in putting in comparative evidence. But there was a serious question whether the other malls were actually comparable to the Southgate Mall, so we cannot conclude, in the face of the district judge's contrary conclusion, that the existence of comparative evidence dissolved the difficulties of computing damages in this case. Sara Creek complains that the judge refused to compel Walgreen to produce all the data that Sara Creek needed to demonstrate the feasibility of forecasting Walgreen's damages. Walgreen resisted, on grounds of the confidentiality of the data and the cost of producing the massive data that Sara Creek sought. Those are legitimate grounds; and the cost (broadly conceived) they expose of pretrial discovery, in turn presaging complexity at trial, is itself a cost of the damages remedy that injunctive relief saves."
    "The injunction here, like one enforcing a covenant not to compete..., is a simple negative injunction--Sara Creek is not to lease space in the Southgate Mall to Phar-Mor during the term of Walgreen's lease and the costs of judicial supervision and enforcement should be negligible. There is no contention that the injunction will harm an unrepresented third party. It may harm Phar-Mor but that harm will be reflected in Sara Creek's offer to Walgreen to dissolve the injunction. (Anyway Phar-Mor is a party.) The injunction may also, it is true, harm potential customers of Phar-Mor--people who would prefer to shop at a deep-discount store than an ordinary discount store--but their preferences, too, are registered indirectly. The more business Phar-Mor would have, the more rent it will be willing to pay Sara Creek, and therefore the more Sara Creek will be willing to pay Walgreen to dissolve the injunction."
    "The only substantial cost of the injunction in this case is that it may set off a round of negotiations between the parties. In some cases, illustrated by Boomer v. Atlantic Cement Co., ... this consideration alone would be enough to warrant the denial of injunctive relief.... There is nothing so dramatic here. Sara Creek does not argue that it will have to close the mall if enjoined from leasing to Phar-Mor. Phar-Mor is not the only potential anchor tenant."
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DISPOSITION OF CASE
    At trial: "the judge found a breach of Walgreen's lease and entered a permanent injunction against Sara Creek's letting the anchor tenant premises to Phar-Mor until the expiration of Walgreen's lease."
    Affirmed
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ECONOMIC ANALYSIS
    Explicitly introduces a range of economic arguments. Argued by Posner, so this is not surprising.
    It serves as a review of Coase and of the trade-offs of injunctions vs. damages.