Recorder Name:Cassie Crosby
Case Name: Walgreen Company v. Sara Creek Property Company
Citation; Date: No. 91-3519, 966 F .2d 273; 1992
Court: United States Court of Appeals for the Seventh Circuit
Plaintiff: Walgreen Company; “discount” chain with a pharmacy, located in Southgate Mall under landlord Sara Creek
Defendant: Sara Creek Property Company; landlord of Southgate Mall fearful of losing anchor tenant
Facts of the Case: Walgreen has operated a pharmacy in Southgate Mall in Milwaukee since 1951. In 1971, a 30-year lease was signed stipulating that Sara Creek not lease any mall space to pharmacy competitors. Nineteen years later, the anchor tenant (or largest tenant) of the mall seemed in danger of closing, and Sara Creek informed Walgreen of its intention to open a store owned by Phar-Mor Corporation, a “deep discount” chain compared to Walgreen’s “discount” rating. The stores would be of similar size and in close proximity, posing serious competition for Walgreen.
Procedural History: Walgreen filed for a breach of contract against Sara Creek and Phar-Mor. The requested remedy was an injunction against Sara Creek leasing the anchor tenant slot to Phar-Mor. The United States District Court for the Eastern District of Washington allowed a permanent injunction against Sara Creek allowing Phar-Mor to act as anchor tenant, until Walgreen’s lease expires in 2001. Sara Creek appealed, saying injunctions can only be granted when damages are unable to be estimated.
Court Opinion: The Court of Appeals argued an injunction here was less costly and more reliable than estimating a decade of damages potentially suffered by Walgreen. The Court allows that injunctions are granted when damages are inadequate, here representing the present value of lost future profits or the lease’s diminution in value with such a competitive neighbor. Sara Creek’s argument of damages being “the norm” is dismissed as damages and injunctions having their proper place as remedies. Two benefits are laid out for an injunction: placing the hassle of determining the cost of the defendant’s conduct on the parties, not the court (in that the two could bargain to dissolve the injunction), and prices and costs are free to be determined by the market rather than by court experts. The costs of an injunction, possibly a bilateral monopoly as well as constant supervision, are small in the face of the cost of determining accurate damages based on store profitability and specific competition.
Disposition of the Case: Affirmed by the Court of Appeals.
Analysis of the Case:
- Course Topic of the Case: Breaking contracts, with specific performance as a remedy – defined as mandatory fulfillment of contract on penalty of being held in contempt of the court.
- How does the case relate to the course topic? This case illustrates an injunction, namely a permanent injunction, as a specific performance alternative to simply damages.
- Which previously assigned cases, if any, are related to this case, and how does this one differ?Taylor v. Caldwell also involved breaking contracts, but Walgreen differs in that there was no outside event preventing the contract to be fulfilled here. Taylor involved a fire that ruined the building contracted out to be used. Damages were not awarded because the fire could not be foreseen and was not either party’s fault. Instead, this was a willful breach of contract by Sara Creek, and so a remedy must be awarded to compensate Walgreen for that infringement. Similarly, Goebel v. Lynn differs in the nature of breach and remedy from Walgreen. Extenuating circumstances forced ice sellers in Goebel to raise their prices to simply cover costs. The breach was then allowed as necessary for the defendant. Here, Sara Creek is in no danger of shutting down the mall for not installing Phar-More – they simply want to, and thus willfully breached contract. Both cases seek damages as a remedy, while Walgreen utilizes an injunction as an alternative solution to breach.
- How does the case affect economic incentives and efficiency?The main issue defendants could have with this case is the allowance of injunctions when unnecessary. The use of injunctions, Posner points out, could often be more efficient if damages difficult to measure. The market is allowed to determine damages with an injunction, and litigation costs and errors are minimized compared to attempting to quantify damage amounts. Experts do not have to determine years of future damages or specific loss of amenity – the action is simply barred. The disadvantages include possible inefficiency from bilateral monopoly – each side trying to capture as much surplus as possible in attempting to negotiate, so that bargaining may break down and lead to inefficiency. Also resultant from an injunction is the necessary monitoring from the government that the injunction is upheld. However, in light of the difficulty of determining damages and the time and effort necessary to do so, a permanent injunction proved the more efficient option.An incentive also resulted wherein Sara Creek could pay Walgreen to dissolve the injunction, if Sara Creek were indeed the highest-valuer of the area. The case precedent allowed another option for remedying breach of contract that was potentially less costly and time-consuming for difficult cases.