Walgreen Co. v. Sara Creek Property Co.
966 F.2d 273 (1992)
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Rule of Law:
A permanent injunction is an appropriate remedy for a breach of contract when damages are inadequate, meaning the costs and uncertainty of a judicial determination of damages outweigh the costs of the injunction.
Facts:
- Since 1951, Walgreen has operated a pharmacy in the Southgate Mall, which is owned by Sara Creek.
- Walgreen's current lease, signed in 1971 for a 30-year term, contains an exclusivity clause where Sara Creek promised not to lease mall space to any other pharmacy.
- In 1990, the mall's largest tenant, its 'anchor tenant,' went bankrupt.
- Sara Creek informed Walgreen of its intent to replace the anchor tenant with a Phar-Mor, a 'deep discount' chain.
- The proposed Phar-Mor store would contain a pharmacy the same size as Walgreen's, with an entrance just a few hundred feet away.
Procedural Posture:
- Walgreen filed a diversity suit against Sara Creek and Phar-Mor in the U.S. District Court for the Eastern District of Wisconsin, alleging breach of contract.
- Walgreen requested a permanent injunction to prevent Sara Creek from leasing space to Phar-Mor.
- The district court held an evidentiary hearing and found that Sara Creek had breached the exclusivity clause in the lease.
- The district court granted a permanent injunction against Sara Creek.
- Sara Creek, as the appellant, appealed the district court's grant of the permanent injunction to the U.S. Court of Appeals for the Seventh Circuit.
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Issue:
Is a permanent injunction an appropriate remedy for a landlord's breach of a long-term lease's exclusivity clause when calculating the tenant's future damages would be speculative, costly, and difficult to prove with accuracy?
Opinions:
Majority - Posner, Circuit Judge.
Yes, a permanent injunction is an appropriate remedy here. The choice between damages and an injunction requires a balancing of the costs and benefits of each alternative, and an injunction is proper when damages are an inadequate remedy. Here, calculating Walgreen's damages would be highly costly and speculative, requiring a forecast of profits and the impact of a new competitor over the remaining ten years of the lease. While damages are the norm, their determination in this case would be an exercise in forensic fact-finding fraught with uncertainty and inaccuracy. An injunction, by contrast, shifts the burden of determining the cost of the breach from the court to the parties through private negotiation. The costs of this simple negative injunction—which merely requires Sara Creek not to lease to Phar-Mor—are low, as it requires minimal judicial supervision and does not harm unrepresented third parties. While an injunction creates a 'bilateral monopoly' that can lead to costly bargaining, those costs are likely less than the costs and inaccuracies of a judicial attempt to calculate damages over a ten-year period.
Analysis:
This opinion is a landmark application of law and economics principles to the question of equitable remedies. Judge Posner moves beyond the traditional 'irreparable harm' boilerplate and reframes the analysis as a pragmatic balancing of costs. The decision establishes that the high cost and inherent inaccuracy of calculating long-term damages can, by itself, render a legal remedy inadequate, thus justifying an injunction. This shifts the focus from the nature of the harm to the practicality and efficiency of the remedy, promoting private bargaining between parties as a more efficient method of valuation than a court's estimation.
