Walgreen Co. v. Sara Creek Property Co., B.V.

• Decision Date: 29 June 1992
• Docket Number: No. 91-3519,91-3519
• Citation: 966 F.2d 273
• Parties: WALGREEN COMPANY, Plaintiff-Appellee, v. SARA CREEK PROPERTY COMPANY, B.V., a/k/a Sara Creek Beta, and Phar-Mor Corporation, Defendants-Appellants.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 273

966 F.2d 273

WALGREEN COMPANY, Plaintiff-Appellee, v. SARA CREEK PROPERTY COMPANY, B.V., a/k/a Sara Creek Beta and Phar-Mor Corporation, Defendants-Appellants.

No. 91-3519.

United States Court of Appeals Seventh Circuit.

Argued April 17, 1992.

Decided June 29, 1992.

Kevin J. Lyons (argued), Steven L. Nelson, Francis R. Croak, Cook & Franke, Milwaukee, Wis., for plaintiff-appellee.

Stephen J. Senderowitz (argued), Stephen E. Ray, John R. McLain, Richard M. Knoth, Randall L. Klein, Claire Toomey Durkin, Greenberger, Krauss & Tenenbaum, Chicago, Ill., for defendants-appellants.

Before POSNER and KANNE, Circuit Judges, and WOOD, Jr., Senior Circuit Judge.

POSNER, Circuit Judge.

This appeal from the grant of a permanent injunction raises fundamental issues concerning the propriety of injunctive relief 775 F.Supp. 1192 (E.D.Wis.1991). The essential facts are simple. 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, Milton Handler & Daniel E. Lazaroff, "Restraint of Trade and the Restatement (Second) of Contracts," 57 N.Y.U.L.Rev. 669, 683-708 (1982); Note, "The Antitrust Implications of Restrictive Covenants in Shopping Center Leases," 86 Harv.L.Rev. 1201 (1973)--implausibly enough, given the competition among malls; but that is an issue for another day, since in this appeal Sara Creek does not press the objection it made below to the clause 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.

Walgreen filed this diversity suit for breach of contract against Sara Creek and Phar-Mor and asked for an injunction against Sara Creek's letting the anchor premises to Phar-Mor. After an evidentiary hearing, 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. He did this over the defendants' objection that 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.

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. Patton v. Mid-Continent Systems, Inc., 841 F.2d 742, 750-51 (7th Cir.1988). 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. Northern Indiana Public Service Co. v. Carbon County Coal Co., 799 F.2d 265, 279 (7th Cir.1986). 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, Carusos v. Briarcliff, Inc., 76 Ga.App. 346, 351-52, 45 S.E.2d 802, 806-07 (1947)) 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. Coach House of Ward Parkway, Inc. v. Ward Parkway Shops, Inc., 471 S.W.2d 464, 473 (Mo.1971); Krikorian v. Dailey, 171 Va. 16, 197 S.E. 442 (1938); PNY Realty Corp. v. Chong Leung Restaurant, 116 Misc.2d 1035, 457 N.Y.S.2d 358 (1982); Saucier v. John-Clai Co., 408 So.2d 27 (La.App.1981); Barr & Sons, Inc. v. Cherry Hill Center, Inc., 90 N.J.Super. 358, 376, 217 A.2d 631, 641 (1966); Renee Cleaners, Inc. v. Good Deal Super Markets of N.J., Inc., 89 N.J.Super. 186, 214 A.2d 437 (App.Div.1965); Carusos v. Briarcliff, Inc., supra; Annot., "Validity, Construction, and Effect of Lessor's Covenant Against Use of His Other Property in Competition with the Lessee-Covenantee," 97 A.L.R.2d 4, 111-117 (§ 28) (1964 and Supp.1983). Why, Sara Creek asks, should they not be adequate here?

Sara Creek makes a beguiling argument that contains much truth, but we do not think it should carry the day. For if, as just noted, damages have been awarded in some cases of breach of an exclusivity clause in a shopping-center lease, injunctions have been issued in others. Handy Andy Home Improvement Centers, Inc. v. American National Bank & Trust Co., 177 Ill.App.3d 647, 126 Ill.Dec. 852, 532 N.E.2d 537 (1988); De Koven Drug Co. v. First National Bank, 27 Ill.App.3d 798, 800, 327 N.E.2d 378, 379 (1975); Regis Corp. v. Fusco Corp., 496 So.2d 833, 835 (Fla.App.1986); Belvin v. Sikes, 2 So.2d 65 (La.App.1941); Child World, Inc. v. South Towne Centre, Ltd., 634 F.Supp. 1121, 1134-35 (S.D.Ohio 1986). The choice between remedies requires a balancing of the costs and benefits of the alternatives. Hecht Co. v. Bowles, 321 U.S. 321, 329, 64 S.Ct. 587, 591, 88 L.Ed. 754 (1944); Yakus v. United States, 321 U.S. 414, 440, 64 S.Ct. 660, 674, 88 L.Ed. 834 (1944). The task of striking the balance is for the trial judge, subject to deferential appellate review in recognition of its particularistic, judgmental, fact-bound character. K-Mart Corp. v. Oriental Plaza, Inc., 875 F.2d 907, 915 (1st Cir.1989). As we said in an appeal from a grant of a preliminary injunction--but the point is applicable to review of a permanent injunction as well--"The question for us [appellate judges] is whether the [district] judge exceeded the bounds of permissible choice in the circumstances, not what we would have done if we had been in his shoes." Roland Machinery Co. v. Dresser Industries, Inc., 749 F.2d 380, 390 (7th Cir.1984).

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. "Irreparable" in the injunction context means not rectifiable by the entry of a final judgment. Diginet, Inc. v. Western Union ATS, Inc., 958 F.2d 1388, 1393 (7th Cir.1992); Vogel v. American Society of Appraisers, 744 F.2d 598, 599 (7th Cir.1984). It has nothing to do with whether to grant a permanent injunction, which, in the usual case anyway, is the final judgment. The use of "irreparable harm" or "irreparable injury" as synonyms for inadequate remedy at law is a confusing usage. It should be avoided. Owen M. Fiss & Doug Rendleman, Injunctions 59 (2d ed. 1984).

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. Roland Machinery Co. v. Dresser Industries, Inc., supra, 749 F.2d at 391-92; Rodriguez v. VIA Metropolitan Transit System, 802 F.2d 126, 132 (5th Cir.1986); Bethlehem Engineering Export Co. v. Christie, 105 F.2d 933, 935 (2d Cir.1939) (L. Hand, J.). A request for specific performance (a form of mandatory injunction) of a franchise agreement was refused on this ground in North American Financial Group, Ltd. v. S.M.R. Enterprises, Inc., 583 F.Supp. 691, 699 (N.D.Ill.1984); see Edward Yorio, Contract Enforcement: Specific Performance and Injunctions § 3.3.2 (1989). This ground was also stressed in Rental Development Corp. v. Lavery, 304 F.2d 839, 841-42 (9th Cir.1962), a case involving a lease. Some injunctions are problematic because they impose costs on third parties. Shondel v....