Abstract Economically minded legal scholars have devoted much attention to the comparative costs of property rules and liability rules, but little attention to the legal rule that most squarely addresses that choice -- the defense of undue hardship. In general, a court will refuse an injunction, and leave plaintiff to his damage remedy, if defendant’s cost of complying with the injunction would be greatly disproportionate to the benefits to plaintiff.
This defense may have been rendered obscure to law-and-economics scholars by the highly visible opinion of the New York Court of Appeals in Boomer v. Atlantic Cement, which seemed to say that the cost of compliance had been irrelevant in New York prior to the court’s decision in Boomer itself. Boomer was in fact no innovation, and the defense of undue hardship had long been established in New York as elsewhere.
The undue-hardship defense implements the core economic concern with cost, but it differs from traditional economic analysis in important ways, and those differences are analyzed here. The defense could have provided a ready-made solution to the problem of “patent trolls,” had the Supreme Court attended to it in eBay v. MercExchange. And subsequent developments in Boomer, on remand from the Court of Appeals, illustrate that supracompensatory remedies, such as disgorgement of unjust enrichment and even punitive damages, can function as liability rules rather than property rules.
I. INTRODUCTION: REMEDIES THAT COST MORE THAN THEY ARE WORTH There is a large literature in law and economics, most famously rooted in Calabresi and Melamed, on the choice between what that literature calls liability rules and property rules.1 Of course, this is just the choice that lawyers know as the choice between damages and injunctions. (Hold for now the in-between cases of punitive damages, disgorgement of profits, and other monetary remedies that are more than compensatory.2)
Sometimes the injunctive remedy costs more than it is worth. That is, the cost to defendant of complying with the injunction may exceed, or may greatly exceed, the benefit plaintiff would derive from the injunction. Courts take account of this danger under a longstanding but poorly defined defense: if the injunction would impose hardship greatly disproportionate to the benefit to plaintiff, then the injunction may be denied and plaintiff remitted to a compensatory remedy, usually damages.
The undue hardship rule is the law’s most explicit doctrinal expression of the economic concern with cost and efficiency. If it is too expensive to actually prevent or correct the wrong to plaintiff, defendant can pay damages instead. The law’s approach to the problem of excessively costly remedies implements important economic insights; it also differs in important ways from common economic formulations.3 The similarities and differences between economic and doctrinal formulations deserve examination, but they appear to have received little scholarly attention. More broadly, the law-and-economics literature has given relatively little attention to the undue hardship doctrine.
This article is an exercise in cross-cultural communication. I aspire to introduce the undue hardship defense to economically minded scholars who seem to be unfamiliar with it and who may have been taken in by the prominent but doctrinally misleading opinion in Boomer v. Atlantic Cement Co.4 In Part II, I summarize the doctrine and document the difficulties with the Boomer opinion. I review the undue hardship doctrine’s apparent neglect in the economic literature in Part III, and the similarities and differences between the doctrine and basic economic analysis in Part IV. I note an especially neglected application to “patent trolls” in Part V, the fallacy of assuming that defendants will buy their way out of injunctions in Part VI, and how supracompensatory monetary remedies can still function as liability rules, not property rules, in Part VII.
*2 I hope to explain how the legal doctrine of undue hardship relates to the basics of the economic literature on property rules and liability rules. But I claim no mastery of economic analysis or of all the economic literature that may be potentially relevant; I leave more sophisticated economic analysis to scholars so inclined.
II. DOCTRINE -- THE DEFENSE OF UNDUE HARDSHIP 1. OVERVIEW The undue hardship defense is regularly applied in tort,5 contract,6 property,7 and wherever else the problem of disproportionate cost may arise. It arises most frequently in connection with the property torts that are the subject of the conference for which this paper was prepared: in encroachment cases8 (which are a form of trespass), and in nuisance.9 It is applied in environmental law,10*3 although here there is controversy about whether a judge-made defense should limit the remedy for a statutory claim.11 The same issue arises, with much less judicial recognition, in intellectual property cases.12
The doctrine is commonly called “undue hardship,”13 “balancing the equities,”14 “balancing the hardships,”15 or occasionally, “balancing of conveniences.”16 “Hardship” is a better label for the countervailing consideration that leads courts to consider withholding the injunction. But once a plausible showing of hardship is made, courts inquire into all sorts of things, including defendant’s culpability, the public interest, plaintiff’s delay or acquiescence that aggravated the risk of hardship, and the hardship to plaintiff of getting only damages instead of an injunction. “Balancing the equities” may be a better label for that whole process.17
2. ILLUSTRATIONS The cleanest illustrations of the undue hardship defense arise in encroachment cases. Here there is neither overt nor covert balancing at the liability stage. The physical boundary between two pieces of real property is as bright a line as we have in the law; if your wall is half an inch over the line, it’s still over the line. But we get explicit balancing at the remedy stage.
A recent example is Whitlock v. Hilander Foods, Inc.18 Defendant was building a new and larger grocery store, and the footings for its new wall extended eighteen inches into plaintiff’s property at a point several feet underground. The case makes a great classroom illustration of bilateral monopoly in practice. Plaintiff complained, defendant promised appropriate compensation, discussions dragged, defendant seemed to stall, plaintiff dithered, defendant kept building. Interpersonal relations deteriorated from friendly to hostile. Feeling more and more mistreated, plaintiff eventually demanded sums that defendant viewed as extortionate. By the time the case got to the Appellate Court, defendant *4 might have had to tear out an entire side of its new grocery store to eliminate the encroachment. The court easily concluded that the balance of hardships tilted heavily in favor of defendant. But it remanded for a trial on whether the grocery store had intentionally built over the line, applying the rule that an intentional violator cannot defeat the grant of an injunction because of undue hardship.19
One who builds recklessly, without regard to where the property line might be, will also be denied the undue hardship defense if it turns out that he is over the line.20 But one who makes an innocent mistake, or even a negligent mistake, will generally be protected if the cost of removal is greatly disproportionate to the harm done by the encroachment.21
Nuisance cases are sometimes murkier than encroachment cases. Sometimes there is balancing at the liability stage; the court decides that defendant’s conduct is so justified by its public or economic value that it isn’t really a nuisance at all. This is the controversial approach of the Restatement (Second) of Torts.22 More often, there is balancing at the remedies stage: the court decides that defendant’s conduct is a nuisance, but that it is too valuable to be enjoined.23
Opinions may not always be clear about which form of balancing they are engaged in. But analytically, the distinction is clear. If balancing tilts in favor of defendant at the liability stage, the result is a finding of no nuisance, no liability, and no remedy. But if balancing tilts in favor of defendant at the remedy stage, the result is a finding of nuisance, liability, and a monetary remedy, but no injunction. As the Supreme Court once summarized, “Where substantial redress can be afforded by the payment of money and issuance of an injunction would *5 subject the defendant to grossly disproportionate hardship, equitable relief may be denied although the nuisance is indisputable.”24 It is only balancing at the remedy stage that I refer to as the undue hardship defense or balancing the equities.
The most famous undue hardship case is a nuisance case, Boomer v. Atlantic Cement Co.25Boomer was an iconic case with dramatic facts, decided just as the law-and-economics movement was getting off the ground. Despite using the best available technology, defendant’s cement plant was pouring dust and other pollutants on the nearby properties of seven plaintiffs. The court held that the plant was a nuisance, but it refused to unconditionally enjoin the plant’s operation, because defendant had invested $45 million and it employed more than 300 workers. Instead, the court directed that operation of the plant be enjoined, but that the injunction be vacated if defendant compensated plaintiffs for the reduced value of their properties. On remand, the compensation turned out to be considerably more than the original value of plaintiffs’ properties. But I defer that issue to the end.26
Contract is outside the scope of this conference, but undue hardship is also a defense in specific performance cases. A clear example is Van Wagner Advertising Corp. v. S & M Enterprises.27 Plaintiff had a ten-year lease on the east outer wall of defendant’s building, which entitled him to erect a large billboard facing the exit of the Midtown Tunnel. Defendant had bought the building subject to the lease, and had bought up adjacent parcels, planning a major redevelopment of the block. Specific performance was denied on the ground that it “would disproportionately harm S & M” and that “specific performance should not be an undue hardship.”28
Many more illustrations could be offered, but these three cases suffice to illustrate much about the workings of the undue hardship defense. Hardship to defendant is common to all the cases, and generally the hardship must be greatly disproportionate to any benefit plaintiff will derive from the injunction: one side of a grocery store compared to a rather technical trespass; a large cement plant compared to a few single-family residences and a small business, all of modest value; a block of midtown Manhattan compared to a billboard--even a billboard with a very special location.
*6 But courts also give heavy weight to defendant’s culpability and to plaintiff’s diligence or acquiescence, and a wide range of factual variations can influence these assessments. The rule is a litigation doctrine and not a planning doctrine; courts worry about creating a private eminent domain power if people can cynically violate their neighbors’ rights and then defend on the ground that it would be expensive to undo the harm. Professor Van Hecke surveyed cases on violation of building restrictions; he found 70 cases granting the injunction and 42 refusing it, with a complex mix of factors affecting the choice. But “[m]ost frequently and significantly relied upon as an affirmative basis for injunction was the defendant’s willfulness. The cases abound with such appraisals as deliberate, defiant, flagrant, intentional, premeditated, and at his peril.”29
Even so, broad judicial comments about mental states cannot be taken too literally in these cases. Whitlock was remanded for a determination whether the grocery store intentionally built over the line. But the cement company was not denied a defense on the ground that it intentionally built a cement plant knowing it would pollute, and S & M was not denied a defense even though it intentionally breached its contract. These cases are more about good faith and comparative fault than intention literally understood, and the inquiry into intent is part of a context-dependent and multi-factored balancing of interests. In the nuisance cases, courts will certainly care that defendant is intentionally doing less than it reasonably should to avoid the problem; they will probably care that defendant intentionally built the business that is the source of the problem in an unreasonable location. They are much less likely to care that defendant intentionally built the business. The principal disagreement between the majority and the dissent in Boomer may have been over whether the cement company was doing everything possible to minimize the pollution. The majority thought that defendant had no control over whether better technology would be available in eighteen months;30 the dissent thought that the pressure of an impending injunction would motivate a solution in that time frame.31
S & M allowed an intentional violation of contract rights. An example that can be read to permit an intentional taking of real property in nuisance is Myers v. Caple.32 The parties owned adjoining land in a creek bottom. Caple wanted to build a private levee that would protect 70 acres of his land. The levee would *7 aggravate the flood problem on 29 acres of Myers’ land, but only under extreme conditions. The court thought the case came down to one question: “whether Caple should be deprived of the right to reclaim and cultivate some 70 acres of his land year in and year out because in exceptional years 29 acres of Myers’ land might suffer additional flooding.”33 The court refused an injunction and remanded for a trial on damages. It also said that Myers could renew his request for an injunction if the levee caused more problems than expected.
It surely matters that in Boomer and Myers, and in S & M subject to a timing issue that the court ignored,34 the harm to plaintiff was an unavoidable side effect of an otherwise legitimate use of defendant’s property. But in Whitlock, defendant could have built its enlarged store without encroaching at all if it had cared to do so.
3. THE DOCTRINAL TRAIN WRECK IN BOOMER It is unfortunate that Boomer is so famous and has received so much attention from law-and-economics scholars. Despite its entirely predictable result and its memorable facts, it is a terrible opinion. The Court of Appeals began by appearing to emphatically claim that its result was an innovation in New York law, and that the uniform rule had been not to balance hardships in nuisance cases. Referring to the cement company’s argument for balancing hardships, the court said: This theory cannot, however, be sustained without overruling a doctrine which has been consistently reaffirmed in several leading cases in this court and which has never been disavowed here, namely that where a nuisance has been found and where there has been any substantial damage shown by the party complaining an injunction will be granted.
The rule in New York has been that such a nuisance will be enjoined although marked disparity be shown in economic consequence between the effect of the injunction and the effect of the nuisance.35
*8 In light of certain subtleties later in the opinion and in the doctrinal history discussed below, perhaps these two paragraphs should not have been taken at face value even for the limited purpose of understanding what the Boomer court was claiming. But these two paragraphs were clearly stated and seemingly unambiguous, and the qualifying subtleties were neither. Boomer seemed to say that there had never been anything like a defense of undue hardship in New York, and then it seemed to create such a defense for the first time. Boomer appeared to be a great innovation, and scholars who didn’t know better accepted that apparent claim and treated Boomer as an innovation. The combined effect of Boomer’s prominence and its claim of doctrinal innovation was to obscure or conceal a large body of law on undue hardship.
The apparent claim of a uniform rule against balancing hardships should not have passed the straight-face test. In the wake of legal realism, it was simply not credible that through a century and more of industrialization, the New York courts had enjoined every nuisance and steadfastly refused to consider the costs of their decrees. Much of the evidence to confirm this intuition was in Boomer itself.
If there had been such a rule in New York, it would have put New York in a small minority nationally--probably a minority of one, but I have not confirmed that. Both the majority and the dissent cited cases from other jurisdictions that had withheld injunctions on grounds of undue hardship.36
Both the majority and dissent also cited New York cases that had withheld injunctions on grounds of undue hardship to public rather than private interests.37 In some of these cases, the defendant was a governmental entity; in others, the *9 defendant was a privately owned railroad.38 Some of these cases could be explained on the ground that these defendants could have invoked their eminent domain power to take plaintiff’s property, and some of the opinions relied on this fact.39 One case said in dictum that if the defendant lacked eminent domain power, “a strict injunction would issue.”40 But when the court encountered defendants without effective eminent domain power, the result did not change,41 and in at least one case, the absence of reliable eminent domain power became an additional reason for refusing the injunction and awarding damages instead, because that absence increased the risk that defendant might have to actually comply with any injunction that issued.42
The majority in Boomer distinguished still other New York cases that had explicitly balanced costs and benefits on the ground that in those cases, there had been “no substantial harm” to plaintiff.43 So even assuming that the court accurately described the New York rule, earlier cases had created a public-interest exception and a no-substantial-harm exception as ways of escaping the rule. These exceptions were apparent on the face of the Boomer opinion.
The lower courts in Boomer had refused an injunction, balancing the equities in favor of the cement company and finding the case rather easy. The trial court had said, “If the protection of a legal right even would do a plaintiff but comparatively little good and would produce great public or private hardship, equity will withhold its discreet and beneficent hand and remit the plaintiff to his *10 legal rights and remedies.”44 The Appellate Division had affirmed in a short opinion summarizing the trial court’s reasoning.45
Beyond all that, as Louise Halper has shown in great detail,46 there were New York nuisance cases not recognized in Boomer that had balanced hardships at the remedy stage, refusing an injunction when the harm to plaintiff was small and greatly outweighed by the cost of compliance to defendant,47 allowing defendants with eminent domain power time to acquire plaintiff’s property by condemnation or otherwise,48 and limiting relief in other ways.49 There was at least one lower *11 court case that balanced interests at the liability stage and found no nuisance where the harm to plaintiff was modest and defendant had a substantial investment at risk.50 There was even a reported trial court opinion on all fours with Boomer, finding a cement plant to be a nuisance, but refusing an injunction because “[a] permanent injunction would do so great damage to one party, and give comparatively so small a relief to the other, that it should not be granted.”51
There were also undue hardship cases in New York in contexts other than nuisance, including cases refusing to order removal of encroachments,52 enforcement of restrictive covenants,53 specific performance of contracts54 or leases,55 or performance of a statutory duty.56
*12Boomer cited only four cases for its rule of no balancing,57 and three of those cases did not actually support such a rule. In one, the court had believed that defendant could move his brickyard without serious hardship and could put his existing property to other profitable uses.58 In two, there was no injunction to shut down defendant’s operation, but only an injunction to clean up to the extent reasonably possible.59 Two pages after citing these cases for the proposition that balancing was forbidden, the court cited them again for the seemingly quite inconsistent proposition that “The power of the court to condition on equitable *13 grounds the continuance of an injunction on the payment of permanent damages seems undoubted.”60 Suspending the injunction on condition that defendant pay permanent damages means that no injunction is actually issued and enforced; this circumlocution is precisely the remedy New York had developed to implement balancing of hardships.61 I will return to this circumlocution after reviewing the doctrinal background from which it emerged.
The case on which Boomer principally relied, Whalen v. Union Bag & Paper Co.,62 does indeed appear to say that cost to defendant cannot be balanced against substantial harm to plaintiff. But even there the court refused “to attempt to lay down any hard and fast rule for determining when an injunction shall issue.”63 “One of the troublesome phases of this kind of litigation is the difficulty of deciding when an injunction shall issue in a case where the evidence clearly establishes an unlawful invasion of a plaintiff’s rights, but his actual injury from the continuance of the alleged wrong will be small as compared with the great loss which shall be caused by the issuance of the injunction.”64 The court thought that Whalen did not present that issue, because plaintiff’s damages, assessed by the Appellate Division at $100 a year, were not “unsubstantial.”65 Monetary values over long periods of time are notoriously difficult to compare, but using the Consumer Price Index to translate, $100 a year in 1913 was equal to $2280 in 2011.66 This implies a loss of property, or a decline in property value, worth $20,000 to $50,000 in current dollars, depending on the rate of return used to capitalize the annual income. So Whalen set a modest but nontrivial threshold for harm too serious to permit balancing of hardships. And of course, any such threshold would be susceptible to manipulation and adjustment in later cases.
Whalen also approved of Strobel v. Kerr Salt Co.67 and Sammons v. City of Gloversville,68 two cases in which the court had found substantial damages and nonetheless been alert to avoid the problem of undue hardship.69Sammons involved discharges of municipal sewage; the court stayed the injunction to give *14 the city time to eliminate the discharges, acquire plaintiff’s property rights, or obtain legislative authorization to override plaintiff’s property rights.70
Strobel is the more interesting case, because it involved a private defendant without eminent domain power. And Strobel is one of the two cases cited in Boomer first for the proposition that balancing is forbidden and then for the proposition that the court could suspend the injunction and award permanent damages.71 The defendant salt company produced salt by pumping water into underground salt formations, where it quickly became saturated with salt. Then the company pumped the water out again and evaporated the water to retrieve the salt. The loss of water in this process left the stream flow too small to operate downstream mills in dry periods, and so much salt escaped back into the stream that the water damaged the machinery of the mills and was unusable for agriculture. The court held that legal remedies were inadequate and that plaintiffs were entitled to an injunction.72 But then it said: It does not follow from these views that, if upon another trial the facts are unchanged, the defendant and the other salt manufacturers will be compelled to make such terms as they can; for a court of equity, with its plastic powers, can require, as a condition of withholding a permanent injunction, the construction of a reservoir on the upper sources of the stream, to accumulate water when it is plentiful for use in times of scarcity, and thus neutralize the diminution caused by the manufacturers of salt. That court may also require, on the like condition, greater care in preventing the escape of salt water and salt substances into the stream, as the defendant attempted to do during the trial, and thus prevent or minimize the pollution.73
Assuming that the court’s proposed solutions were feasible, Strobel was a case in which the undue hardship issue was not really presented. The harm to plaintiff could be averted without shutting down the salt works. But the injunction in Whalen, and its language about the danger of “any hard and fast rule,” should probably be read in light of Strobel’s invocation of the “plastic powers” of equity and its concern that private defendants not “be compelled to make such terms as they can.”
*15 Professor Halper thinks there is still more to Whalen. The injunction in Whalen was not to take effect until a year after the end of all appeals,74 which would give defendant time to clean up its pollution if possible or to buy out plaintiff’s rights if clean up were not possible. Professor Halper concludes that the potential buy out was not left to unrestrained bargaining between the parties, but that instead, defendant was entitled to have the injunction vacated if within that year it paid plaintiff’s permanent damages.75 Defendant would not “be compelled to make such terms” as it could, because the court would set the price. Perhaps she is right, but neither the Court of Appeals nor either opinion in the Appellate Division actually says that. Professor Halper’s view is that the one-year stay must be read in light of what had become accepted practice at the time--that the court would grant the injunction conditioned on defendant’s right to pay permanent damages as assessed by the court.
She is certainly right that this had become a common remedy, especially in the cases with governmental or railroad defendants, in which the courts openly balanced hardships.76 The Court of Appeals had also noted this solution as available to a private defendant, in a case where an ice house caused damage to a neighboring property: She [the owner of the ice house] might elect to discontinue that use, and, if equitable relief had been granted, would have had the option to have discontinued the nuisance, and so to have prevented a permanent depreciation of value, or, continuing it, to obtain the right to do so by paying the resulting depreciation, as the court might determine.77
This is plainly dictum; no injunction had issued, and plaintiff had waterproofed her house and recovered the cost as damages.78 The availability of the waterproofing solution means that no issue of undue hardship was presented. Yet as Professor Halper points out, the court casually and without controversy summarized “the option” available to defendant, as though it were simply recognizing standard practice. And all the cases expressly balancing hardships and awarding permanent damages, whether or not they go through the form of awarding an injunction and staying its effective date, amount to the same thing.
*16 Perhaps the practice of awarding permanent damages in lieu of an injunction was so standard that it was the unstated intention of the one-year stay in Whalen. That is, perhaps staying the injunction for a year and conditioning the injunction on payment of permanent damages were two ways of describing the same thing, despite the apparent difference between the two formulations. That reading would leave all the anti-balancing portions of the Whalen opinion without much meaning. But then, all the anti-balancing portions of the Boomer opinion also turned out to be without much meaning, and there is no ambiguity about the Boomer opinion’s bottom line.
Reconstructing the unstated legal assumptions of a century ago is difficult. I do not say that Professor Halper is wrong, but neither am I comfortable relying on her conclusion. I accept arguendo the conventional reading of Whalen as refusing to balance hardships when the damage to plaintiff is substantial. But other facts appear more important: that even Whalen refused to lay down a hard and fast rule, that even Whalen recognized an explicit exception for cases where the court was willing to say that the harm to plaintiff was insubstantial, that an exception for the public interest was well established in the Court of Appeals, and that the lower courts viewed the exceptions as the rule and freely balanced equities and hardships in cases against private defendants as well.
In 1933, twenty years after Whalen, the Appellate Division reversed an injunction against operating an ice plant at night. The injunction would have put plaintiff “in a position where he may drive defendant out of business or compel it to purchase its peace on his own terms.”79 To avoid such “an obviously inequitable result,” “the courts will fix a sum as permanent damages and give to a defendant the option of paying such sum or accepting the injunction.”80 After citing an English statute on the point, the court said that “[t]he same general rule is applied by the courts of this state, in cases involving a restrictive covenant and in cases involving trespass and nuisance,”81 citing numerous cases. The Court of Appeals affirmed.82
Seven years later, in 1940, a trial judge succinctly summarized the law as follows: “it is the rule that, where an injunction would cause serious injury to an individual or the community at large, and a relatively slight benefit to the party asking its interposition, injunctive relief will be denied, and the parties left to their remedy at law,”83 citing the recent case of the ice plant and several earlier *17 opinions. And as already noted, the lower courts in Boomer itself plainly thought they were supposed to balance the harm to plaintiffs against the hardship of shutting down the cement plant.84
These judicial summaries of the law help show what New York judges understood the law to be in the half century between Whalen and Boomer. The relative scarcity of cases in this period is a puzzle, only partly explained by the tendency of zoning laws to displace nuisance litigation in the decades after Whalen. But of the reported cases we have, those that balance hardships greatly outnumber those that refuse to do so. In fact, it is hard to claim a single case other than Whalen itself as unambiguously applying Whalen’s “rule” of no balancing. And if Professor Halper is right, not even Whalen applied that rule.
The court in Boomer appeared to read Whalen woodenly and to announce an absurd rule of generally refusing to balance hardships in nuisance cases. That announced rule was not a sound reading of New York law. Then the court purported to create an exception to the absurd rule it had just announced. This is the most straightforward reading of the opinion, and it is this reading that tended to conceal the longstanding existence of the undue hardship defense, especially among scholars for whom Boomer was their first encounter with the doctrine.
It is also possible that Boomer has been misread, by doctrinal scholars and nondoctrinal scholars alike. Maybe the court never meant to say that hardships had not been balanced in New York. Maybe both Whalen and Boomer just wrapped the New York approach to balancing hardships in the circumlocution of granting the injunction but suspending its effect. That circumlocution is potentially important, and it may be a source of much of the confusion in Boomer. Why would the court enjoin the nuisance and then suspend the injunction if plaintiff paid damages? More precisely, but with even greater circumlocution, why would it “condition ... the continuance of an injunction on the payment of damages”?85 Why all that instead of simply refusing the injunction and awarding damages? The court never explained, either in the older cases or the new. Lawyers are given to circumlocutions; perhaps this one grew up by accident and served no purpose. Or perhaps it had to do with the boundary between law and equity.
The cases from the late nineteenth and early twentieth centuries had persistently assessed damages in equity after refusing or conditioning the injunction, thus depriving the parties of jury trial on the value of the property (or appraisal by independent commissioners if a government defendant invoked its eminent domain power).86 The issue was litigated; sometimes it was the plaintiff *18 who wanted jury trial, but in the elevated railway cases, it was defendants arguing for jury trial.
The New York cases seemed to say that once a case was properly filed in equity, the court had authority to decide the whole case, including any award of damages.87 This suggests that the authority to assess damages in equity without a jury could have rested on the fact that plaintiff requested an injunction, whatever happened thereafter. But there were ambiguities and uncertainties in the scope of equitable jurisdiction to determine damages;88 perhaps the claim of equitable jurisdiction felt more secure if the court actually issued the injunction, even if that injunction was issued conditionally or suspended immediately.
More likely in my view, perhaps the circumlocution had to do not with jury trial, but with supervision of the relation between the parties. Perhaps an award of damages, even in equity, was a one-time event, but that issuing a conditional injunction enabled the court to retain jurisdiction, giving defendants time to eliminate or reduce the nuisance to the extent feasible and then pay a smaller amount of damages.
All of this is speculation; it is not possible with reasonable effort to reconstruct the practical workings of the law-equity divide in a particular jurisdiction a hundred years ago. But whatever the reasons for first granting and then suspending the injunction, that circumlocution was common in the early cases and it was repeated in Boomer.
Boomer emphatically stated that the injunction must be “granted” despite any hardship to defendant.89 This seemingly unambiguous statement at the beginning of the opinion drew attention; it created the problem that Boomer then solved. But perhaps the court meant literally--and only--that the injunction must be granted, and not that it must remain in effect or be enforced. The easy reading, and the one I accepted before undertaking the more careful investigation reflected in this article, is that the court was misled by Whalen and that it overlooked or misunderstood the many New York cases balancing hardships. The more subtle reading is that the court was simply following the New York rule of granting the injunction but suspending its effect.
*19 Circumlocutions often fail to communicate. Whether or not the court was confused, its readers have certainly been confused. My impression is that scholars of all genres and methodologies have read Boomer as claiming to be a great innovation, and that less doctrinal scholars have accepted that claim and believed that that Boomer really was an innovation. The Appellate Division, which had known better on the first appeal,90 accepted Boomer as having “overruled the doctrine that where a nuisance has been found and where there has been any substantial damage shown by the party complaining, an injunction will be granted.”91
Whichever is the better reading of Whalen and Boomer, the bottom line is that Boomer was no innovation. The opinion could have been written as a straightforward application of the undue hardship defense with only one or at most a few exceptional cases. But it was not written that way. Whatever the meaning of the court’s circumlocution about issuing the injunction but suspending its effect, that meaning was lost on modern readers unfamiliar with the details of the law-equity divide. The court’s claim that New York had never balanced hardships in nuisance cases with substantial harm was widely taken at face value. The opinion, and therefore that claim, was highly visible among law-and-economics scholars, who had no reason to assume that New York was unusual. The effect was to create an impression that there had generally been no balancing of hardships before the great innovation in Boomer. That impression tended to conceal both the history and the existence of the undue hardship defense.
III. THE LAW-AND-ECONOMICS LITERATURE Boomer has gotten much attention from law-and-economics scholars, but the undue hardship defense has not. The reasons for this neglect are speculative but probably multiple. First, this body of law is not crisply formulated as a settled doctrine. It is multivariate, and Boomer shows that judges sometimes bungle it too, although most judges apply the doctrine in plausible ways and it regularly appears in the doctrinal literature and in standard sources on remedies.92 Second, *20 many law-and-economics scholars are uninterested in reading cases or mastering doctrine, although of course there are important exceptions. Third, any economically minded scholars who did look at the undue hardship defense may have hesitated to claim it; it implements the core economic insight, but it differs from classical economic analysis in important ways.
Calabresi and Melamed do not allude to undue hardship, although they cite two of the classic undue hardship cases in support of their own quite different and rather stylized account of the law.93 The doctrine gets a passing mention in footnotes in early economic articles on nuisance.94 The current edition of Judge Posner’s textbook refers to “the court’s novel remedial approach”95 in Boomer, suggesting that he has been misled by the Boomer opinion and may be unfamiliar with the large body of earlier cases.
There are some notable exceptions. Richard Epstein gives a brief but incisive economic account of “balancing the equities” in which the presumptive rule is to protect plaintiff’s property right with an injunction, but the presumption can be overcome in cases of necessity.96 He treats as a prominent source of necessity the risk that a plaintiff with modest losses will hold out for a much larger sum from a defendant facing a prohibitively expensive injunction.97 This gets the doctrine exactly right, but he cites just one illustrative case and seems to assume that everyone already knows the doctrine. He is also writing in explicit opposition to what he takes to be a preference for liability rules in the main body of law-and-economics scholarship.98
Thomas Merrill and Henry Smith treat the undue hardship defense in their property casebook,99 and each invokes the doctrine in his scholarship. Merrill notes the doctrine in passing in an article on interstate pollution.100 Smith has dealt with the doctrine repeatedly and at length. He offers a sophisticated analysis *21 of why and how undue hardship should apply in intellectual property cases.101 And he suggests that the defense may be too often applied in nuisance. He would treat the cement company in Boomer as an intentional violator, because it could have bought up more surrounding properties and intentionally decided not to do so.102
Of course a vast literature has extended the economic argument far beyond the classic sources, and I do not claim to be familiar with all of that literature. But I keep an eye out for economic analyses of my principal interests, and my impression is that much of the law-and-economics literature still has not discovered the defense of undue hardship. A more systematic search--I do not say exhaustive--for articles on the defense did not turn up much from an economic perspective.103
IV. COMPARING LEGAL DOCTRINE AND ECONOMIC ANALYSIS The undue hardship defense explicitly implements the economic insight that wastefully expensive remedies should not be granted. There are also important differences from the main line of economic analysis. Asking whether the undue hardship defense is a partial implementation of the economic view, or whether it is doing something fundamentally different, is like asking whether the glass is half full or half empty. I have been pressed in both directions on that question when presenting this paper orally.
The undue hardship defense is broadly consistent with Calabresi and Melamed’s view that injunctions should be the remedy when the transaction costs of renegotiation between the parties would be low, and that damages should be the remedy when the transaction costs of such renegotiation would be high.104 Of course analysis of transaction costs, and speculation about transaction costs, has gotten far more complex since Calabresi and Melamed. But the economics of the problem to be solved in undue hardship cases are rather simple at their core.
Transaction costs in these cases are typically high, because they typically involve bilateral monopoly: the encroacher and his neighbor, or the source of the *22 nuisance and its neighbors, can deal only with each other. The greater the disproportion between the cost to defendant and the benefit to plaintiff, the greater is the surplus to be arbitrarily divided and the more difficult are the negotiations under conditions of bilateral monopoly. The greatly disproportionate cost to defendant creates the potential for a plaintiff armed with an injunction to hold out for payments far in excess of any reasonable estimate of his damages--for sums that defendant will view as extortionate. In the nuisance cases, these difficulties are often aggravated by the presence of multiple plaintiffs, any one of whom could prevent a deal by holding out for special treatment.
The bilateral monopoly is inherent in the situation; the injunction does not create it. If the court denied relief, the parties could still deal only with each other. But often a deal would be obviously impossible. Plaintiffs could not pay enough to induce defendants to tear down their wall or close their cement plant, so defendants could ignore plaintiffs’ demands and violate their property rights at will.
Combining these two points, granting the injunction or denying relief allocates the power to be unreasonable between bilateral monopolists. If the court grants the injunction, plaintiff gets enormous bargaining leverage; if the court denies relief, defendant gets enormous bargaining leverage.
A damage remedy fixes a judicially determined price; equally important, the parties’ predictions about a damage remedy provide a basis for bargaining. The prospect of a damage remedy thus reduces the cost of bargaining, eliminates the distributional consequences of giving one side all the bargaining leverage, and eliminates the risk of tearing down the more valuable use if the parties fail to agree. All of these are economic reasons for something like the undue hardship defense.
But there are also important differences between the legal doctrine and the traditional economic formulations. The doctrine appears as a defense, as a limit on the pursuit of justice, and not as a first principle. The right to relief is determined by pre-existing legal entitlements, not by who has the more valuable use, and at least in the real property context, the presumptively available relief is an injunction. The rule is that no parcel of real estate is an adequate substitute for any other, so that damages are not an adequate remedy for interference with rights to real estate.105 Some applications of this rule are no doubt attenuated, but its underlying logic is sound, summarized in the realtor’s slogan that the three most important things about real property are location, location, and location. Other *23 things equal, courts do not second guess plaintiff’s alleged desire for this property and no other.
So the usual doctrinal structure of these cases is as follows: (1) damages are an inadequate remedy, such that plaintiff is presumptively entitled to an injunction, but (2) where an injunction would impose undue hardship, plaintiff will be remitted to damages, which are better than nothing even though inadequate. But in this context, as in many others, when the court once decides to refuse an injunction, because of undue hardship or for some other good reason, it often succumbs to a strong temptation to say that the legal remedy is adequate after all.106
Occasionally that is a happy coincidence, but usually, the court is asserting the adequacy of a remedy that it would have held inadequate in the absence of some affirmative reason to refuse the injunction. Whether the legal remedy is actually adequate for plaintiff has no correlation with whether the equitable remedy would be a hardship for defendant. Undue hardship to defendant is an independent reason, both of doctrine and policy, for denying specific relief. And it is a far more important reason. In the absence of some such specific reason to refuse the injunction on specific facts, the adequate-remedy or irreparable-injury rule sets a very low threshold for plaintiff’s right to a permanent injunction.107
The relevant point here is that the legal doctrine pursues specific enforcement of pre-existing entitlements except when cost is prohibitive. This is different, at least conceptually, from the view of some hard-core law-and-economics scholars that comparative costs and economic values should be the first consideration.
This conceptual difference has practical consequences. The law-and-economics literature, with its talk of more valuable uses and cheapest cost avoiders, seems to imply that if defendant can make even one dollar by violating plaintiff’s rights and paying the damages, defendant should go ahead. But that is not the law in these cases. It is not enough for defendant to show that the injunction costs him a little more than it benefits plaintiff; the injunction must impose hardship greatly disproportionate to the benefits it would confer on plaintiff.
Conceptually, this is because the just enforcement of pre-existing entitlements outweighs considerations of cost when the costs are not prohibitive. In economic terms, it can be explained on the view that the problem of bilateral monopoly is usually not insuperable if the difference between benefit to plaintiff and cost to *24 defendant is small. It is only when that difference is very large that fears of extortionate holdouts become great enough to outweigh the value of enforcing property rights--a value that is of course economic as well as legal.
Equally important, under the undue hardship doctrine the court evaluates the relative hardships. Defendant is not permitted to make his own decision on the basis of willingness to pay. Courts reject the undue hardship defense when they find the violation intentional108 or when they find that the alleged hardship is not sufficiently disproportionate to the harm to plaintiff.109 And in making this valuation, the court is not confined to monetary values. The court has already decided or assumed that money damages are an inadequate remedy, so the court is necessarily balancing values and interests that it does not view as fully monetizable.
No doubt monetary values dominate the courts’ view of these cases. But the court can decide that a right to clean air,110 or to protection for an endangered species,111 or to circulate petitions,112 is worth much more than plaintiff is willing or able to pay, and worth more than any loss reflected in the market value of plaintiff’s property. It can--and usually will without even noting the issue--assume that a harm to a plaintiff of modest means is as valuable as the same harm to a person of wealth, even though the wealthy person might have much greater willingness to pay. It can decide, as the court in Boomer claimed the New York courts had done,113 that a nuisance caused by a governmental enterprise is more valuable--more deserving of the protections of the undue hardship doctrine--than a nuisance caused by private industry. While that particular claim about New York law is historically dubious, concern with the public interest looms large in *25 many undue hardship cases.114 In Boomer itself, the court appeared to be as much concerned with the 300 jobs as with the hardship to the cement company.115
Unambiguous examples of courts giving dispositive weight to non-financial considerations are scarce in the encroachment and nuisance cases. But they abound in public law litigation and in the rule, closely related to undue hardship, that the court will not grant injunctive relief if enforcement of the injunction threatens an undue burden on the court.116 The clearest examples are the structural injunctions to desegregate school systems,117 eliminate cruel and unusual prison conditions,118 and clean up egregiously inadequate facilities for the mentally disabled.119 Courts in those cases have gone much further, especially in incurring burdens on the court, than they customarily go in private law litigation.
One way to think about these cases is that the relative adequacy of plaintiff’s remedy is relevant to the balance of hardships. Adequacy of legal remedy is a comparative judgment; damages are more inadequate in some cases than in others.120 Damages are inadequate if they cannot be used to rather exactly replace what plaintiff lost,121 or if they are too difficult to measure.122 But these formulations cover a range of possibilities. Plaintiff may be able to replace with an imperfect substitute, or he may not be able to replace with anything remotely close. Damages may be somewhat uncertain, or the right lost may be wholly intangible and nonmonetary. Constitutional rights are generally not replaceable with any amount of damages, and the states are often immune from damage liability anyway. As a practical matter, it is structural injunction or nothing in *26 many cases, and in that situation, courts have struggled to make the structural injunction work in the face of difficulties they would otherwise have considered insuperable.
There are fewer nonmonetizable values at stake in real property torts, but it is not hard to imagine possibilities. Every parcel of real estate is presumed to be unique, but whatever the logicians and grammarians say, in this context there are degrees of uniqueness. In balancing hardships, a tract house is not nearly so unique as an ancestral home. And it is easier to value footings under the ground than the aesthetic harms of a smelly nuisance.
The undue hardship defense is unavailable if defendant’s conduct is too culpable. The law-and-economics scholars envision people deliberately deciding to violate rights and pay damages, at least in some contexts, but the courts allow the undue hardship defense only to defendants who acted in good faith. There is a real difference here, especially in nuisance cases with multiple plaintiffs. Because holdout problems could make bargaining difficult or impossible, standard economic analysis encourages potential defendants to consider the potential damages and go ahead if the project still appears profitable.
But there is not nearly as much difference as first appears. On the doctrinal side, we have already seen that the courts allow the undue hardship defense to defendants who might in some sense have acted intentionally but who acted reasonably on the whole.123 On the economic side, there is an economic as well as a moral argument for the culpability exception to the undue hardship defense. Only the nuttiest of law-and-economics scholars believe in efficient theft.124 Most law-and-economics scholars believe that if you want someone else’s property, you should buy it in a market transaction if a market transaction is feasible. A defendant who deliberately violates the rights of an individual plaintiff whose identity is known in advance, hoping to invoke the undue hardship defense and pay assessed damages after the fact, is bypassing the market: He could have dealt directly with plaintiff from the beginning. If he actually thought he had a right to carry out his plan, but bargaining to confirm that right had failed, he could have gone to court for a declaratory judgment to determine his rights before spending his money; the stakes of that litigation would be much lower than litigation after he has invested large sums. So the rule of enjoining those who intentionally violated plaintiff’s rights, even if that injunction imposes disproportionate hardship, encourages voluntary transactions at market prices.
But when the hardships are extremely unbalanced, it is not clear that these concerns are sufficient to justify an injunction purely in economic terms. Is it economically efficient to tear down one side of a grocery store, in order to remove *27 footings that encroach eighteen inches at a point several feet under ground, because we fear creating incentives to build first and bargain later? It may at least be economically efficient not to have a clear rule that the grocery store owner can rely on as he builds. But whatever the economists’ answer to such questions, I think that the argument from justice and individualism has motivated more judges: Would-be buyers of rights should not be able to rely on a doctrine that enables them to force unwilling victims to sell their rights at a price assessed by a jury.
The undue hardship defense also differs from much economic analysis in its aspirations to do justice in individual cases. Some law-and-economics scholars envision detailed analyses of costs and benefits in individual cases, but many, especially in the early years, have aspired to create efficient rules for broad categories of cases. Litigating or negotiating the facts of individual cases is a source of costs. Robert Ellickson once speculated that equitable defenses, including undue hardship, create uncertainty that impedes bargaining.125 Calabresi and Melamed suggested that the injunction should be withheld whenever the court is uncertain which use is more valuable.126 Richard Posner continues to argue,127 and Steven Shavell recently argued, that specific performance should be unavailable either generally or in broad classes of cases because defendant will face prohibitive expenses in some of those cases.128 But the undue hardship defense in actual operation assesses the relative hardships and relative culpability of the individual plaintiff and defendant on the facts of specific cases.
The difference between doctrine and classical economic analysis in contract is easily summarized. Efficient breach in response to unexpected and disproportionate costs of performance is protected by the undue hardship defense to specific performance.129 So-called “efficient” breach to accept a higher price *28 offered by a third party is not the law and never has been the law.130 But that’s a different article.
How should we characterize the comparison between legal and classical economic analysis in the property torts? Is the undue hardship rule a reasonable implementation of the economic view of the world? Or is it fundamentally different?
The answer to those questions may be yes and yes, which is to say that the answers may be a matter of taste. Economically minded scholars who heard this paper presented orally tended to see the undue hardship rule as implementing their view of the world; more philosophically minded scholars tended to see it as fundamentally different.
The undue hardship defense is certainly different, even in practice, from the hardline view that persons should freely inflict any damage they’re willing to pay for. But I doubt that that view is sound economics or that many law-and-economics scholars really take that view in cases where bargaining is possible (apart from the infatuation with breaching contracts among some of them). The number of tort cases decided differently under the undue hardship defense and under a sensible implementation of economic analysis may be rather small. In that sense, the undue hardship rule can be said to implement the economic view of law in the context of nuisance and trespass.
Conceptually, the differences are rather greater. The law starts with a presumption in favor of protecting legal entitlements, and in the context of the property torts, that presumption is rather strong. The presumption can be rebutted when the costs of enforcing the entitlement is greatly disproportionate to the benefits. This does seem fundamentally different from the economic view of the world, in which the starting premise is to protect the more valuable use.
But as so often happens with opposing conceptions of legal problems, the pressures of actual cases--or even the pressures of hypothetical cases--tend to produce exceptions and limiting principles on both sides, so that vast conceptual differences become much smaller differences in practice. The undue hardship defense limits the law’s preference for enforcing entitlements and brings to bear the economic concern with cost; the long-term economic benefits of property rights limit the law-and-economics scholars’ short-term emphasis on minimizing cost and maximizing value in each transaction, and brings to bear the law’s concern with entitlements. Each theory is pushed in the other’s direction by its recognition of limiting principles. And so the legal and economic views of these torts may be fundamentally different in theory but not nearly so different in practice. Whether to emphasize the differences or the similarities may indeed be a matter of taste--of whether one prefers to embrace law and economics or reject it, *29 and for those who embrace it, whether one prefers to emphasize its surprising implications or its value as an explanation of positive law.
The bottom line is that the philosophical differences may run deep, but the practical differences do not. The undue hardship defense is the law’s clearest implementation of the economic view of law, and law-and-economics scholars would do well to embrace it, or at least to make clear that they know about it.
V. THE INTELLECTUAL PROPERTY APPLICATIONS The undue hardship defense is a perfect fit for the problem of patent trolls-- whatever the actual magnitude of that much debated problem.131 The claim is that potential plaintiffs sit on their patent in relative secret, or even on their patent application, until someone else builds a large and successful business based on infringing technology. Then the plaintiff sues, seeking an injunction against infringement and shutting down defendant’s business. There was much talk about this problem in the briefs in eBay v. MercExchange,132 and while that case was pending, there was much publicity about an imminently threatened injunction that would shut down Blackberry service.133
An injunction that shut down BlackBerry or eBay fits the pattern of classic undue hardship cases: Defendant has invested much money and effort and now must pay ransom or abandon large parts of his investment. It should not matter whether that investment was in a building or a business or a technology. Unless defendant was reckless with regard to plaintiff’s patent rights, the undue hardship defense readily applies. But neither the Court nor any of the distinguished lawyers litigating the eBay case invoked the doctrine.134
The Supreme Court’s opinion in eBay noted “the balance of hardships between the plaintiff and defendant” as a factor traditionally relevant to the issuance of an injunction.135 But the Court said absolutely nothing about how this or any of its other factors applied to the case before it. And it seemed to suggest, *30 without noting the issue and certainly without explanation, that balance of hardships was an element of plaintiff’s case, rather than an affirmative defense.136 Justice Kennedy’s concurring opinion noted that in a case like eBay, plaintiffs could use the threat of shutting down defendant’s business to extract exorbitant settlements.137 This is the central point and part of the traditional justification for the undue hardship defense. But he did not invoke the defense.
It is conceivable that the lawyers representing eBay simply didn’t know about the undue hardship defense, or that they thought it was a specialized doctrine about nuisances and encroachments and never thought to generalize it to other kinds of property. But a review of the district court opinion suggests a more likely explanation--that eBay wanted to invoke the specter of hardship and extortion without actually invoking the doctrine, because it couldn’t qualify under the doctrine. The jury had found that eBay was a willful infringer,138 and while eBay of course disputed this finding, the Supreme Court is not in the business of reviewing jury findings. And willful violators generally cannot invoke the undue hardship defense.139
Second, eBay had prominently asserted in the lower courts that it could design around the patent without difficulty.140 But if that were true, then it really faced no hardship. It could comply with an injunction without shutting down anything. Even if that claim were false--perhaps a bluff intended to show the jury that this patent wasn’t even important and that a reasonable royalty could not exceed the insignificant costs saved by not designing around--eBay was stuck with its own representations. By claiming that it could easily design around the patent, it had disqualified itself for the undue hardship defense.
I am told that MercExchange’s lawyers did know about the undue hardship defense. But they understandably saw no reason to raise a potential defense that eBay had not raised and did not appear to be relying on.
The Court’s opinion in eBay attempted to solve the problem on the front end, announcing a novel four-part test for permanent injunctions that it claimed, and apparently believed, was a traditional four-part test.141 The Court gave no guidance as to what any of the elements of that test actually mean. eBay makes a *31 mess of the federal law of injunctions, but that too is a different article.142 What is relevant here is that the Court missed a chance to explore the undue hardship defense and apply it in an intellectual property context.
Some courts have done better. The Fourth Circuit recently decided a copyright case expressly on grounds of undue hardship.143 Defendants built their home from copyrighted plans drawn for another builder; the architects asked the court to permanently enjoin sale or lease of the home. The court found infringement, irreparable injury, and no adequate remedy at law, and it awarded damages to the architects, but it refused to permanently tie up ownership of a house that had cost more than half a million dollars.
Lower courts in the wake of eBay appear to be addressing the fear of patent trolls with the ill-fitting rubric of the irreparable injury rule.144eBay has sent the courts down this path, perhaps irretrievably; we may never get back to addressing the problem with the undue hardship defense. If we ever do, there will be an important question to resolve. Some companies, especially in high tech industries, have reportedly decided that it is not cost effective to do patent searches to keep abreast of whether their new products and new lines of research infringe any existing patents.145 It is better to simply go ahead with product development, not deliberately infringing, but not constantly checking to avoid infringement either, and to deal with infringement suits as they arise. Does this make them a reckless or intentional violator, barred from invoking the undue hardship defense? Or should the courts accept their judgment and treat failure to do patent searches as reasonable behavior in high tech industries with vast numbers of potentially relevant patents?
The right answer to that question depends on policy considerations relating to intellectual property law, and not on the internal rules of the law of injunctions or the defense of undue hardship. In the real property examples considered above, we saw that “intentional” cannot be taken literally, and that the availability of the undue hardship defense depended on a broader assessment of the reasonableness of defendant’s behavior.146 The same must be true here, and reasonableness must *32 be assessed in context. Intellectual property is not my field, and I simply flag the question here, without attempting to answer it.
VI. DO LITIGANTS BARGAIN AFTER JUDGMENT? The economic literature assumes that of course parties will buy their way out of inefficient injunctions, or inefficient refusals to enjoin, unless transaction costs are prohibitive. Small-scale studies cast doubt on that assumption. Ward Farnsworth followed up on twenty nuisance cases with reported opinions.147 There was no serious bargaining after judgment in any case, and none of the lawyers believed there would have been bargaining if the case had come out the other way. In a few cases, there was an initial proposal and a rejection, with no follow-up from either side; in most cases, there was not even that. The lawyers believed that acrimony from the litigation inhibited bargaining, that winners were unwilling to put a dollar value on what they had won (whether freedom from nuisance or freedom to use their property as they chose), and losers were unwilling to pay bribes to winners.
In an earlier era, Maurice Van Hecke asked about postjudgment negotiations in a study of litigation over building restrictions; he got replies from one or both lawyers in 25 cases. Only two defendants had bought their way out of injunctions, and apparently not for extortionate sums. An injunction to remove a two-story apartment building was settled for $750 (in the 1920s); the other case was settled “satisfactorily to all parties” for an undisclosed amount.148 A leading casebook has a case that was litigated to the state supreme court and then settled for $250.149
When I presented this paper at USC, Eduardo Peñalver told me about his own unpublished sample. For teaching purposes, he talked to lawyers in reported cases involving proposals to develop empty lots in ways that would violate restrictive covenants. The developer claimed that the covenant had become obsolete through changed conditions; the court disagreed and enjoined the project. In these cases he did find post-judgment negotiations that resulted in development on agreed terms. It seems likely that in these cases, the plaintiffs assumed that the land would be developed sooner or later, and that negotiation would give them a voice in what that development looked like.
*33 These are tiny studies, the results are not uniform, and generalizations are dangerous. But they suggest that there may be some subset of injunction cases in which bargaining after judgment is difficult or impossible, the Coase theorem is irrelevant (or alternatively, that litigants’ attachments to their litigated rights are a source of insuperably high transaction costs), and the law’s initial allocation of rights is generally dispositive. Of course, parties who litigate to judgment may be a special case; these studies do not imply that people rarely buy or sell legal entitlements before they get embroiled in litigation. Nor does it necessarily imply anything about settlements after suit is filed and before an opinion is reported. But it may be that the same factors of acrimony and resistance to commodifying intangible rights inhibit settlement of injunction cases, or that they at least inhibit settlements that reverse the parties’ prediction of what the court will do if the case is litigated to judgment. Causation may also run the other way; it may be that people who are strongly averse to bargaining away their entitlements are the ones who litigate to a reported judgment.
Note too that these were samples of injunction cases, not necessarily of undue hardship cases. As the disproportion in value becomes greater, the pressure to buy one’s way out of a burdensome injunction grows in proportion. If the cement company had been enjoined in Boomer, it presumably would have paid whatever it took to buy the plaintiffs out. Patent trolls, to the extent they exist, are looking only to sell their entitlement at the highest price they can extract.150 But in more typical cases where the differences in value are more modest, it may be that post-judgment bargaining is rare, and extortionate settlements rarer still.
Whether or not there is bargaining after judgment does not affect the wisdom of the undue hardship defense. But it does affect our sense of what danger we are trying to avoid. One danger is that without an undue hardship defense, the cement plant will be closed to avoid harms of trifling comparative value. The other danger is that without an undue hardship defense, the cement company will pay enormous sums to plaintiffs to buy its way out of the injunction. Either outcome is one to be avoided. But these small-scale studies suggest that we cannot be so sure which danger we are avoiding.
VII. SUPRACOMPENSATORY MONETARY REMEDIES Finally, let me return to the monetary remedy in Boomer. The trial judge had awarded $185,000, apparently based on the pre-pollution market value of the houses. But the Court of Appeals vacated this award and remanded for further *34 consideration. On remand, settlements and one litigated damage judgment were apparently based not on market values before the cement company entered the neighborhood but on the above-market prices it had paid to assemble its tract of more than five square miles in voluntary transactions.151 Payments on this basis totaled $710,000.152
The court in the one litigated case attempted to explain the judgment as a routine award of damages based on loss of market value.153 But all five judges joined the more candid concurring opinion, citing in support of the judgment the fact that voluntary sales to the cement company had been at prices substantially higher than the pre-existing market value of the properties.154
This judgment can be explained as compensatory damages on the theory that but for the wrong, plaintiffs would have sold to the cement company at an above-market price. This conceives the wrong not as the building of the plant or the emission of cement dust and other pollutants, but as the failure to buy up more of the surrounding land.155 This is an entirely plausible theory in principle, but it is not how the tort is usually conceived, and it is not how damages are usually conceived, because it gives the plaintiffs more than they had before the cement company entered the neighborhood.
Daniel Farber thinks the judgment is better understood as disgorgement of unjust enrichment,156 and there is force to that. If the court had awarded only the pre-existing market value of the properties, the cement company would have been enriched by the difference between that amount and the amount it would have had to pay to acquire the properties in voluntary transactions. To put the point this way still treats the failure to purchase more land as the wrong. But restitution puts the case in a different doctrinal context. Compensatory damages are routinely measured by the loss of market value, but there is ample precedent in the restitution cases for requiring a deliberate wrongdoer to disgorge all the profits from the wrong, even if those profits exceed plaintiff’s damages and exceed the market value of what was taken.157
There are two reasons for this review of Boomer’s measure of damages. First, the case in fact awarded a greater monetary remedy than the market value that conventional economic analysis would have viewed as fully compensatory. And second, this award casts some conceptual light on supracompensatory monetary remedies. These remedies are like liability rules in that they leave defendants with *35 a choice of complying with the law or violating the law and incurring a liability to pay money. Because the choice to incur such supracompensatory liability is often unattractive, the law-and-economics literature tends to treat these remedies as creating property rules.158
But that characterization seems to me mistaken. Plainly the cement company was delighted to be off the hook for $710,000 instead of being ordered to shut down its plant. Supracompensatory monetary remedies are at bottom a variation on liability rules, because they leave the choice of complying or paying to defendant. Sometimes the choice to pay remains attractive even though it is more than compensatory.
VIII. CONCLUSION Because the undue hardship defense so expressly addresses the core insights of the law-and-economics scholars, their neglect of that defense is a notable omission.
Comparing economic theory to the law’s implementation of the economic concern about excessive costs reveals both substantial parallels and substantial differences. Law-and-economics scholars no doubt think their view is more sophisticated, because it is more precisely defined, more theoretical, better grounded in a clear foundational principle, more reducible to equations. More doctrinal scholars might well reply that the best version of the legal doctrine is actually more sophisticated, because it takes account of the complexities of the real world; it does not achieve an artificial elegance by ignoring the messy facts of individual cases.
The doctrine in this area suggests that the judges care about righting wrongs and they also care about instrumental values. They will prevent the harm to plaintiff if that is feasible, even if prevention costs more than it is worth in economic terms. But they will not prevent the harm to plaintiff if the cost is greatly disproportionate to the benefits. These are judgments of degree, and to an economic purist, it is wasteful to grant remedies that cost even a little bit more than the economic value of the benefit to plaintiff. But it rights wrongs and it protects rights. And it is a much more accurate description of the positive law than any purely economic model.
Douglas Laycock is Robert E. Scott Distinguished Professor of Law, Horace W. Goldsmith Research Professor of Law, and Professor of Religious Studies, University of Virginia, and Alice McKean Young Regents Chair Emeritus, University of Texas at Austin. The author is grateful to the participants in the Fordham-USC Conference on Property, Tort, and Private Law Theory, and to the faculties of the University of Texas Law School and the University of Virginia Law School, for helpful comments on earlier presentations of this project. The author also thanks John Beerbower and Joseph Wood for research assistance.
See, e.g., Winter v. Natural Resources Defense Council, Inc., 555 U.S. 7, 24-26 (2008) (holding that Navy’s interest in practicing sonar detection greatly outweighed plaintiffs’ interests in watching, photographing, and studying marine mammals); Weinberger v. Romero-Barcelo, 456 U.S. 305, 316-20 (1982) (remanding for determination whether district court abused its discretion in refusing to order immediate end, pending application for permit, to Navy’s discharge of pollutants into waters off Puerto Rico); State ex rel. Cox v. Davidson Indus. Inc., 635 P.2d 630 (Or. 1981) (refusing to order removal of fill placed in public waters without a permit). Winter and Weinberger each have important ambiguities. Winter is a preliminary injunction case, a context in which the balancing of hardships has traditionally operated rather differently from how it operates in permanent injunction cases. But the Court took little notice of that distinction, and I cite the case here because it is both recent and well known. Weinberger appears to have involved a final judgment, not a preliminary injunction, but the judgment was to last only until displaced by a permit decision from an administrative agency. It is largely but not entirely coincidence that each of these cases involves the Navy. The undue hardship defense defers to important interests of defendants, and deference is no doubt heightened when the military is the defendant.
See 1 DAN B. DOBBS, LAW OF REMEDIES: DAMAGES-EQUITY-RESTITUTION § §2.4(5), 5.7(2), at 108-13, 765-71 (2d ed. 1993) (emphasizing the broad range of relevant factors and the centrality of balancing with respect to both hardships and equities).
Id. at 761. The court also held that plaintiff’s legal remedy was adequate, a holding that makes sense only in light of the clear undue hardship. See DOUGLAS LAYCOCK, THE DEATH OF THE IRREPARABLE INJURY RULE 161-62 (1991). The position facing the tunnel exits made this a decidedly nonfictional application of the longstanding rule that every parcel of real estate is unique.
Van Hecke, supra note 7, at 530. By “at his peril,” these cases meant that if a landowner knew of a legal challenge to his project and continued building anyway, he did so at the peril, or risk, of having to remove what had been built. See, e.g., Heyniger v. Levinsohn, 101 A. 189 (N.J. Ch. 1917) (“The defendant proceeded at his peril, in an apparent disregard of all other’s rights. He took his chances on the effect of his conduct, with knowledge of the decision in [related litigation between other parties].”)
Defendant terminated plaintiff’s billboard lease long before the scheduled date for demolition. Constance Smith, a recent graduate of St. Mary’s Law School in San Antonio, investigated this oddity. It turns out that S & M leased the billboard space to a competitor of Van Wagner for the time between breach and demolition. For this and other facts she uncovered about Van Wagner, see DOUGLAS LAYCOCK, MODERN AMERICAN REMEDIES: CASES AND MATERIALS 405-06 (4th ed. 2010).
Knoth v. Manhattan Ry. Co., 79 N.E. 1015, 1018 (N.Y. 1907) (“defendant, having constructed its third track in front of the plaintiff’s premises without legislative authority or municipal consent, is in no condition to institute condemnation proceedings;” but defendant acted in good faith and injunction denied on grounds of undue hardship).
Louise A. Halper, Nuisance, Courts and Markets in the New York Court of Appeals, 1850-1915, 54 ALB. L. REV. 301 (1990). I began here by following Professor Halper, and I am indebted to her research. As will soon appear, I also have one doubt or possible disagreement. I have independently reviewed the New York cases, including cases outside the period she studied and cases within that period that she did not cite. Except on the one issue to be noted, this additional research has further confirmed her general account.
Campbell v. Seaman, 63 N.Y. 568, 586 (1876) (“Where the damage to one complaining of a nuisance is small or trifling, and the damage to the one causing the nuisance will be large in case he be restrained, the courts will sometimes deny an injunction. But such is not this case .... It does not appear that defendant’s damage from an abatement of the nuisance will be as great as plaintiffs’ damages from its continuance.”).
SeeFerguson v. Village of Hamburg, 5 N.E.2d 801, 803 (N.Y. 1936) (collecting cases for the proposition that “a court of equity could ascertain the damages and grant an injunction which was not to be effective unless the defendant failed to pay the amount fixed as damages for the past and permanent injury inflicted”).
Van Allen, 38 N.E. at 998 (“When the jurisdiction has once attached, it is not affected by changes which occur subsequently”); Lynch, 29 N.E. at 316 (“It has always been a well-settled and familiar rule that when a court of equity gains jurisdiction of a cause before it for one purpose it may retain it generally.”).
See LAYCOCK, supra note 28, at 37-39 & nn.1-17 (collecting examples of specific performance of real estate contracts, restrictive covenants, condominium restrictions, leases, and easements, and of injunctions against encroachments, nuisances, repeated trespasses, zoning violations, wrongful foreclosures, or removals of timber, minerals, or lateral support).
See, e.g., Brown v. Plata, 131 S. Ct. 1910 (2011) (affirming injunction to greatly reduce population of California’s prisons, after sixteen years of unsuccessful efforts to improve medical care for prisoners by ordering various reforms).
POSNER, supra note 40, §4.13 at 131 (arguing against specific performance generally, with exception for contracts to sell existing real estate, which present little risk that performance might turn out to be unexpectedly expensive).
See, e.g., Ian Austen, A Patent Dispute Threatens to Cut Executives Off, N.Y. TIMES, Dec. 2, 2005, at C2. Blackberry was then the dominant provider of what were known as “personal digital assistants,” the predecessors of smart phones.