Agenda for 8th Class Admin stuff Handouts Slides Easements Nuisance Calabresi & Melamed Negotiation Exercise

Assignment for Next Class I Review any questions we did not discuss in class today Read Easement Handout Questions to think about / writing assignments Do you think the court reached the right decision in Thomas? What is the best argument for the contrary result? (WG1) How would the Coase Theorem apply to Thomas? What is the efficient result? Would/could the parties have bargained to it even if the court had ruled there was no easement? If the parties could/would have bargained to the efficient solution, why does it matter which way the court ruled? (WG2 & 3) Do you think the court reached the right decision in Felgenhauer? What is the best argument for the contrary result? (WG4 & 5) How would the Coase Theorem apply to Felgenhauer? What is the efficient result? Would/could the parties have bargained to it even if the court had ruled there was no easement? If the parties could/would have bargained to the efficient solution, why does it matter which way the court ruled? (WG6 & 7)

Boomer v. Atlantic Cement Neighboring landowners sued cement factory for nuisance Dust and other pollution Pollution was substantial, so prior case law suggested that court should order injunction “Disparity of economic consequences” Shutting down factory would cause more harm than allowing pollution to continue Court ordered “permanent damages” Single payment to each landowner Future landowners would not receive payments “servitude on land”

Questions 1. Do you think the court reached the right decision as a matter of law and/or policy? Can you think of a solution that would be more fair and just? 2. What if paying the damages required by the court would cause the factory to go out of business? Would that change the legal analysis or the result that you think is fair and just? In performing the legal analysis, consider the Restatement provision quoted above in Note #7 after the Sans case. 3. How would the damages in Boomer be calculated? 4. Suppose the judge in Boomer read the article by Coase discussed above and decided that it was not worth her time to figure out whether the cement plant was a nuisance, whether an injunction should issue, or whether damages were appropriate, because an efficient outcome would obtain regardless. So the judge flipped a coin to resolve the case. The defendant called “heads,” and the coin landed on heads, so the judge ruled there was no nuisance and thus no injunction or damages. Do you think the parties will bargain to an efficient solution? Why or why not?

Questions 5. Suppose Boomer installs solar panels on his one story house. Atlantic then builds a factory that casts shade on the solar panels for most of the day. If Boomer sues Atlantic for nuisance, who do you think will win? If you think Boomer would win, what do you think the remedy would or should be – an injunction or damages? Suppose the court issued an injunction ordering Atlantic to move its factory, and the injunction was affirmed on appeal, what do you think would happen next? Also, consider the following variation on Q5. Suppose Atlantic’s factory does not cast shade on the solar panels, but rather Atlantic planted trees that shade the solar panels. If Boomer sues Atlantic for nuisance, who do you think will win?  If you think Boomer would win, what do you think the remedy would or should be – an injunction or damages? Suppose the court issued an injunction ordering Atlantic to trim, chop down, and/or relocate the trees, and the injunction was affirmed on appeal, what do you think would happen next? 

Questions 6. Suppose that, when Atlantic built its factory, the surrounding land was completely undeveloped. Over time, however, the nearby city grew and very expensive homes were built closer and closer to the factory. The value of these homes was dramatically reduced by the pollution, and the total diminution in property values far outweighed the factory’s profits. Would that change the legal analysis in Boomer? Does it change your view of the fair and just outcome? In analyzing possible legal or equitable solutions to the dispute, consider the four rules set out by Calabresi and Melamed and discussed in the last three pages of this handout.

Calabresi & Melamed (1972) Coase analysis is too simple Because must analyze not just who gets rights But how rights are protected Ancient lights example Implicitly assumed property rule No violation of rights only with consent But could also analyze using liability rule Violation of right requires only compensation Analysis is largely an application of Coase Theorem

Property Rules & Liability Rules If A has an entitlement protected by a property rule, then A can prevent B from violating it without A’s consent E.g. A can get a court order forbidding B from violating the right, and if B violates it he goes to jail Owner of land can usually get order forbidding or evicting trespasser Owner of patent can usually get order forbidding future infringement Liability rule If A has an entitlement protected by a liability rule, then if B violates it, B must pay A compensation usually determined by a court Contracting party ordinarily only has right to compensation, not to court order requiring performance “Entitlement” = “Right” = “Property”

Same Entitlement / Different Protection I Real property Usually protected by property rule But liability rule protection in some circumstances In emergencies Individuals have a right to go on another’s land without permission and only to pay damages E.g. ship in storm has right to dock without permission of owner, paying only fair rental value and damage to dock “liability rule” protection Under “eminent domain power” Government can take property for public purposes, without consent, and only pay fair market value’ Liabilty Rule protection

Same Entitlement / Different Rules II Intellectual property Usually protected by property rule Patent owner can get injunction against infringement Can bar sale of infringing product Sometimes protected by liability rule Patent owner can only get damages “reasonable royalty” remedy if infringer had innocently incorporated technology into its own product and removal would be extremely costly and disruptive Ebay v Merck, US Supreme Court (2006)

How Choose Property or Liability Rule? If transactions costs are low Efficiency will result either way Other considerations may be paramount Distributional concerns Justice Pollution example 4 possible legal regimes Neighbors have right to clean air Protected by property rule Polluter needs Neighbors’ permission to pollute Protected by liability rule Polluter must pay damages if it pollutes Polluter has right to pollute Neighbors have to get polluters consent to stop Neighbors can stop pollution, but must compensate polluter