Assignment 1 Spur Industries v Del Webb Development [1972]

Facts of the Case:

1. Del Webb (Plaintiff) was the developer of a large residential area, Sun City, Arizona. The development was advertised as providing an active lifestyle for seniors and featured its own golf course, other recreational facilities and shopping areas. The site was a 20,000 acre cotton plantation located which was about 30 minutes from Phoenix in a rural area. The location was remote from any existing urban area and the land was relatively cheap. [Webb bought the “agricultural land” for $ 3million and sold it as residential lots for $20 million.] In 1959 Webb began the development, which opened on January 1, 1960. The development was very successful and 1250 homes were sold in the first year. Spur (Defendant) owned a cattle feedlot on property adjacent to the cotton plantation. The feedlot was established in 1956 and purchased by Spur in 1960. Spur then expanded the feedlot from 35 to 114 acres. In 1963 the feedlot became a problem to the residential community. By 1967 each of the expansion projects had brought the parties within 500 ft of each other. The flies and smell were a problem to the residents and rendered the last 1300 units of Webb's development uninhabitable (and unsaleable).

2. Negotiations between the homeowners association and Del Webb and Spur were unsuccessful and by 1968, both individual residents and Webb sued Spur, complaining that Spur was a "public nuisance" and asking an injunction to stop the operation of Spur's feedlot. Webb’s case was heard first.

3. Spur responded that the feedlot had been in operation in a rural area before the development was built and that they could not have anticipated urban development in the area. They argued the Del Webb had “come to the nuisance” and had deliberately misrepresented the nature of the location to its customers.

Legal Decisions:

1. The trial court granted the injunction against Spur in 1971. Spur suspended operation of the feedlot and appealed the decision to the Arizona Supreme Court. Subsequently, Spur agreed to move the feedlot if Del Webb would pay the expenses, but Webb was not willing to pay enough so that the appeal continued.

2. The Appeal Court upheld the injunction, but held that Webb would have to compensate Spur for the cost of closing or relocating the feedlot.

3. A private nuisance is one affecting a single individual or a definite small number of persons in the enjoyment of private rights not common to the public. A public nuisance affects the rights enjoyed by citizens as a part of the public and must affect a considerable number of people or an entire community or neighborhood. The court ruled that Spur’s operation was both a public and private nuisance, a public nuisance to all of the residents of Sun City and a private nuisance to the developer.

4. The court also ruled that Webb had brought the Sun City population into a previously agricultural area and as a result was responsible for the damages caused to Spur by the injunction.

5. The case was sent back to the lower court to determine the amount of damages, but Del Webb and Spur reached an agreement out of court. The amount they agreed on is not known.

Questions:

1. What is the economically most efficient outcome? Explain your answer. Did the court decision lead to the efficient outcome?

2. Private bargaining between Webb and Spur was unsuccessful, both before the first decision and before the appeal. Were there any impediments to bargaining between Webb and Spur? If so, what were they?

3. Why were Webb and Spur able to reach an agreement on the amount of damages after the Arizona Supreme Court decision?

4. Private bargaining between the residents of Sun City and Spur were also unsuccessful. What impediments may have prevented this bargaining?

5. Were the simultaneous expansions on the part of Webb and Spur rational business decisions?

6. Prior to this decision, the options available to the courts were believed to be: i) an injunction to stop or move the feedlot because it was a public and private nuisance; ii) an award of damages to be paid by the feedlot to the residents and Del Webb because of the public and private nuisance, or iii) not to award damages. The Arizona Supreme Court decision added a fourth option: an injunction against the feedlot to eliminate the nuisance and an award of damages to Spur because Del Webb had “come to the nuisance”. What incentives does this new legal precedent provide for location of a residential development?