Disgorgement of a defendant’s wrongful gains is an ancient remedy. It applies across a spectrum of contexts—from trademark infringement to fiduciary duties, from common law to statutes, from public to private law. This remedy is not regarded as quintessential in American contract law, but that is changing. My earlier work, as cited by the Supreme Court, predicted this shift based upon a new rule in the Restatement (Third) of Restitution and Unjust Enrichment. The rule operationalizes disgorgement of profits for opportunistic breaches of contract. This new conceptualization of precedent authorizes a gain-based remedy that exceeds the compensation goals of contract law’s preferred, default remedy of expectancy damages.
This remedy is bold and will affect the law of contracts, remedies, and restitution. I show, in a companion article, how state and federal courts resolve novel disgorgement requests for breach of contract claims. This Essay examines an unusual endorsement of disgorgement by the Supreme Court, sitting in original jurisdiction over the breach of a water-rights compact between states. Harnessing broad powers of equity jurisdiction, the Court adopts a $1.8 million disgorgement award exceeding compensation. It strips part of a defendant’s profits and stacks on a compensatory award for losses sustained. Relying on the Restatement (much to Justice Scalia’s chagrin), the Court permits disgorgement to deter a defendant from knowingly exposing a plaintiff to a substantial risk of breach. The Court’s provocative application offers a lens through which to explore broader questions: whether, when, and how the disgorgement remedy should apply to breach of contracts, whether public or private. This Essay concludes that disgorgement is a valuable remedy for breach of contract but that judges must exercise reasoned discretion, by applying disgorgement to proper facts and by using restraint in tying the measurement to causation. The inclusion of disgorgement in the stable of remedies broadens the scope of contract law to include inquiries and features typically associated with tort law. As in all of my remedies work, this Essay argues that remedies shape rights—here, granting the remedy of disgorgement expands the shape of the underlying contract right in both public and private law.
68 Fla. L. Rev.
Available at: https://scholarship.law.ufl.edu/flr/vol68/iss5/5