Contractual Disgorgement Remedy: A Comparative Analysis from Commonwealth Perspectives, Exams of Law

Download Contractual Disgorgement Remedy: A Comparative Analysis from Commonwealth Perspectives and more Exams Law in PDF only on Docsity! 945 A Commonwealth of Perspective on Restitutionary Disgorgement for Breach of Contract Caprice L. Roberts Table of Contents I. Introduction: Contractual Disgorgement Remedy as Watershed.....................................................................................946 II. Section 39 of the Pending American Restatement of Restitution ....................................................................................950 III. Comparative Roots & Flaws of Section 39’s Proposed Disgorgement Remedy .................................................................953 A. Blake’s Resonance and Other Signposts of Commonwealth Support ........................................................954 B. Section 39’s Adoption of Blake’s Remedial Theory but with Narrow Application .................................................961 C. Lessons of Blake & Practical Flaws of Section 39.................965 1. Section 39’s Potential May Be Lost for Its Cumbersome Nature........................................................965 2. Section 39 Asserts Its Narrowness, but to What End? ......................................................................966 IV. Intellectual Godparents to Section 39 ...........................................967 Professor of Law, West Virginia University. The author is indebted to Andrew Kull for graciously accepting criticism of the pending American Restatement provision on disgorgement, providing substantive feedback, and provoking my continued interest in assisting with the artful navigation of drafting this important contractual remedy provision. This Article benefited significantly from its presentation at the "Roundtable on Restitution and Unjust Enrichment in North America," sponsored by the Frances Lewis Law Center, Washington and Lee University School of Law, December 14, 2007. The author further thanks the following individuals for their thoughtful review and comments: Eoin O’Dell and Andrew M. Wright. For consultations throughout the author’s study of this topic, the author expresses gratitude to Caroline Brown, Joshua Fairfield, Adam Feibelman, and Doug Rendleman. This Article also benefited from the research assistance provided by Nicole Bright. 946 65 WASH. & LEE L. REV. 945 (2008) A. Broadly Supporting Disgorgement. .......................................968 B. Supporting Disgorgement, but in a Narrow Form .................978 C. Opposing Disgorgement Relief..............................................986 V. Conclusion: Proposed Path—Follow the Commonwealth and Go Further..............................................................................990 Promises made. Promises not kept. Breach to seize a more profitable deal. Default—Pay expectancy damages. Why not—Disgorge defendant’s gain through breach? . . . If, and when, the law permits disgorgement for contractual breach will say much about the nature of contract law and the role of moral judgment within it.1 I. Introduction: Contractual Disgorgement Remedy as Watershed The muse of restitution enraptures the rest of the world’s legal scholars. Yet, America, the nineteenth-century birthplace of restitution theory, resists her lure.2 This Article contributes to what I hope will become an American 1. Justice Oliver Wendell Holmes provides a complex departure point for the relationship of morality to the law. His famous choice model—"The duty to keep a contract at common law means a prediction that you must pay damages if you do not keep it,— and nothing else."—supports the expectancy default in contract law, which many extend to enable a party to choose breach as long as he or she is prepared to pay plaintiff the benefit of the bargain. Oliver Wendell Holmes, Jr., The Path of the Law, 10 HARV. L. REV. 457 (1897), reprinted in 78 B.U. L. REV. 699, 702 (1998). Holmes’s logic thus further provides foundation for efficient breach theory—encouraging contractual breach where achieving Pareto optimality is possible. Interestingly, Justice Holmes also noted: "The law is the witness and external deposit of our moral life." Id. at 700. This quote may secure a position of morality as a historical matter, but not as a shaping force of the law. 2. For a provocative discussion on why the United States resists, and will continue to resist, restitution’s magnetism due to its global foundations in pre-realist notions rather than governing American jurisprudential principles, see generally Chaim Saiman, Restitution in America: Why the U.S. Refuses to Join the Global Restitution Party, 28 OXFORD J. LEGAL STUD. 99 (2008). Professor Saiman’s thoughtful treatment raises formidable challenges to my vision for an American restitution revival. I hope American scholars will engage in the debate despite the claimed pre-realist roots of restitutionary doctrine. Disagreement with foundational principles, working doctrine, or end results should not deter anyone interested in a rich field ripe for transnational dialogue and growth for American justice. A COMMONWEALTH OF PERSPECTIVE 949 additional gain is retained by the contract breaker."17 Section 39’s intersection with the classical conception, as well as with efficient breach theory, should give serious pause to American contract, restitution, and remedies scholars. Further, this section is critically important because it may augur the coming of a restitution revival in the United States. Commonwealth scholars, internationally, have devoted substantial treatment to the concept of restitutionary remedies for contractual breach. This provocative body of scholarship is richer than parallel scholarship in the United States.18 Commonwealth legal precedents are also somewhat ahead of Section 39 in terms of restitutionary momentum. As we consider the implications and propriety of adopting Section 39 as drafted or otherwise, we would be well served by examining Commonwealth precedent and scholarship. To this end, this Article will explore Commonwealth perspectives on the restitutionary disgorgement remedy for breach of contract through the lens of comparative law. It will focus on the changes to American contract law that will likely come from the pending Restatement of Restitution. This author’s other scholarship casts the Restatement of Restitution’s recognition of a restitutionary disgorgement remedy for opportunistic breach of contract as somewhat revolutionary in the context of the American approach to contract law. A well-developed canon of scholarship and precedent on restitutionary disgorgement exists in foreign common-law jurisdictions. For comparison, this Article will explore parallel movements in Commonwealth countries, such as Australia, Canada, Great Britain, Ireland, and New Zealand. This Article seeks to bring these rich resources to bear on the American debate. More specifically, Part II of this Article will provide the context of the current controversy in America, namely the full text and accompanying commentary on the parameters of Section 39, "Profit Derived from Opportunistic Breach." Next, Part III will examine relevant Commonwealth cases. This part will focus on the import of Blake as a potential watershed, but will also chart other Commonwealth precedential contributions. Part IV will explore the ancestral roots of Section 39, including its intellectual godparents among Commonwealth scholars. Part IV will also examine Commonwealth scholarship that ranges from advocacy for a full-throated version of 17. Id. at 2. 18. Of course, this fact in no way undervalues the seminal contributions of American scholars. See, e.g., John P. Dawson, Restitution or Damages?, 20 OHIO ST. L.J. 175, 175 (1959) (discussing the major types of restitution remedies and their interaction with damage remedies in cases of substantial breach); E. Allen Farnsworth, Your Loss or My Gain? The Dilemma of the Disgorgement Principle in Breach of Contract, 94 YALE L.J. 1339, 1341 (1985) (examining the disgorgment remedy and concluding that it should enjoy limited application); Andrew Kull, Disgorgement for Breach, the "Restitution Interest," and the Restatement of Contracts, 79 TEX. L. REV. 2021, 2028 (2001) (examining the interrelation among traditional contract remedies, unjust enrichment, and disgorgement). 950 65 WASH. & LEE L. REV. 945 (2008) contractual disgorgement to a wholesale rejection of it. This Article will conclude that the lessons of the Commonwealth should serve as a guiding light for America’s embrace of restitutionary disgorgement for contractual breach. Further, the rich comparative caselaw and scholarly discourse suggests that the foundation of contract law could withstand this seemingly new remedy in American law. Lastly, the Commonwealth perspective should foster further refinement of the contours of this important contractual disgorgement remedy. II. Section 39 of the Pending American Restatement of Restitution Section 39 represents a controversial, cutting-edge Restatement proposal that would break ground in American contract law. The restitutionary disgorgement remedy penned in Section 39, along with its underlying rationale, would alter traditional American contract law conceptions. Although the American Law Institute Restatement projects aim to restate the law, Section 39 boldly proposes an "essentially new" rule.19 In the traditional American formulation, "one who merely breaches a contract is not required to restore collateral profits or gains facilitated by the breach."20 This new rule authorizes a disgorgement remedy that keys to defendant’s gain and is available even in the absence of loss to the plaintiff.21 As this Article will discuss, however, this remedy has antecedents in the occasional American case,22 and more grounded support in the Commonwealth.23 19. RESTATEMENT (THIRD) OF RESTITUTION AND UNJUST ENRICHMANT xv, Reporter’s Introductory Memorandum (Tentative Draft No. 4, 2005). "Section 39 has no counterpart in either the first or the second Restatement of Contracts." Id. § 39, Reporter’s Note a; see also Farnsworth, supra note 18, at 1341 (acknowledging that there is not a rule permitting plaintiff’s restitutionary recovery of defendant’s profit from breach); Dawson, supra note 18, at 187 ("[T]he prevention of profit through mere breach of contract is not yet an approved aim of our legal order."). 20. DAN B. DOBBS, DOBBS LAW OF REMEDIES: DAMAGES-EQUITY-RESTITUTION § 12.7(4), at 171 (2d ed. 1993). 21. RESTATEMENT (THIRD) OF RESTITUTION AND UNJUST ENRICHMENT § 39 (Tentative Draft No. 4, 2005). 22. See, e.g., Laurin v. DeCarolis Constr. Co., 363 N.E.2d 675, 691–93 (Mass. 1977) (approving an award of the fair market value of gravel that defendant, in a "deliberate and willful breach of contract," wrongfully removed). In Laurin, plaintiffs did not forward a claim for "the net proceeds of wrongful sales of gravel made by the defendant." Id. at 692. The court does not utilize the terminology of disgorgement or restitution; rather, it analogizes tortious conversion of property. Id. Regarding a contractual remedy keyed to a form of defendant’s gain rather than plaintiff’s loss, however, the court notably maintained: "Nor is it punitive; it merely deprives the defendant of a profit wrongfully made, a profit which the plaintiff was entitled to make." Id. at 693. But see Burger King Corp. v. Mason, 710 F.2d 1480, 1494 (11th Cir. 1983) (emphasizing that "disgorgement of profits earned is not the remedy for breach of contract"). 23. See infra Parts III–IV (exploring Commonwealth precedents and scholarly treatments A COMMONWEALTH OF PERSPECTIVE 951 The remedy that Section 39 provides—restitutionary disgorgement for certain contractual breaches—challenges all sorts of theoretical underpinnings that are taken for granted in American contract law. As discussed in this author’s related article on this topic, Section 39 departs from contract law’s emphasis on compensation rather than punishment, the Holmesian-choice model, and to some extent, the efficient breach mode.24 As such, Section 39 warrants a thorough treatment of all of its interactions with core contract doctrines, such as Hadley foreseeability25 and mitigation,26 which the author addresses in a companion article on this topic.27 The fundamental departure from the compensatory principle is clear. In particular, Section 39’s disgorgement remedy is admittedly not compensatory.28 Rather, it focuses on defendant’s gain rather than plaintiff’s loss. As Professor Kull acknowledges, this feature of Section 39 and its emphasis on the breaching party’s mental state represent departures from traditional American contract conceptions.29 He specifically acknowledges that: Standard contract remedies afford specific or compensatory relief, and a breach of contract—whatever the actor’s state of mind—is not usually treated in law as a wrong to the injured party, comparable to a tort or breach of equitable duty.30 of restitutionary disgorgement for contractual breach, respectively). 24. Roberts, supra note 3, at 5–6. 25. See Hadley v. Baxendale, (1854) 156 Eng. Rep. 145, 147–48 (Exch. Div.) (establishing the foreseeability doctrine for contract law that requires defendant reasonably foresee damages from the time of contract, and thus indicating that defendant must have actual notice of the quantum of harm for consequential damages to flow). 26. See, e.g., Rockingham County v. Luten Bridge Co., 35 F.2d 301, 307–08 (4th Cir. 1929) (holding that where plaintiff receives notice of breach, plaintiff has a duty to mitigate defendant’s damages); Parker v. Twentieth Century Fox, 474 P.2d 689, 694 (Cal. 1970) (excusing actress from the duty to mitigate in the employment setting where substitute employment was not substantially similar to the promised employment). Generally, scholars have raised the apparent incompatibility of disgorgement relief and the mitigation doctrine. See, e.g., McCamus, supra note 4, at 951 (noting that "the general availability of disgorgement relief would undermine the principle that the victim of a breach of contract has a duty to mitigate loss"). 27. See Caprice L. Roberts, Restitutionary Disgorgement for Opportunistic Breach of Contract and Mitigation of Damages, 42 LOY. L.A. L. REV. (forthcoming 2008) (manuscript at 15, on file with the Washington and Lee Law Review) (proposing specific amendments to Section 39 in order to reconcile mitigation goals with the disgorgement remedy). 28. See RESTATEMENT (THIRD) OF RESTITUTION AND UNJUST ENRICHMENT § 39 cmt. a (Tentative Draft No. 4, 2005) ("Judged by the usual presumptions of contract law, a recovery for breach that exceeds plaintiff’s damages is anomalous on its face."). 29. Id. 30. Id. (emphasis added). 954 65 WASH. & LEE L. REV. 945 (2008) primarily in the Commonwealth jurisdictions. The antecedent roots of Section 39 exist in the Commonwealth line of cases that follow, beginning with Blake and then bolstered by other cases. A. Blake’s Resonance and Other Signposts of Commonwealth Support The House of Lords in Blake reasoned that the defendant, "a notorious, self-confessed traitor" and former intelligence officer, breached his contractual duty to the Crown and must account for the anticipated profits from his autobiography, although a fiduciary duty claim had already failed.34 The fiduciary label gives cover, but Blake rendered a gain-based remedy despite the dead fiduciary claim.35 Lord Nicholls of Birkenhead significantly emphasized: The Court of Appeal expressed the view, necessarily tentative in the circumstances, that the law of contract would be seriously defective if the court were unable to award restitutionary damages for breach of contract. The law is now sufficiently mature to recognize a restitutionary claim for profits made from a breach of contract in appropriate situations. These include cases of "skimped" performance, and cases where the defendant obtained his profit by doing "the very thing" he contracted not to do. The present case fell into the latter category: Blake earned his profit by doing the very thing he had promised not to do.36 He continued to set forth a string of precedent "often analyzed as damages for loss of a bargaining opportunity or . . . the price payable for the compulsory acquisition of a right."37 According to Lord Nicholls, such cases demonstrate that, notwithstanding an absence of loss to the plaintiff, "in a suitable case, [the court] will assess the damages by reference to the defendant’s profit obtained"—in fact, "courts habitually do that very thing."38 The phrase, "in a suitable case," understates the complexity of determining the appropriate triggers for authorizing disgorgement relief for a breach of contract. With the stage set, Lord Nicholls turned to the breach of contract theory. He cited, with approval, Wrotham Park Estate Co. v. Parkside Homes,39 a case in which the judge analogized to property rights in order to award damages 34. Attorney Gen. v. Blake, [2001] 1 A.C. 268, 275–77 (H.L. 2000) (appeal taken from Eng.). 35. Id. at 277. 36. Id. 37. Id. at 281. 38. Id. 39. See Wrotham Park Estate Co. v. Parkside Homes Ltd., [1974] 1 W.L.R. 798, 799 (Ch. 1974) (holding covenant prohibiting development of land enforceable). A COMMONWEALTH OF PERSPECTIVE 955 totaling five percent of defendant’s anticipated profits—an amount representing "money which could reasonably have been demanded for a relaxation of [a restrictive] covenant."40 Lord Nicholls remarked, "it is not easy to see why, as between the parties to a contract, a violation of a party’s contractual rights should attract a lesser degree of remedy than a violation of his property rights."41 Viewing Wrotham Park as "a solitary beacon" for giving contract damages beyond plaintiff’s financial loss, he then extended the underlying principles to support a "modest" extension to the equitable remedy of an account of profits.42 He noted: "[C]ircumstances do arise when the just response to a breach of contract is that the wrongdoer should not be permitted to retain any profit from the breach."43 With a deterrence goal at the fore, Lord Nicholls endorsed Snepp v. United States,44 in which the United States Supreme Court ordered a former CIA agent to surrender the profits of a book published in violation of his contractual promise to obtain pre-publication clearance.45 Notably, Lord Nicholls analogized to Snepp’s reasoning for its constructive trust remedy in order to reach the account of profits remedy: The court considered that a remedy which required Snepp "to disgorge the benefits of his faithlessness", was swift and sure, tailored to deter those who would place sensitive information at risk and, since the remedy reached only funds attributable to the breach, it could not saddle the former agent with exemplary damages out of all proportion to his gain. In order to achieve this result the court "imposed" a constructive trust on Snepp’s profits. In this country, affording the plaintiff the remedy of an account of profits is a different means to the same end.46 Accordingly, the majority of the House of Lords endorses a remedy keyed to defendant’s gain rather than plaintiff’s loss.47 40. Attorney General v. Blake, [2001] 1 A.C. 268, 283 (H.L. 2000) (appeal taken from Eng.). 41. Id. 42. Id. at 283–84. 43. Id. at 284. 44. See Snepp v. United States, 444 U.S. 507, 515–16 (1980) (imposing a constructive trust on profits derived from a book published in violation of ex-CIA agent’s obligation to obtain prepublication authorization). 45. Id. 46. Attorney General v. Blake, [2001] 1 A.C. 268, 288 (H.L. 2000) (appeal taken from Eng.). 47. Id. at 269. For a provocative comparison and critique of Blake and Snepp for their failure to weigh private restitutionary relief against applicable free speech concerns, see generally Eoin O’Dell, Justice Powell, Frank Snepp and George Blake: Freedom of Speech and Restitutionary Remedies (Nov. 9, 2007) (on file with the Washington and Lee Law Review). 956 65 WASH. & LEE L. REV. 945 (2008) In concurrence, Lord Steyn criticized the slippery taxonomy used in reaching an equitable remedy before ruling the legal remedy inadequate for the private law claim of breach of contract seeking restitutionary disgorgement.48 Ultimately, he supports the ruling because it is the Court’s "prime duty to do practical justice whenever possible."49 More specifically, he emphasized: "For my part practical justice strongly militates in favour of granting an order for disgorgement of profits against Blake."50 The Blake Court did not fear the confines of contract’s compensatory principle. To wit: "[T]he law does not adhere slavishly to the concept of compensation for financially measurable loss. When the circumstances require, damages are measured by reference to the benefit obtained by the wrongdoer."51 According to Professor McCamus, Blake "suggests that the disgorgement remedy is likely to play a peripheral role in contract law, largely at the margins of more clearly recognized forms of disgorgement liability."52 Fiduciary duty often provides cover for the introduction of a disgorgement remedy into a contractual setting.53 In the fiduciary setting, we are more 48. See Attorney General v. Blake, [2001] 1 A.C. 268, 290 (H.L. 2000) (appeal taken from Eng.) (Steyn, L., concurring) (questioning whether granting the equitable injunctive remedy was proper in light of potential legal remedies). 49. Id. at 292 (Steyn, L., concurring). 50. Id. (Steyn, L., concurring). 51. Id. at 285. 52. McCamus, supra note 4, at 1. 53. In a similar case to Blake, Snepp v. United States, 444 U.S. 507 (1980), the United States Supreme Court approved a disgorgement remedy, via a constructive trust, for breach of contract. Id. at 515–16. The Court’s per curiam opinion incorporates an unconvincing fiduciary-styled linchpin. A former CIA agent, Snepp, published a book pertaining to CIA activities in South Vietnam without seeking the contractually required prepublication clearance. Id. at 507–08. The Court authorized the "trust remedy simply requir[ing] him to disgorge the benefits of his faithlessness." Id. at 515. According to the Court, Snepp "deliberately and surreptitiously violated his obligation to submit all material for prepublication review." Id. at 511. The Court emphasized the "extremely high degree of trust" present in Snepp’s CIA employment. Id. at 510. Ultimately, the Court reversed a court of appeals judgment, and endorsed a constructive trust over Snepp’s book profits. Id. at 515–16. It proclaimed that the "remedy is the natural and customary consequence of a breach of trust." Id. at 515. The Court further justified this "swift and sure remedy" for its deterrence value. Id. at 515–16. In general limitation, the Court noted that "the remedy reaches only funds attributable to the breach" and thus "cannot saddle the former agent with exemplary damages out of all proportion to his gain." Id. Three Justices vigorously dissented, asserting the extraordinary remedy would operate as an unlawful prior restraint on "a citizen’s right to criticize his government." Id. at 526 (Stevens, J., dissenting). In fact, the published book did not contain classified material. Id. at 516 (Stevens, J., dissenting). The dissenters reasoned thus that "Snepp did not breach his duty to protect confidential information. Rather, he breached a contractual duty." Id. at 518 (Stevens, J., dissenting). They also chided the per curiam opinion for its focus on deterrence rather than unjust enrichment and its flawed implicit logic because in fact "Snepp has not gained any profits A COMMONWEALTH OF PERSPECTIVE 959 but yes—the Supreme Court of Canada has already "recognized" and "intimated that such relief might be available."68 Ireland, in principle, approved a restitutionary disgorgement remedy in Hickey v. Roches Stores,69 a 1976 unpublished breach of contract case. In Hickey, a fabric company sued a department store regarding the store’s breach of its promise not to sell fabrics by the yard for a specified period.70 Thus, the contractual claim relied upon an exclusivity theory.71 Plaintiff Hickey sought to disgorge profit obtained by the wrongdoer, defendant Roches.72 Roches retorted that damages above compensation were "unknown" to contractual breach caselaw.73 Further, Roches attempted to strike a body blow to Hickey’s theory by pointing out to the High Court "that what the Hickeys are really contending for is the introduction into the assessment of damages in a breach of contract case of a principle of unjust enrichment which is unknown to the law of Ireland."74 Despite this "novel" claim, the High Court decidedly made known a restitutionary disgorgement remedy in Ireland for contractual breach would be available under certain circumstances.75 Significantly, the Hickey High Court, per Justice Finley, boldly reasoned that disgorgement may well be the appropriate remedy in a contractual setting as follows: Thus where a wrongdoer has calculated and intended by his wrongdoing to achieve a gain or profit which he could not otherwise achieve and has in 68. See id. at 969 n.129 (citing Bank of Am. Canada v. Mut. Trust Co., [2002] 2 S.C.R. 601 for this indication, but noting that the "controversial nature" of disgorgement relief may not have been "drawn to the court’s attention"). But see Mitchell McInnes, Restitutionary Damages for Breach of Contract: Bank of America Canada v. Mutual Trust Co., 37 CAN. BUS. L.J. 125, 131–33 (2002) (characterizing the remedy in Bank of America Canada as disgorgement relief). Further, Strother v. 3469420 Canada Inc., [2007] 2 S.C.R. 177, a focal point in Professor Duggan’s article, assumes it. See generally Anthony Duggan, Gains-Based Remedies and the Role of Deterrence in Fiduciary Law, in THE GOALS OF PRIVATE LAW (Andrew Robertson & Hang Wu Tan eds., forthcoming 2008) (manuscript on file with the Washington and Lee Law Review) (preferring the dissenting view regarding the relationship between a fiduciary and contract law because courts should not be able to redraft the parties’ contract with an override of fiduciary law). 69. See Hickey & Co. v. Roches Stores Ltd., [1975] H.Ct. No. 1007P, 1–2 (H.Ct., 14th July, 1976) (unreported) (Ir.) (holding disgorgement remedy appropriate in breach of contract case) (on file with the Washington and Lee Law Review). 70. Id. at 3–4. 71. Id. at 4. Of course Ireland’s competition laws, which did not exist at the time of Hickey, would now strike down such an exclusivity agreement. 72. Id. at 5. 73. Id. at 6. 74. Id. at 7. 75. Id. at 12–13. 960 65 WASH. & LEE L. REV. 945 (2008) that way acted mala fide then irrespective of whether the form of his wrongdoing constitutes a tort or a breach of contract the Court should in assessing the damages look not only to the loss suffered by the injured party but also to the profit or gain unjustly or wrongly obtained by the wrongdoer.76 Further, the High Court proclaimed: "If the assessment of damages confined to the loss of the injured party should still leave the wrongdoer profiting from his calculated breach of the law damages should be assessed so as to deprive him of that profit."77 Ultimately, the High Court did not find bad faith and calculated damages via compensation for plaintiff’s loss.78 Hickey, the fabric company, did not assert "any lack of good faith" on Roches’s part.79 The disposition accordingly does not tell the full story of this precedent. Ireland’s High Court, evidenced by the expanse of both quoted passages from Hickey, sanctions a restitutionary disgorgement as a remedy for contractual breach. Notably, the High Court would so hold, if bad faith existed, even without the wrong embodying contractual breach.80 Accordingly, in contrast to obiter dictum, the High Court in Hickey establishes a legal rule for restitutionary disgorgement in either a contractual or tort setting, although the facts of Hickey represent one application where the plaintiff could not meet the requisite bad faith showing. In Australia, a line of cases beginning with Warman v. Dwyer81 arguably creates a bridge to disgorgement in a purely contractual breach setting. Warman, an equity case, clarified that the account of profits remedy at issue is grounded in fiduciary duty, not unjust enrichment.82 As Professor Edelman explores, the Warman Court emphasized: [I]t has been suggested that the liability of the fiduciary to account for a profit made in breach of the fiduciary duty should be determined by reference to the concept of unjust enrichment . . . . But the authorities in Australia and England deny that the liability of a fiduciary to account depends upon the detriment to the plaintiff.83 76. Id. at 12 (emphasis added). 77. Id. 78. Id. at 13. 79. Id. at 6. 80. Whether bad faith ought to be an essential ingredient is a question not explored by this Article. 81. See Warman Int’l Ltd. v. Dwyer, (1995) 182 C.L.R. 544, 570 (Austl.) (holding an accounting of profits remedy appropriate for a breach of fiduciary duty claim). 82. Id. at 556. 83. EDELMAN, supra note 7, at 40 (citing Warman, 182 C.L.R. at 557). A COMMONWEALTH OF PERSPECTIVE 961 Professor Edelman opines that the High Court of Australia thus "rejected any role for the principle of unjust enrichment in a case concerned with profit- stripping because the account of profits does not focus upon any transfer from (described as ‘detriment to’) the claimant."84 Rejection should not be interpreted to mean a whole-cloth rejection. Rather, the unjust enrichment model should be limited to cases involving a "transfer from" or "detriment to" the plaintiff.85 Accordingly, the Warman Court did not preclude the remedy of disgorgement for a contractual breach lacking a live fiduciary claim à la Blake. Thus, a liberal reading of the unanswered questions coupled with the dicta leave room for Australia to support a restitutionary disgorgement remedy for contractual breach in the future. So, no news yet is good news, unless you are a pessimist. B. Section 39’s Adoption of Blake’s Remedial Theory but with Narrow Application Blake opens the door to the disgorgement remedy, and proposed Section 39 steps through the door. It does so with much timidity despite its bold title "Profit Derived from Opportunistic Breach."86 Further, restitution and unjust enrichment doctrines drive Section 39’s disgorgement remedy for opportunistic contractual breaches,87 given Section 39’s placement in the Restatement of Restitution and Unjust Enrichment rather than the Restatement of Contracts.88 Section 39 of the Restatement of Restitution grounds itself in the notion that defendant’s "unjust enrichment at the expense of the other 84. Id. 85. Id. 86. RESTATEMENT (THIRD) OF RESTITUTION AND UNJUST ENRICHMENT § 39 (Tentative Draft No. 4, 2005). 87. Professor Edelman would not approve given Section 39’s conceptual blending of restitution with contractual disgorgement. See EDELMAN, supra note 7, at 1 (holding a strict view on the line between disgorgement and restitutionary damages). In particular, Edelman insists that: [T]he crucial difference is that in the case of restitutionary damages the gain in question is that objective gain received by the defendant which has been wrongfully transferred from the claimant, while in the case of disgorgement damages the gain to be disgorged is that which has accrued to the defendant as a result of the wrong irrespective of whether there has been any transfer of value and not limited by any possible value transferred. Id. 88. See supra note 19 and accompanying text (discussing the disgorgement section as a new rule that has no counterpart in the Restatement of Contracts). 964 65 WASH. & LEE L. REV. 945 (2008) with efficient breach theory, and the "profitable" requirement may intensify it.105 Yet, regardless of whether the two can coexist, it seems that the "profitable" requirement will serve a restrictive purpose. For cases that have permitted disgorgement relief, profitability is present or at least not seriously debated.106 Given that Blake, with some scholarly support, provided a gain-based remedy in an account of profits, foundation exists to limit the availability of disgorgement to instances in which the plaintiff demonstrates the inadequacy of legal relief. Section 39 awkwardly travels down this road. Specifically, it provides that access to disgorgement relief is available only where "the breach affords inadequate protection to the promisee’s contractual entitlement."107 Then, two cumbersome attempts to clarify provide: (i) If plaintiff can use the traditional legal damages remedy as "full equivalent to the promised performance in a substitute transaction," then "damages are ordinarily adequate; and (ii) If plaintiff cannot, then "damages are ordinarily inadequate."108 The inadequacy hurdle, although poorly drafted, is a significant hurdle to a plaintiff’s obtaining (not seeking) disgorgement relief. In essence, if plaintiff could establish a right to specific performance by meeting the standard irreparable injury test, then plaintiff should have the option of seeking disgorgement. Yet, Section 39 does not state this principle as such. Presumably, this provision represents a drafting compromise designed to avoid extended academic debates about the flaws of the irreparable injury rule and the anachronistic perpetuation of the law and equity divide.109 One way to avoid it entirely would be to eliminate the inadequacy limitation. Yes, this avenue would broaden disgorgement’s availability. If the breach is deliberate and profitable, however, the interest in deterring the wrongfulness and stripping the 105. The author explores these potential ramifications in related articles on disgorgement and Section 39. See generally Roberts, supra note 3; Roberts, supra note 27. 106. See, e.g., Attorney Gen. v. Blake, [2001] 1 A.C. 268, 275 (H.L. 2000) (appeal taken from Eng.) (noting that Blake earned significant profits from his autobiography); Snepp v. United States, 444 U.S. 507, 515–16 (1980) (imposing a constructive trust on profits derived from a book published in violation of an ex-CIA agent’s obligation to obtain prepublication authorization). 107. RESTATEMENT (THIRD) OF RESTITUTION AND UNJUST ENRICHMENT § 39(2)(c) (Tentative Draft No. 4, 2005). 108. Id. § 39(2)(c)(i)–(ii). 109. See generally DOUGLAS LAYCOCK, THE DEATH OF THE IRREPARABLE INJURY RULE (1991) (examining the rule and maintaining it is in decline). Professor Laycock provides: "Injury is irreparable if plaintiff cannot use damages to replace the specific thing he has lost." Id. at 37; see also RESTATEMENT (THIRD) OF RESTITUTION AND UNJUST ENRICHMENT § 39 Reporter’s Note c (Tentative Draft No. 4, 2005) (citing and adopting this principle in Section 39). A COMMONWEALTH OF PERSPECTIVE 965 gains wrongfully obtained—if chosen as worthy goals—remains intact irrespective of whether plaintiff is able to obtain substitute performance with traditional compensatory damages. C. Lessons of Blake and Practical Flaws of Section 39 Blake leaves an opening for scholars and courts to craft the exact parameters of a disgorgement remedy for breach of contract actions. Section 39 attempts to navigate these treacherous waters. Through labor-intensive efforts to chart the right course, the resulting compromise in the text of the proposed section is clunky and unappealing. In sum, it is aesthetically displeasing. All of this unwieldiness seems calculated to avoid unnecessary association with the specific performance doctrine and to reassure those who are apprehensive that this section will be a slippery slope towards the perceived unbounded nature of tort remedies. 1. Section 39’s Potential May Be Lost for Its Cumbersome Nature For all that Section 39 may accomplish, literary clarity is not a selling point. To some extent, the Blake opinion suffers from this ailment also. This stems from the tortured procedural history of Blake’s case, the need for a creative way to remedy what so clearly screamed out as a wrong, and the incredibly complex nature of the topic of disgorgement for contractual breaches. Section 39 follows Blake and supportive academic treatments, but then the section must grapple with the difficulty of drawing the proper lines. In order to allay fears, Section 39 imposes the varied limitations discussed, but in so doing, creates non-user friendly text. It may ultimately rein in the approval of disgorgement relief in the breach of contract setting. It will, however, likely result in extensive litigation battles over its meaning and applicability. Accordingly, streamlining revision would aid in its effectiveness. Plaintiffs need to be able to understand it and make wise decisions about when to utilize it. Meanwhile, defendants need to be able to minimize protracted litigation fights over it. Of course, the parties can avoid any perils in advance by agreeing to an enforceable liquidated damage provision, in which case Section 39, by definition, is not applicable.110 A tighter draft would also help fill a gap in contract law and support a restitution revival. 110. RESTATEMENT (THIRD) OF RESTITUTION AND UNJUST ENRICHMENT § 39(4)(a) (Tentative Draft No. 4, 2005). 966 65 WASH. & LEE L. REV. 945 (2008) 2. Section 39 Asserts Its Narrowness, but to What End? When, in 2001, Professor Kull asked whether an American disgorgement remedy existed for breach of contract, did he envision or hope it would be broader than Section 39?111 He is the reporter after all. There are a number of possible reasons for its strained limitations: (i) to compromise as commanded by the inner workings of a decade-long drafting process, (ii) to allay fears of a slippery slope, and/or (iii) to build a safe inroad as a savvy placeholder for later expansion (or, put another way, to start sliding down the slippery slope).112 My money is on the third option. In the footsteps of Lord Mansfield, "I am a great friend of the action for money had and received, and therefore, I am not for expanding it."113 Accordingly, in spite of the language of limitation shrouding Section 39, greater theoretical currents generate a torrential undertow beneath the placid calm. With all good-faith inferences in favor of the cabining of Section 39, does the narrowing service a worthy goal? The narrow circumscription regarding the availability of the Restatement’s contractual disgorgement remedy may create what Professor Beatson described as effectively "a monetized form of specific performance."114 Professor McInnes, however, finds "problematic" the notion that "[d]isgorgement would constitute a principled proxy for the actual performance to which the plaintiff was entitled."115 He argues that this purported "principled proxy" in fact collapses "the distinction between disgorgement and expectation damages" and more critically "artificially 111. See Kull, supra note 18, at 2021 ("Is there a disgorgement remedy for breach of contract?"). Professor Kull answers the question in the affirmative. He justifies permitting a disgorgement remedy for breach of contract for limited cases: "Disgorgement awarding the plaintiff more than he lost is justified in a narrow class of cases in which the defendant’s election to breach imposes harms that a potential liability for provable damages will not adequately deter." Id. at 2052. In order to limit access to this bold remedy, he suggests "by way of hypothesis, that the necessary breach of contract be both profitable and opportunistic." Id. Not surprisingly, the draft RESTATEMENT adopts these limitations, although wrapped in the overly technical language that often results via drafting compromises. 112. See Roberts, supra note 3, at 20, 41 (suggesting that Section 39 is the "proverbial nose in the camel’s tent" or perhaps a "Trojan horse," but not necessarily one we should fear unless "you want the Greeks to lose"). 113. Weston v. Downes, (1778) 99 Eng. Rep. 19, 20 (K.B.); see also David Ibbetson, Implied Contracts & Restitution: History in the High Court of Australia, 8 OXFORD J. LEGAL STUD. 312, 317 (1988) (noting that Lord Mansfield professed himself a great friend to the action for money had and received). 114. JACK BEATSON, What Can Restitution Do For You?, in THE USE & ABUSE OF UNJUST ENRICHMENT 1, 17 (1991). 115. McInnes, supra note 7, at 237. A COMMONWEALTH OF PERSPECTIVE 969 violation of plaintiff’s right "subject only to paying compensation."128 Yet, compensation is the law’s default for contract law.129 If this logic cabins the reach of disgorgement relief, Professor Smith contends that the law of contracts is trapped in "Zeno’s paradoxes"130 and the "false monopoly of compensation."131 He insists: "So long as we remain convinced that compensation is the only response available for breach of contract, intractable problems arise."132 These problems include the wrongful defendant getting away with it. In his words, the unacceptable consequence is: "Scofflaws appear to be able to breach their obligations with impunity, pocketing ill-gotten gains which the law is powerless to confiscate."133 If courts find a road to allow disgorgement, the judges inevitably engage in "the deployment of fictions and other contortions of reasoning" to "achieve rational results."134 Even with these cases, Professor Smith is not satiated because such judicial maneuvering compromises "the internal consistency of private law" and compels us to "accept asymmetries which have no basis in reason."135 His solution: "[A]dmit that disgorgement is a natural response to breach of contract, [then] these problems vanish like the paradoxes of Zeno."136 Importantly, Professor Smith has no difficulty finding that we should allow disgorgement for breach of contract. He acknowledges that complex issues regarding the determination of scope will arise, but he points out that this task is "familiar because we have already resolved analogous issues in the 128. Id. at 123. 129. See id. ("The orthodox view is that the only response available for breach of contract is compensation.") (citing [1979] Asamera Oil Corp. v. Sea Oil & General Corp., 1 S.C.R. 633 and Surrey County Council v. Bredero Homes Ltd., [1993] 1 W.L.R. 1361 (A.C.)). 130. Id. at 125–29. Professor Smith points to the flaws of logic via a recital of Zeno’s paradoxes: Achilles runs 10 times as fast as the tortoise. If he gives it a head start of 100 metres, can he ever catch it? Once he has run 100 metres to where the tortoise was, it has gone another 10 metres; once he covers those 10 metres, it has gone another metre; when he gets there, it has gone another 10 centimetres; and so on. It seems he will never catch up; but of course he will. Id. at 125. The complexity of this riddle, according to Professor Smith, is that "the puzzle is worded in such a way that it asks us to consider ever shorter periods of time." Id. Yet, if "we break out of that, the paradox disappears." Id. He answers the puzzle: "After running 111.111111 . . . (111 1/9) metres." Id. at 125 n.16. 131. Id. at 125. 132. Id. 133. Id. 134. Id. 135. Id. 136. Id. 970 65 WASH. & LEE L. REV. 945 (2008) context of the response of compensation."137 He utilizes the English case of Surrey County Council v. Bredero Homes Ltd.,138 in which the court denied all but a nominal remedy to a plaintiff without actual loss who sought disgorgement for the contractual wrong.139 In Professor Smith’s opinion, the Surrey decision demonstrates the constraints of the compensation orthodoxy.140 Specifically, it trapped the judges in an illogical box—deny disgorgement relief (which the court did) or artfully (artificially) stretch the compensation principle "to encompass defendant’s gain."141 The expansion of the compensation formulation could flow from the following reasoning: "[S]ince the defendant expropriated the plaintiff’s right instead of buying it, the plaintiff’s compensation must include what she would have received had the right been bought."142 Thus, the law should jettison the artificial box. This expanded compensation model finds support in the lost opportunity to bargain theory supported by Judge Sharpe and Professor Waddams.143 Specifically, they maintain that "defendant’s gain does reflect something the plaintiff has lost" in that "defendant’s wrongful conduct has deprived the plaintiff of the opportunity to bargain with the defendant, and . . . damages should be awarded to compensate the plaintiff for this lost opportunity."144 They opine that a gain-based remedy finds support in compensatory principles without the need to reach for restitution.145 And, if the compensatory principle is the problem, why not expand our conception? Professor Smith and the Surrey Court, however, find this 137. Id. 138. See Surrey County Council v. Bredero Homes Ltd., [1993] 1 W.L.R. 1361, 1361 (A.C.) (holding that plaintiff was entitled only to nominal damages for breach of contract claim). 139. Id. 140. Smith, supra note 122, at 126. 141. Id. 142. Id. 143. See generally Robert J. Sharpe & S. M. Waddams, Damages for Lost Opportunity to Bargain, 2 OXFORD J. LEGAL STUD. 290 (1982). 144. Id. at 290. 145. Id. at 297. Notably, Judge Sharpe and Professor Waddams acknowledge that a skeptic might view the results as a "restitutionary measure" given that the lost opportunity theory fictitiously "allows the plaintiff the benefit of a presumption that he would have demanded the greatest sum that the defendant would rationally have paid." Id. They retort, however, that their goal "is not to displace restitution, but rather to offer a new explanation and justification of the results, widely agreed to be just, that formerly had been thought only to be defensible on restitutionary and other exceptional grounds." Id. Accordingly, they contend that the same results may be founded on a "compensatory basis." Id. A COMMONWEALTH OF PERSPECTIVE 971 reasoning wholly unpersuasive. In Surrey, Steyn L.J. dismissed this fiction.146 Professor Smith similarly rejects this "shoehorning" as "ultimately doomed, since it cannot cope with the case in which the plaintiff would never have bargained away the right."147 As a matter of consequence, he offers the further injustice that such an instance "is arguably when the case for disgorgement is strongest."148 Professor Smith maintains that the use of any fictions is unpersuasive and unnecessary.149 Instead, "the availability of the response of disgorgement for breach of contract would obviate the need to use fictions and to apply legal concepts to inappropriate situations."150 Then the law, laudably in Professor Smith’s opinion, would ensure that defendant not "keep his ill-gotten gain," require defendant to purchase the expropriation, and avoid a legal inconsistency.151 Professor Smith urges that a world without contractual disgorgement would regrettably benefit wrongdoers and would create intolerable inconsistencies in the law. He analyzes, and ultimately rejects, two classical justifications for why the law would abide these consequences. The first is the distinction between property rights, which are in rem (proprietary rights held against everyone) or proprietary, and thus arguably more worthy of a disgorgement protection because the right is held against all, and contract rights, which are in personam (rights held only as between the parties) or personal, and the right is held against one.152 Professor Smith finds that this distinction is insufficient to justify allowing the disgorgement remedy in one category while denying it in the other.153 Although he does not forward much of an affirmative case, he simply offers: "It is not clear why it should be any more permissible to expropriate personal rights than it is to expropriate proprietary rights."154 Yet, oft times, the status quo remains powerful. It is for this reason that others search for ways to reconceptualize through the law’s brittle traps. 146. Smith, supra note 122, at 126 (citing Surrey County Council v. Bredero Homes Ltd., [1993] 1 W.L.R. 1361, 1369 (A.C.)), 147. Id. Professor Smith also rejects the alternative tack of turning the contractual promise into a fiduciary obligation. Id. at 127. 148. Id. at 126. 149. Id. at 129. 150. Id. 151. Id. 152. Id. at 129–32. 153. Id. at 129. 154. Id. at 132. 974 65 WASH. & LEE L. REV. 945 (2008) transfer the subsequent transfer (sale) must also be taken into account" "in a situation where a transfer is procured as a result of a wrong but where the property is then sold at a price higher than the market value."173 Professor Smith does not elaborate on the details of how causation and remoteness should cut on these difficult questions. Instead, he simply cautions that the doctrine should require plaintiff to "have some connection to the gain" and that in addition to "but for" causation, there must be "a remoteness limitation" to bound plaintiff’s recovery of defendant’s gain.174 Overall, perhaps Professor Smith suffers from too much intellectual honesty. He warns against judicial trickery in the face of the law’s conundrums. Instead, he urges that we should open the gates to a much-needed remedy that will serve the valiant purpose of reining in wrongdoers. Professor Smith proclaims that courts should not fear the perceived "revolutionary" nature of the disgorgement remedy for breach of contract because, "where logic and principle demand a development of the law, an absence of precedent should not deter."175 Moreover, precedent exists and is on the rise.176 In closing, Professor Smith commands: "A mature system of law cannot allow rights to be expropriated unilaterally."177 And, surely we should not miss the rising tide based upon the perceived prisons of faulty logic embedded in contract law’s orthodoxy. Another prominent scholar argues passionately on behalf of disgorgement with potentially wide applicability. Hanoch Dagan, Dean and Professor of Law at Tel Aviv University in Israel, contributes an extensive critical treatment of the possible normative foundations and "desirability of enabling a promisee to pursue profits derived by the promisor through a breach of contract as an alternative pecuniary remedy of wide applicability."178 He aptly describes the issue of disgorgement for contractual breach as "[s]ituated at the frontier of both contractual and restitutionary liability."179 To focus his inquiry, he examines normative principles for their ability to ground two key cases with opposite results: (i) The English Court of Appeal, in 173. Id. at 106. 174. Smith, supra note 122, at 136. 175. Id. at 139. 176. See id. at 139 nn.82–83 (citing Moses v. Macferlan, (1760) 97 Eng. Rep. 676 (K.B.)); Groves v. John Wunder Co., 286 N.W. 235 (Minn. 1939); Wrotham Park Estate Co. v. Parkside Homes Ltd., [1974] (W.L.R. 798 (Ch.1974)). 177. Id. at 140. 178. Hanoch Dagan, Restitutionary Damages for Breach of Contract: An Exercise in Private Law Theory, 1 THEORETICAL INQUIRIES L. 115, 115 (2000). 179. Id. A COMMONWEALTH OF PERSPECTIVE 975 line with traditional resistance, denied disgorgement for contractual breach in Surrey County Council v. Bredero Homes, and (ii) In Adras Building Material v. Harlow & Jones GmbH,180 the Israeli Supreme Court authorized for the first time a gain-based remedy for contractual breach.181 Professor Dagan then methodically explores five potential normative groundings: "enforcement of promise-keeping; prevention of unjust enrichment; protection of proprietary rights; enhancement of efficiency; and performance of contractual obligations in good faith."182 He rejects the relevance of promise-keeping and unjust enrichment because he maintains that both are neutral as to the results of the two key cases.183 Next, he expresses real doubt as to the distinction between contractual and proprietary rights as the distinction serves only to support the Surrey anti-disgorgement ruling, but not the Adras allowance of disgorgement.184 He similarly notes that efficiency only supports Surrey.185 Unsatisfied, Professor Dagan analyzes one additional normative value: "[G]ood faith."186 Although both propriety and efficiency principles may justify a Surrey anti-disgorgement stance, Professor Dagan plumbs the last model, good faith considerations, but interestingly finds that "good faith supports neither Adras nor Surrey."187 Instead, good faith doctrines support a third possible alternative to Surrey and Adras—dividing the unexpected benefits of profits between the contractual parties.188 Viewing good faith as a cooperative construct of contract law, he articulates that good faith considerations include "a zone of mutual cooperation and confidence" and duties of "loyalty," "protection," "solidarity," and to "share with each other."189 Professor Dagan proposes a "cooperative 180. See CA 20/82 Adras Bldg. Material v. Harlow & Jones GmbH [1989] 42(1) P 221 translated in English at 3 RESTITUTION L. REV. 235, 235 (1995) (granting the buyer "the difference between the contract price and the price obtained on the wrongful resale" of steel). 181. Dagan, supra note 178, at 116. 182. Id. at 117. 183. Id. at 117–18, 125–26. 184. Id. at 118, 132, 139. 185. Id. at 118, 140, 146. Notably, Professor Dagan cautions that even if efficiency may explain a Surrey rule, "[e]fficiency . . . should not be the exclusive consideration in shaping contract rules." Id. at 145. He forcefully maintains: "The law is not merely a set of incentives. Rather, it also provides standards for conduct and for judgment of behavior. Furthermore, as one of the most important social institutions, the law also influences the preferences of those subject to it." Id. 186. Id. at 146. 187. Id. at 147. 188. Id. at 118, 147. 189. Id. at 147–48. 976 65 WASH. & LEE L. REV. 945 (2008) countervision" with "apparent affinity" to Adras’s favoring of restitutionary disgorgement.190 Specifically, he offers: "[W]hen the opportunity to sell at a better price materializes, the proper thing for the promisor to do is to contact the promisee, make sure her expected profits are greater than the promisee’s expected loss and—if indeed it turns out that the alternative transaction is more efficient—share these profits with the promisee."191 Accordingly, if a contractual party stands to benefit unexpectedly, that party should "share" the benefits with the other party.192 This good-faith cooperative social vision, if preferred over an instrumental one, would "repudiate the traditional rule, as restated in Surrey, that implicitly sanctions the promisor’s unilateral pursuit of her own interests, irrespective of the existing relationship she has already established with her contractual partner."193 Accordingly, then "the law should adopt the Adras rule, which solicits the appropriate contractual behavior: discouraging any unilateral repudiation by the promisor and requiring her to consult with the promisee and negotiate with him an agreed release that will supposedly satisfy both."194 Yet, Professor Dagan then posits that a cooperative vision may in fact support the rejection of Adras as it "may be seen not to foster cooperation" but instead, like specific performance, "compelling parties to work together when their relationship is no longer mutually beneficial is bound to create a loss of confidence and even hostility between the parties."195 A rule following Adras disgorgement yields the promisee "a position of threatening leverage that enables him to demand the promisor purchase her release at a prohibitively high price" and on occasion "even impede efficient reallocation of the promissory resources altogether."196 Having framed such contradictory postures, Professor Dagan queries: "Is a rule that enables people to prevent others from improving their situation without detrimental effect on anyone else really required by the values of trust, solidarity and sharing?"197 The solution to this "deadlock" of an "all or nothing" approach, according to Professor Dagan, is to opt for a measure that requires the promisor to share "the unexpected benefits that arise over the course of their contractual 190. Id. at 149. 191. Id. 192. Id. 193. Id. 194. Id. 195. Id. at 149–50. 196. Id. at 150. 197. Id. A COMMONWEALTH OF PERSPECTIVE 979 He describes this route as the "central case" for disgorgement for breach of contract.209 Under this rubric, disgorgement would be available if the seller of a unique object breaches and sells the item to another or uses it for profit— regardless of whether the seller breaches deliberately.210 Significantly, Professor Benson leaves open the possibility for broadening the availability of the disgorgement remedy in the contract setting. He notes that the specific performance model "may provide important guidance in determining whether there are other instances where ‘the plaintiff [has] a legitimate interest in preventing the defendant’s profit-making activity and, hence, in depriving him of his profit.’"211 Before reaching his ultimate conclusion, Professor Benson methodically overcomes what he views as the two primary hurdles to disgorgement existing within the confines of a corrective justice contractual framework: (i) The potential that disgorgement of defendant’s gain might not constitute a compensation measure, and (ii) The potential chasm between contract rights and proprietary rights permitting a disgorgement remedy for the latter but not the former.212 He maintains that private law remedies "entail . . . correlative gain and loss."213 In the "less contentious" case of disgorgement for property— rather than contract—right violations, "the owner’s legally protected interest is his or her exclusive authority to determine the purposes to which the object is put."214 Professor Benson then posits: One might think of an award of damages calculated on the wrongdoer’s profit as representing what in fairness the plaintiff was entitled to exact from the wrongdoer as the price of his or her consent or, alternatively, as treating the wrongdoer’s profit as made for the benefit of the owner.215 With this groundwork in place, he reasons that the disgorgement measure could logically be compensatory. In particular, he argues: [P]laintiff’s (actual) loss and defendant’s (actual) gain just represent alternative measures of the single idea of injury: they are identical in terms of their normative significance. They stand in the very same relations to the Id. at 330 n.29. 209. Id. at 311, 330. 210. Id. at 311–12. 211. Id. at 330 (brackets in original) (quoting Attorney Gen. v. Blake, [2001] 1 A.C. 268 (H.L. 2000) (appeal taken from Eng.)). 212. Id. at 312. 213. Id. at 317. 214. Id. at 312, 318. 215. Id. at 320. 980 65 WASH. & LEE L. REV. 945 (2008) principle of reparation of civil injury under corrective justice, which is non- punitive and, in this sense, compensatory in character.216 Regarding the second challenge, Professor Benson notes the premise that contract rights lie in personam rather than in rem, but contends "that while contract is distinct from property as a different mode of acquiring ownership, it shares at a fundamental level with property the very same idea of ownership."217 Provocatively, he queries: "[I]n what way does the failure to keep one’s promise deprive the promisee of what is already his or her own?"218 He attempts to persuade with this logical leap—contractual default remedies of expectation damages and specific performance are compensatory "on one condition only: at, and indeed through, contract formation, and therefore prior to and independently of the moment of performance, the plaintiff acquires an exclusive ownership right as against the defendant with respect to the latter’s promised performance."219 Professor Benson acknowledges that such a contractual right is "not proprietary" and thus "must be in personam," but he asserts that under a model of "‘contract as a transfer of right,’" contract law possesses the same idea of ownership as property.220 Accordingly, for contractual acquisition, "performance or delivery merely represents a physical event that exhibits the promisor’s respect for the promisee’s already and fully established right."221 Then, Professor Benson, invoking Kantian ethics, completes the picture regarding the existence of both an in personam and in rem classifications for contract law.222 He argues that contractual performance "alter[s] . . . the rightful relation vis-à-vis non-contracting parties by giving a party the kind of physical possession essential to establish a right in property against others."223 Therefore, according to Professor Benson, "while contract formation gives rise to rights personal as between the parties, performance gives a party a real right as against the world."224 Then, he returns to the hypothetical breacher modeled 216. Id. 217. Id. at 321. 218. Id. at 322. 219. Id. 220. Id. 221. Id. at 324. 222. Id. (extending Kant’s distinction between ownership and acquisition from IMMANUEL KANT, THE METAPHYSICS OF MORALS, reprinted in THE CAMBRIDGE EDITION OF THE WORKS OF IMMANUEL KANT—PRACTICAL PHILOSOPHY 353 (Mary J. Gregor ed. & trans., Cambridge University Press 1996)). 223. Benson, supra note 204, at 324. 224. Id. A COMMONWEALTH OF PERSPECTIVE 981 to contract law.225 If defendant seller promises to sell unique226 goods to plaintiff buyer but breaches by selling unique goods to another for profit, "defendant interferes with the plaintiff’s exclusive authority to dispose of them."227 Between only the initial two parties "there is a misappropriation by the defendant of what belongs to the plaintiff,"228 and similar to a property right, "the profit can in principle represent the value of the injury to the plaintiff’s exclusive right."229 Thus, Professor Benson concludes there is no reason to deny the contractual plaintiff disgorgement or gain-based damages.230 Other scholars present limited support for disgorgement. The reasoning often lies in concerns about proper taxonomy. Further, scholars may fear the judicial temptation to authorize disgorgement without a coherent doctrine supporting it. In particular, there is a real fear that courts will conduct ends- based analysis or award relief in the name of justice. This style of reasoning also raises real concerns about abuses of discretion and palm-tree justice. The import of hinging a contractual disgorgement remedy on principle rather than practical justice is thoughtfully explored by Professor Mitchell McInnes of the University of Alberta in Edmonton, Canada.231 Professor McInnes contributes a chapter entitled, Disgorgement for Breach of Contract: The Search for a Principled Relationship, in Unjust Enrichment and the Law of Contract. He fears that although Lord Steyn, in permitting a disgorgement remedy in Blake, acknowledged the need to articulate "‘a principled basis’" for a disgorgement remedy in contract law, Lord Steyn "was willing to ‘[s]ubordinat[e] conceptual difficulties to the needs of practical justice’ in order to achieve a desired result."232 Thus, Professor McInnes focuses much of his effort on taxonomy to ensure that causative events (causes of action) correlate to the legal responses (forms of relief) within the private law.233 Pursuant to his 225. Id. at 326–29. 226. Professor Benson distinguishes the promise to sell a non-unique item such that "the defendant’s disposal of it does not, and indeed cannot, directly implicate his or her duty to perform" and thus "disgorgement should not be available as a remedy." Id. at 329. 227. Id. at 328. 228. Id. Professor Benson emphasizes: "[B]y selling the specific goods to a third party, the defendant has done the very thing which is now under the rights of the plaintiff." Id. at 329. 229. Id. 230. Id. 231. McInnes, supra note 7, at 225–42. 232. Id. at 225 (quoting Attorney Gen. v. Blake, [2001] 1 A.C. 268, 292 (H.L. 2000) (appeal taken from Eng.)). 233. Id. at 227–34; see also Mitchell McInnes, Disgorgement for Wrongdoing: An Experiment in Alignment, 8 RESTITUTION L. REV. 516 (2000) (providing extensive treatment of his thesis regarding the necessary alignment between causative events and legal responses). 984 65 WASH. & LEE L. REV. 945 (2008) forwarded by a number of scholars including Professor Nolan.246 Under the first theory, gain-based recovery "would constitute a principled proxy for the actual performance to which plaintiff was entitled."247 Professor McInnes finds this argument "problematic" for its "collapse" of the divide between disgorgement and expectation damages in that "it artificially assumes that the defendant’s enrichment coincides with the benefit that the plaintiff would have derived from performance."248 He also critiques the second formulation advanced by Professor Waddams, who argues that "specifically enforceable contracts support gain-based relief in so far as the plaintiff’s enhanced bargaining position properly allows her to insist that the defendant give up at least part of his profit in exchange for permission to breach his undertaking."249 Professor McInnes sees the remedial classification, in essence compensatory, as flawed; further, even if it has "intuitive appeal," it may prove too much because its underlying rationale would support punitive damages.250 The third specific performance theory grounded in the proprietary effect, however, Professor McInnes views as "the most compelling."251 According to this proprietary formulation, "[f]rom the moment of creation, a contract of sale [such as the sale of land] that is subject to specific performance raises a constructive trust between the parties."252 Then, according to Professor McInnes, disgorgement would flow "as a logical implication of the propriety consequences of equity’s treatment of specifically performable contracts."253 Overall, Professor McInnes offers cautious and tempered support for an opening for disgorgement for breach of contract. He notes that the breach of contract cause of action logically permits such a remedy, although does not mandate its availability. His narrow interpretation is accurate as far as it goes. Much, however, depends upon whether the desire to allow the disgorgement remedy is strong enough to propel reconceptualization of contract law to encompass disgorgement theory and consequences. In the end, Professor McInnes wisely acknowledges that any serious attempt to allow the remedy 246. Id. at 237–41. 247. Id. at 237. 248. Id. 249. Id. at 237–38. 250. Id. at 238. Professor McInnes acknowledges that Professor Waddams would partially concede that "on such reasoning, the gist of the remedy is compensatory" such that "defendant deprives the plaintiff of the opportunity to bargain for a share of the resulting enrichment; relief therefore is granted to restore the value of that opportunity to her." Id. 251. Id. 252. Id. at 238–39. 253. Id. at 240. A COMMONWEALTH OF PERSPECTIVE 985 would need to find public policy, such as deterrence, as a compelling reason to disgorge benefits defendant wrongfully attained.254 His ultimate position that disgorgement is only required for equitably rooted proprietary contract cases where plaintiff has a right to specific performance may be more limited than necessary or desirable given the positive prospects of reconceptualization projects and public policy support for broader uses. But, could there be more, and, if so, how would one craft a principled rule to cover the intended circumstances for a disgorgement remedy in contract law? Professor McInnes points out that the tone of Lord Nicholls’s majority opinion in Blake "quite strongly suggests that it will not be possible to formulate a single rationale to explain all of the circumstances that eventually will be recognised as supporting disgorgement."255 Still yet, other scholars debate the descriptive categories regarding when courts have granted disgorgement or when they should. Professor Howard O. Hunter, President of Singapore Management University, comments favorably on attempts by Professor S.M. Waddams256 of the University of Toronto, to classify cases where restitution relief lies.257 Ultimately, Professor Hunter argues that Professor Waddam’s classifications supporting restitution for breach of contract—(i) lost opportunity to bargain, (ii) equity-protected interests,258 and (iii) proprietary interests—"may be both too broad and too narrow."259 Professor Hunter maintains that certain cases do not fit these categories such as the "losing construction contract cases" because they "do not involve restitution of profits derived from a breach, but they do result in the denial of any savings expected by the breaching party and the allocation of risks of loss (those of both parties) to the breaching party."260 Notably, Professor Hunter concludes that, although Professor Waddams provides "some rough guides" for a descriptive understanding the few cases where restitution rather than compensation flow, Professor Hunter opines that perhaps "it may be just as well to treat these cases 254. Id. at 241. 255. Id. 256. See generally S.M. Waddams, Profits Derived from Breach of Contract: Damages or Restitution, 11 J. CONTRACT LAW 115 (1997). 257. See Howard O. Hunter, Commentary on ‘Profits Derived from Breach of Contract: Damages or Restitution’, 11 J. CONTRACT LAW 127, 127–29 (1997) (discussing Professor Waddams’s article entitled Profits Derived from Breach of Contract: Damages or Restitution). 258. Id. at 128 (discussing a hypothetical breach of contract by a famous athlete where gain-based damages might serve "useful as a post hoc substitute for injunctive relief" because equity would not force specific performance given the involuntary servitude concerns). 259. Id. 260. Id. at 129. 986 65 WASH. & LEE L. REV. 945 (2008) as anomalies—though not without justification—in the general scheme of compensatory damages" for contractual breaches.261 C. Opposing Disgorgement Relief Restitutionary disgorgement has not possessed universal acclaim, even in the Commonwealth. The opposition, however, has not carried the day. To the extent that international scholars raise serious doubts about this form of relief, their doubts generally do not stem from concerns about tension with efficient breach doctrine. The efficient breach theory as a driving influence in contract doctrine is fairly unique to American law.262 In fact, most countries reject its lure and support doctrines that are either incompatible, or at least in tension with, efficient breach notions.263 The following primary opposition hinges not on economic concerns, but rather from abiding concern about the law’s coherence and temptations to be flexible despite the inability to create proper doctrinal links. Notably, Professor Ernest J. Weinrib of the University of Toronto, who thoughtfully examines the aptness of disgorgement as a contractual remedy,264 261. Id. 262. See, e.g., Ronald J. Scalise Jr., Why No "Efficient Breach" in the Civil Law?: A Comparative Assessment of the Doctrine of Efficient Breach of Contract, 55 AM. J. COMP. L. 721, 763 (2007) (noting that the "difference" in posture towards efficient breach theory "is one between American common law and the law of the rest of the world"). 263. Id. at 763–65. In particular, Professor Scalise notes that in the most similar cultural and structural analogue, England, "the reception to the idea of efficient breach has been cold." Id. at 763–64. Regarding the comparison of the United States to civil law jurisdictions, Professor Scalise concludes: "The doctrine of efficient breach of contract has not been endorsed by civil law scholars and judges and is unlikely to be at any time in the near future." Id. at 763. Notably, he views the doctrine of disgorgement and its acceptance in other countries as a significant hurdle to the acceptance of an efficient breach theory. Id. at 734–35 ("In a system in which disgorgement of profits by the breacher is the standard rule (or even a generally available remedy), the doctrine of efficient breach would not exist, as ‘[a] principle that stripped the seller of profits made on the second sale would discourage efficient [breach] behavior.’" (brackets in original)); see also Daniel Friedmann, Restitution of Profits Gained by Party in Breach of Contract, 104 L.Q. REV. 383, 385 (1988) (emphasizing that Israel "rejected the idea of ‘efficient breach,’ under which a breach should be allowed or even encouraged, if the benefit to the party in breach exceeds the loss to the other party" and instead endorsed a "prima facie" entitlement to specific performance because "[t]here is no reason to treat a breach lightly"); McCamus, supra note 4, at 950 (noting that the efficient breach theory has garnered much criticism); Smith, supra note 122, at 133 (observing that the efficient breach theory supporting the disgorgement remedy does not withstand scrutiny). Whether room remains for efficient breach to exist in a world with Section 39 disgorgement remains to be seen. For an exploration, see Roberts, supra note 3. 264. See Ernest J. Weinrib, Punishment and Disgorgement as Contract Remedies, 78 CHI.- A COMMONWEALTH OF PERSPECTIVE 989 profit from their wrongs."286 He notes the international "miscellaneous instances" of disgorgement for contractual breach and queries whether such cases, grounded in a variety of theories, represent "scattered embers of a general conception . . . to be collected and fanned into a new and explicit principle of disgorgement for breach of contract."287 Similar to Professor Smith and Blake, Professor Weinrib queries "why should profiting from another’s contractual right be treated less severely than profiting from another’s proprietary right?"288 After analyzing two of the key cases—Adras and Blake—that "have provided the most extensive discussions favoring the disgorgement of gains from contract breach,"289 Professor Weinrib finds that disgorgement, despite its "obvious moral resonance,"290 cannot comport with the requirements of corrective justice.291 Specifically, disgorgement support cannot cure the one-sided corrective justice difficulty: "[T]hat the promisor has profited from committing a wrong appears to supply an intuitively plausible reason for requiring the promisor to surrender the gain, but not for transferring that gain to the promisee."292 Professor Weinrib also views the temptation to view disgorgement through a punitive lens as flawed and further unable to resolve the incoherence with corrective justice.293 The Kantian account does not cure the difficulty either because Kant’s theory only demonstrates that the breach of contract is a remediable wrong to the promisee, but not that defendant’s gain is the proper "measure of that wrong."294 Professor Weinrib continues that neither the "instrumentalist" reasoning of Adras or Blake cure this problem.295 Rather, in his assessment, the rationale of both cases "is incompatible with the correlative structure of corrective justice."296 Short of 286. Id. 70–71. 287. Id. at 72. 288. Id. 289. Id. (analyzing Adras Bldg. Material v. Harlow & Jones [1988] IsrSC 42(1) 221 and Attorney Gen. v. Blake, [2001] 1 A.C. 268 (H.L. 2000) (appeal taken from Eng.)). For a concise exploration of Adras within the Israeli legal context, see generally Friedmann, supra note 263. 290. Weinrib, supra note 264, at 73. 291. Id. at 74–75. 292. Id. at 74. 293. Id. at 84–102. 294. Id. at 75. 295. Id. at 76 (explaining that Adras "leaves unexplained why the promisee is entitled to recover for what was a wrong against society as a whole" and that Blake fails to show that plaintiff’s "legitimate interest in preventing defendant’s profit-making activity" warrants plaintiff’s entitlement to those profits (quoting Attorney General v. Blake, [2001] 1 A.C. 268, 285 (H.L. 2000) (appeal taken from Eng.))). 296. Id. at 77. 990 65 WASH. & LEE L. REV. 945 (2008) establishing a propriety entitlement, which Professor Weinrib finds untenable, a disgorgement remedy cannot logically lie within a corrective justice frame of contract law.297 Even if the plaintiff possesses an entitlement to specific performance, thereby arguably transforming the right into a proprietary one, Professor Weinrib maintains that corrective justice cannot abide letting the nature of the remedy "determine the nature of the underlying right" and thus specific performance "cannot transform into a proprietary right that which is not already one before the remedy is fixed."298 Thus, the remedy may not shape the substantive right in his opinion. Whether this happens as a matter of practical reality, Professor Weinrib does not address. Instead, he clearly views such a maneuver as incompatible with a faithful view of corrective justice. Ultimately, Professor Weinrib pleads that contract law should maintain its "internal coherence" through its adherence to corrective justice and any attempt to award disgorgement via flawed conceptions or policy rationales will only demonstrate that the law has "become more flexible but less just."299 In the end, Professor Weinrib raises relevant cautionary concerns. These challenges should not reign the day, however. Such critiques should help guide the careful crafting of the parameters of restitutionary disgorgement relief for breach of contract. Overall, the great weight of comparative authority from judges and scholars expresses openness and support for the availability of disgorgement relief for contractual breach. The United States should follow the Commonwealth, while remaining cognizant of the pitfalls. Now, American scholars must continue our efforts to draft the most effective form of disgorgement relief for contractual breach possible. V. Conclusion: Proposed Path—Follow the Commonwealth and Go Further As we progress, the United States legal community must decide whether to adopt, reject, or modify Section 39. We need to continue to immerse ourselves in the rich body of Commonwealth commentary and law on this topic. The Commonwealth’s experiences with restitutionary disgorgement present readily 297. Id. at 77–81. He concludes, forcefully, that "a breach of contract is not tantamount to the alienation of a proprietary right" and that this distinction matters. Id. at 80. He also criticizes Lord Nicholls’s insistence in Blake that there is no justification for treating contractual rights as less worthy than property rights. Id. at 80–81. 298. Id. at 82. 299. Id. at 103. A COMMONWEALTH OF PERSPECTIVE 991 available test cases for the United States. This Article seeks to provide an appreciation of the full context of, and projected consequences to, the legal system of the United States. The lessons of the Commonwealth show that restitutionary disgorgement for breach of contract is not as scary as it might seem at first blush. Despite the American contract law’s jurisprudential focus on flow of commerce and choice, availability of a Section 39 remedy will not unravel United States contract law or its economy. Section 39 as drafted is imperfect, but it is narrowly crafted to avoid overly disturbing classical contract formulations. There is still time before the Restatement comes to fruition. The ink is not yet dry. Much opportunity remains to glean the lessons of the Commonwealth to craft a more artful statement that will have practical effect and import in pushing the law of contracts into its next logical sphere. Ultimately, I will offer my recommendations for modifying the proposed Section 39 in light of theoretical underpinnings of contract law in the United States, the Commonwealth’s perspectives, the interplay with efficient breach theory, and the interaction with other significant traditional contract doctrines such as foreseeability and mitigation. Accordingly, the instant study aims to further the dialogue and refinement of Section 39, its implications for contract law, and its role in the restitution revival in the United States. * * *