‘Disgorgement’ and the restitutionary remedies

Law and economics scholars and scholars in the field of remedies do not talk to each other very much. That is bad for both fields. I make that argument in detail in an article forthcoming in the Oxford Journal of Legal Studies: “Remedies, Meet Economics; Economics, Meet Remedies.” (For a law and economics scholar’s take on the argument, see Tom Cotter’s discussion on his Comparative Patent Remedies blog.) What I want to do in this post is pull out one part of the argument that will be of particular interest to lawyers and judges — to anyone who has to make sense of restitutionary remedies.

In the article I write:

[O]ne reason that restitutionary remedies have received less careful attention in the economic literature is the tendency to invoke a generic remedy of “disgorgement”—which has no basis in the common law or equity—instead of more specific and well-established restitutionary remedies. For American lawyers, these remedies include accounting for profits, constructive trust, equitable lien, rescission in equity, rescission at law, recovery in quasi-contract and so on. Different restitutionary remedies have different requirements, limitations, strengths, and implications for bankruptcy and for the jury trial right. By ignoring their existence, economic scholars are missing the granularity of the law.

You may find yourself wondering about the support for these claims. If so, here’s the fine print, adapted from the footnotes to the article:

First, for examples of economic sources invoking a generic remedy of “disgorgement,” see Yehonatan Givati & Yotam Kaplan, “Over-Reliance Under Contractual Disgorgement,” Am. L. & Econ. Rev. (forthcoming 2017); Bert I. Huang, “The Equipoise Effect,” 116 Colum. L. Rev. 1595 (2016). More circumspect usage is found in Daniel B. Kelly, “Remedies for Breach of Trust,” SSRN Working Paper (2017), where “disgorgement” is an umbrella term for “any remedy that allows a plaintiff to strip a defendant’s ill-gotten gains, including legal restitution, accounting for profits, the constructive trust, and equitable lien.” Nevertheless, the term “disgorgement” is a source of pervasive confusion. Except where authorized by statute, it should be retired in favor of more specific categories such as (in U.S. law) “accounting” and “quasi-contract.”

Second, on the lack of any basis for “disgorgement” as a remedy in the common law or equity, cf. Stephen M. Bainbridge, “Kokesh Footnote 3 Notwithstanding: The Future of the Disgorgement Penalty in SEC Cases,” Wash. U. J. L. & Pol’y (forthcoming) (noting the U.S. Supreme Court’s recent skepticism of disgorgement where not authorized by statute); George P. Roach, “A Default Rule of Omnipotence: Implied Jurisdiction and Exaggerated Remedies in Equity for Federal Agencies,” 12 Fordham J. Corp. & Fin. L. 1, 49 (2007) (“As applied in any context, ‘disgorgement’ was used in less than a dozen federal or state case opinions from 1800 to 1960. Perhaps more startling is the fact that the term was used so often between 1960 and 2000 even though the first proposed definitions only began to appear around 2000. The term was not used or defined in the Restatement First and was only defined in a draft of the Restatement Third as of 2000. Black’s Law Dictionary only offered a definition after 2000”).

Third, for summaries of the restitutionary remedies there are several good sources. For U.K. law, see Graham Virgo, Principles of the Law of Restitution 18–23 (3d ed., 2015). For U.S. law, an overview of the terms and contours of the legal and equitable restitutionary remedies can be found in Emily Sherwin & Samuel L. Bray, Ames, Chafee, and Re on Remedies (2nd ed., forthcoming 2017). The leading authority on restitutionary remedies in U.S. law is, of course, the Restatement (Third) of Restitution and Unjust Enrichment (2011), and an excellent primer is Ward Farnsworth, Restitution: Civil Liability for Unjust Enrichment (2014). Note, however, that the Restatement (Third) follows the prevailing doctrinal categories more closely in its sections on the equitable remedies of constructive trust, equitable lien and subrogation than it does when only reluctantly distinguishing legal and equitable remedies and when lumping together all cases of conscious wrongdoing (equating for this purpose the equitable remedy of “accounting” with “disgorgement” in section 51(4)). To an extent not apparent from the Restatement (Third), U.S. courts continue to distinguish between the legal and equitable restitutionary remedies, and continue to use traditional terminology (e.g., accounting, rescission at law, rescission in equity, quasi-contract, quantum meruit, money had and received). See Sherwin & Bray; Samuel L. Bray, “The System of Equitable Remedies,” 63 UCLA L. Rev. 530, 553–6 (2016).

Originally Found On: http://www.washingtonpost.com/news/volokh-conspiracy/wp/2017/11/22/disgorgement-and-the-restitutionary-remedies/