Restitutionary Disgorgement for Opportunistic Breach of Contract and Mitigation of Damages

Abstract

This article examines whether a restitutionary disgorgement remedy for certain breaches of contract is compatible with the traditional contract principle of mitigation, which requires nonbreaching parties to take reasonable steps to minimize damages. The relationship between disgorgement and mitigation is complex, in part because disgorgement seems to undermine classic contract notions such as Justice Holmes's choice theory. Nevertheless, disgorgement actually allows for certain value choices. Section 39 of the forthcoming Restatement (Third) of Restitution seeks to deter conscious wrongdoers from retaining profits from breach of contract. This article addresses one objection to disgorgement: that disgorgement will subvert plaintiff's duty to mitigate, or lessen, defendant's damages after a breach of contract. This objection depends on many unstable assumptions about both mitigation and disgorgement. In this article, I tease out those assumptions and explain why and how disgorgement ultimately could foster an environment in which actors operate conscientiously to mitigate avoidable consequences.

On a theoretical axis, tensions exist between the foundations of restitutionary disgorgement and mitigation. Yet a practical avenue may exist in which efforts to mitigate could serve as a prerequisite for restitutionary disgorgement for breach of contract. The value of this path depends upon our commitment to providing only narrow access to disgorgement for certain breaches of contract coupled with our continued interest in encouraging self-help and avoiding unnecessary consequences.

Keywords: contract, remedies, restitution, unjust enrichment, mitigation, disgorgement, avoidable consequences, Restatement of Restitution, Holmes, opportunistic breach

JEL Classification: K12, A12