Punitive Damages Against Trustees?
Research Handbook on Fiduciary Law (D. Gordon Smith & Andrew S. Gold, eds., Forthcoming)
20 Pages Posted: 8 Nov 2016 Last revised: 17 Nov 2016
Date Written: August 17, 2016
This essay considers whether punitive damages should be awarded against trustees. It concludes that a satisfactory justification for awarding them has not been given. Seen from the rightful-position perspective, punitive damages fail to support the plaintiff’s forward movement to the rightful position. They are also inconsistent with the scope of liability in trust law. From the perspective of optimal deterrence, punitive damages would increase deterrence for those who need it least (risk-averse internalizers), and decrease deterrence for those who need it most (risk-seeking externalizers). From the viewpoint of law and equity, punitive damages in trust law would be an idiosyncrasy requiring an explanation, whereas no explanation is needed for their absence. Even if punitive damages were used selectively, they would likely be overused relative to the constructive trust. Indeed, the uncanny coinciding of the rise of punitive damages against trustees with the decline in American lawyers’ familiarity with the constructive trust raises the possibility that it is not greater knowledge, but greater ignorance, that led to the development. Whatever the reason for this rise, the best verdict that can be rendered for punitive damages against trustees is “not proven.”
Keywords: trustees, punitive damages, equity, constructive trust, restitution, optimal deterrence, risk aversion, remedies, rightful position, fiduciary law, trust law
JEL Classification: K39, K40
Suggested Citation: Suggested Citation