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I agree that Blake & Snepp are analogous to the trespass cases in the sense highlighted by Mark Gergen: In these cases -- as well as in the City of New Orleans type of case -- plaintiff has a legitimate interest in preventing the defendant's activity. (Although, as he also implies, the specific interest may differ from one type of case to the other; in my view, however, none of these legitimate interests has anything to do with under-compensation and therefore I am not particularly bothered by the difficulty he raises.) Thus, in all these cases, law is justified in according a profits-based recovery which is the ex-post equivalent to an injunction. This recovery is merely a useful means for deterring the activity at issue -- thus vindicating the plaintiff's interest -- and has no punitive component.

Mark Gergen is also correct, in my view, in cautioning against providing restitutionary damages for breach of contract for other profitmaking breaches. But this is not because this would be punitive, but rather because it may unduly deter. In other words: unlike punitive damages, restitutionary damages for breach of contract do not confiscate any value from the promisee's estate; but this measure of recovery may still be undesirable if it generates an allocation of entitlements that is (at least in commercial settings) undesirable. (By the way, I also agree with Mark Gergen that the concept of "opportunistic breach" can't be a solving concept; that is, unless we read it in its [very] narrow economic meaning as dealing strictly with contexts of sequential performances).

At 03:56 PM 11/28/01 -0600, Mark Gergen wrote:

If one wants to make sense out of Blake the following passage seems to me a starting point though it only takes us so far. The passage is: "A useful general guide, although not exhaustive, is whether the plaintiff had a legitimate interest in preventing the defendant's profit-making activity and, hence, in depriving him of his profit." This idea covers the uncontroversial cases that require one who violates a covenant not to compete to disgorge the profits he made from the violation. Of course, these cases could as well be explained on the reasoning that the defendant's profits from the improper competition are the best measure of the plaintiff's loss.

One attraction to using this idea as a starting point is that it is consistent with requiring the trespasser or converter to disgorge his profit from infringing upon the owner's property when that profit exceeds the owner's loss. The owner of property is entitled to whatever profits can be derived from its use. Disgorgement by the unfaithful fiduciary also can be explained in these terms. A fiduciary undertakes to put his own interests aside to serve exclusively the interests of his principal. The principal has a "legitimate interest in preventing" the fiduciary's self-profiting activity.

A difficulty with transporting this idea from the law of trespass, conversion, and fiduciaries into Contract is that you quickly run into the idea that generally when A contracts with B for the performance of act x A's interest is in the value to himself from the performance of x. If B defaults on x, the measure of damages is A's loss from the non-occurrence of x and not B's gain from x's non-occurrence. If a contractor abandons a job to take a much higher paying job and the first employer can hire a substitute who is just as good and only slightly more expensive we are satisfied with an award of the modest additional cost of cover.

In the terminology of Blake, the problem is determining when A has a legitimate interest in preventing B from profiting from breach of contract. The easiest case is where A predictably suffers a significant but immeasurable loss on breach that may well exceed B's profit from breach, which is measurable. Here a profits-based remedy is justified on ordinary deterrence (or efficiency) grounds. Maybe Snepp and Blake can be explained along these lines. I don't think of a profits-based remedy as being particularly punitive in this case. A profits-based remedy begins to seem more punitive if we generalize the principle to cover any wilful defaulter who hoped to find a profit in the plaintiff's uncompensated loss. For an argument that disgorgement of profits is appropriate to deter and punish opportunistic breach see Andrew Kull, Disgorgement for Breach, the 'Restitution Interest,' and the Restatement of Contracts, 79 Texas L. Rev. 2021, 2049-2052 (2001). The City of New Orleans case is famous example of a case where disgorgement should have been the remedy (it was not). Defendant promised to supply a certain level of fire protection service. They did not to cut costs. Happily, no loss was suffered. I would require Defendant to disgorge its savings from the cut in services reasoning that had a fire requiring the additional services occurred they never could have stood by the loss.

"Opportunistic breach" is not much of a solving concept. What it adds to the question "Did A have a legitimate interest in preventing B from profiting from breach of contract" is some sense that we are concerned with the immorality of the defendant's conduct. Reading Esso v. Niad (putting these cases on the web is an enormous service) it seems to me that the defendant's "throw-away" arguments about intent to affect legal relations, indefiniteness, consideration, duress and the like become very much to the point along with Esso's ample extra-legal remedies.

Hanoch Dagan
Affiliated Overseas Professor
University of Michigan School of Law
625 South State Street
Ann Arbor, MI 48109-1215
(734) 647-7352 (o)
(734) 764-8309 (fax)