Fiduciary remedies are notoriously potent. Fiduciaries who profit from their disloyalty are liable to be ordered to disgorge all of their gains. It is widely understood that disgorgement deters disloyalty by threatening removal of gains, the prospect of which might incentivize wrongdoing. However, disgorgement may be ordered even where fiduciaries act for the primary purpose of benefitting their beneficiaries and succeed on that score. This naturally raises questions concerning the justification for the remedy.
A common assumption in the literature is that the justification for disgorgement – whatever it might be – must be exceptional by virtue of being inconsistent with formal corrective justice. Formal corrective justice asserts that remedies rectify wrongs and are properly understood as sharing in the justification for primary rights. Disgorgement seems inconsistent with formal corrective justice, because it appears responsive to public interest considerations having nothing to do with the primary right to loyalty.
This article challenges the exceptionalism thesis. It reviews arguments that endorse the thesis and, finding none satisfactory, it offers an alternative that explains how disgorgement for disloyalty effectuates formal corrective justice. It does so by restoring gains to beneficiaries to which they are entitled as a matter of primary right, by virtue of their exclusive claim over fiduciary power as a means derived from their own legal personalities or those of their benefactors.