Key Finding
Corporate law remedies should follow a structured hierarchy that limits costly damages in widely held firms while allowing tougher penalties in controlled companies
Abstract
Corporate law scholarship finely parses fiduciary duties and judicial findings of breach thereof. Yet it largely ignores the matter of judicial choice of remedies. This Article supplies the first systematic treatment of the subject. It covers public corporations and divides them into two categories, those with separated ownership and control and those with control shareholders. For the separated ownership and control category we use information economics to propose a four-step remedial pecking order designed to economize on enforcement costs by reducing evidentiary uncertainty and the risk of error. Injunctive and other specific relief come first, disgorgement of private gains comes second, then compensatory damages, and finally rescissory damages. Nominal damages, made available to plaintiffs who establish a breach but cannot sustain the burden to prove financial injury, play an important backstop role, making it possible to sustain an exacting burden of proof on awards of disgorgement, compensatory damages, and rescissory damages while simultaneously maintaining a vigorous private enforcement apparatus.
We offer a contrasting analysis of controlled companies. Here deterrence trumps cost as a policy concern and large damage awards make a governance contribution. We accordingly remit remedial choice to disciplined judicial discretion.
Finally, we extend the logic of the pecking order to propose a forfeiture rule: given separated ownership and control, representative plaintiffs who could have sought a pre-closing injunction but held back from doing so should forfeit access to large damage awards based on speculative valuations.
