Opinion ID: 852474
Heading Depth: 2
Heading Rank: 2

Heading: Remedy for Breach of the Duty to Disclose

Text: Both tort damages and restitution are available remedies for a breach of the duty to disclose material information. Minnick argues that neither remedy is appropriate because Nichols suffered no losses. That is an appropriate response to the claim for damages but not to the claim for an equitable remedy. Compensatory tort damages are designed to place [the plaintiff] in a position substantially equivalent in a pecuniary way to that which he would have occupied had no tort been committed. Restatement (Second) of Torts § 903 cmt. a (1979); see also id. § 974 (One standing in a fiduciary relation with another is subject to liability to the other for harm resulting from a breach of duty imposed by the relation.). Restitution, on the other hand, may be measured by the defendant's gain and is therefore appropriate even when the plaintiff has suffered no demonstrable harm. Moore & Co. v. T-A-L-L, Inc., 792 P.2d 794, 799-800 (Colo.1990) (fact that seller sustained no actual damages does not exonerate broker); Miller v. Berkoski, 297 N.W.2d 334, 341 (Iowa 1980) (disgorgement does not depend upon harm to principal); Goldberg Realty Group v. Weinstein, 669 A.2d 187, 190 (Me.1996) (same); Quechee Lakes Rental Corp. v. Boggess, 158 Vt. 258, 608 A.2d 39, 43 (1992) (same); see Silverman v. Pitterman, 574 So.2d 275, 276-77 (Fla.Dist.Ct.App.1991) (not considering harm); Owen v. Shelton, 221 Va. 1051, 277 S.E.2d 189, 192 (1981) (same). But see Ziswasser v. Cole & Cowan, Inc., 164 Cal.App.3d 417, 425, 210 Cal.Rptr. 428 (1985) (requiring disgorgement only when agent displays bad faith, disloyalty, or fraud). Harm to the plaintiff is not required for several reasons. First, disgorgement may be the only available remedy for an agent's breach of fiduciary duty because harm to the principal is difficult to prove. Restatement (Third) of Agency § 8.01 cmt. d(2) (2006). Second, requiring disgorgement removes the temptation for an agent to undertake conduct that breaches the agent's fiduciary duty in hope that no harm will befall the principal or that, if it does, the principal will be unable to establish it or unable or unwilling to expend the necessary resources required to litigate the question. Id. Finally, by promoting the agent's integrity, the disgorgement rule facilitates the principal's trust on which the fiduciary relationship is grounded. See Owen, 277 S.E.2d at 192 (The price of a violation of the duty to disclose is forfeiture of the broker's right to compensation. This rule illustrates the high regard the law holds for the fiduciary relationship, founded as it is upon one man's trust in the integrity and fidelity of another. The purpose of the rule is more prophylactic than remedial; it is applied, not to compensate the principal for an injury, but rather to discipline the fiduciary in the conduct of the office entrusted to him.) (citations omitted). Applying these general principles, the Court of Appeals has held that when a broker breaches his duty of disclosure, restitution takes the form of disgorgement of the broker's right to a commission. Smitley v. Nau, 143 Ind.App. 113, 116, 238 N.E.2d 681, 683 (1968) (The law is well settled in Indiana that a broker cannot recover a commission if, unknown to his principals, he has an adverse individual interest in the transaction. (citing H.H. Woodsmall, Inc. v. Steele, 82 Ind.App. 58, 60, 141 N.E. 246, 247 (1923))). In this case, the trial court concluded that neither an award of tort damages nor disgorgement was appropriate. The trial court found that Nichols has not proven that she suffered monetary damage as a result of Minnick's actions as her agent in the sale of her business. We agree that the record supports this finding. Presumably, Nichols could have attempted to show loss of a better deal, but there is no evidence that this occurred. Blickensdorf was the only person to look at the property, and the only estimates of BHL's value are Minnick's listing price and what Nichols hoped to get out of the deal. It is speculative on this record whether a different buyer would have offered more for BHL. Indeed, Minnick suggests there would have been no willing buyer at all and points to operating losses BHL incurred after the sale. Although we agree that there is no proof of loss to support tort damages, we do not agree with the trial court's conclusion that disgorgement is not required. The trial court based its judgment on its finding that Nichols had reason to know of the relationship between Minnick and Blickensdorf, and its conclusion that Minnick's failure to disclose the $15,000 loan for the down payment was not a serious violation of a duty of loyalty or seriously disobedient conduct such that Minnick should be ordered to repay the commission he received to Nichols. As explained above, a fiduciary is required to disgorge any benefit from failure to disclose material information. The trial court's conclusion is inconsistent with its findings of breach of fiduciary duty and materiality. Although disgorgement is required, it may be of little consequence. In this case, Minnick's benefit was to be a commission of ten percent of the purchase price, or $22,500. What Minnick actually received was a $22,500 note from Blickensdorf. In this case equity requires only that Minnick disgorge and transfer to Nichols what he wrongfully obtained  the $22,500 note and any payments he has received toward that debt, together with interest on those payments. If Blickensdorf's note proves to be uncollectible, that merely reflects the fact that Minnick did not benefit from his breach, and restitution is not meaningful.