ABSTRACT
Courts awarding standard contract remedies can destroy private network governance. In collectively governed trading networks, commercial cooperation often depends on the credible threat of ostracism. That threat is best understood as a club good: excludable because only members benefit from the network’s ability to sanction rule-breakers, and nonrivalrous because one member’s benefit from that enforcement capacity does not diminish another’s. Indeed, the threat often exhibits positive network effects: the larger the network, the greater the cost of exclusion and the stronger the deterrent.
Yet courts sometimes undermine a network’s power to ostracize by applying a doctrinal framework that identifies only the individual promisee as the injured party. When judicial intervention displaces the network’s authority to exclude violators, it converts collective exclusion from a property rule into a liability rule and degrades the club good into a public good. Making one obligee whole through expectation damages can therefore produce a net welfare loss by weakening the credibility of exclusion. A court’s effort to remedy a single breach may thus eliminate the incentive to maintain the network itself. Courts must recognize this mechanism to avoid collapsing valuable transactional networks.
Oranburg, Seth, The Wrong Plaintiff: Contract Damages versus Network Expulsion and the Collapse of Distributed Governance (March 17, 2026).
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