SIGA Technologies, Inc. v. Pharmathene, Inc.
2015 Del. LEXIS 678
| Del. | 2015Background
- SIGA and PharmAthene negotiated a term sheet (the LATS) for a license of SIGA’s antiviral ST-246, and entered related Bridge Loan and Merger Agreements that obliged good‑faith negotiation of a definitive license consistent with the LATS if the merger failed.
- SIGA terminated the merger and refused to negotiate a license consistent with the LATS after ST‑246 achieved favorable development milestones and SIGA internally re‑valued the asset much higher, prompting PharmAthene to sue in Delaware Chancery Court.
- The Court of Chancery (2011) found SIGA negotiated in bad faith, that the parties would have agreed to a deal generally in accordance with the LATS but declined to award lump‑sum expectation (lost‑profits) damages as too speculative and instead fashioned an equitable payment‑stream remedy.
- On appeal (SIGA I), the Delaware Supreme Court upheld breach but held that expectation damages can be recovered for breach of a Type II preliminary agreement if the plaintiff proves damages with reasonable certainty, and remanded damages and expert evidence for reconsideration.
- On remand the Chancery Court reopened the record, reexamined expert models (adjusting inputs), allowed limited use of post‑breach evidence to test what the parties reasonably expected at the time of breach, and awarded PharmAthene $113 million in lump‑sum expectation damages; the Supreme Court affirmed.
Issues
| Issue | PharmAthene's Argument | SIGA's Argument | Held |
|---|---|---|---|
| Whether law‑of‑the‑case barred the Chancery Court from revisiting its prior rejection of lump‑sum expectation damages | SIGA I remanded damages; court may reassess expectation damages and expert evidence | Prior Chancery finding on speculation was law of the case and binding on remand | Not barred — remand in SIGA I expressly required reconsideration of damages and expert testimony, so Chancery could reassess |
| Whether expectation damages were legally available for breach of a Type II preliminary agreement | Type II breach can yield expectation damages if plaintiff shows they would have reached agreement but for bad faith and proves damages with reasonable certainty | Even if Type II damages theoretically available, here lost‑profits were too speculative; at most reliance damages available | Expectation damages available; trial court did not abuse discretion in concluding PharmAthene proved fact of damages with reasonable certainty and could estimate amount |
| Proper role of post‑breach evidence in assessing pre‑breach expectations | Limited use permissible to corroborate parties’ reasonable expectations at time of breach (sparingly) | Post‑breach evidence (e.g., BARDA contract) improperly cures pre‑breach speculation and cannot be used to bootstrap damages | Court may use post‑breach evidence sparingly to confirm what was reasonably expected at breach; Chancery limited its use and adjusted assumptions in SIGA’s favor |
| Use of the "wrongdoer rule" and degree of certainty required | Where defendant’s bad faith created uncertainty about economics, doubts may be resolved against wrongdoer and willfulness is relevant to required degree of certainty | Wrongdoer rule cannot relieve plaintiff of proving damages with reasonable certainty; shifting speculative risks to defendant is improper | Chancery applied wrongdoer principle narrowly; resolved uncertainties traceable to SIGA’s breach against SIGA but excluded uncertainties not caused by breach; appellate court upheld this exercise of discretion |
Key Cases Cited
- SIGA Techs., Inc. v. PharmAthene, Inc., 67 A.3d 330 (Del. 2013) (Delaware Supreme Court holding expectation damages may be recovered for breach of a Type II preliminary agreement if proven with reasonable certainty; remanding damages)
- Duncan v. TheraTx, Inc., 775 A.2d 1019 (Del. 2001) (explains expectation‑damages principle and that proof of fact of damages allows estimation of amount)
- Beard Research, Inc. v. Kates, 11 A.3d 749 (Del. 2010) (Del. Ch. aff’d) (endorses making wrongdoer bear risk of uncertainty where breach caused the uncertainty in damages calculation)
- Cede & Co. v. Technicolor, Inc., 884 A.2d 26 (Del. 2005) (describes standards of appellate review for Chancery findings and discretion in remedies)