SIGA Technologies, Inc. v. PharmAthene
132 A.3d 1108
Del.2015Background
- SIGA and PharmAthene negotiated a license term sheet (the LATS) and signed agreements (Bridge Loan and Merger Agreements) that included a commitment to negotiate a license in good faith consistent with the LATS.
- SIGA experienced positive ST-246 (smallpox antiviral) developments in 2006, internally revalued the asset substantially higher, terminated the merger, and refused to negotiate a license on LATS terms. PharmAthene sued.
- The Court of Chancery (2011) found SIGA breached its duty to negotiate in good faith and that the parties would have reached a deal but declined to award lump‑sum expectation damages as too speculative, instead fashioning an equitable payment stream.
- On appeal (SIGA I), the Delaware Supreme Court held Type II preliminary agreements may support expectation damages if the plaintiff proves they would have reached agreement but for bad faith and can prove damages with reasonable certainty; it vacated the damages award and remanded for reconsideration.
- On remand the Court of Chancery reopened the record, reconsidered expert valuation evidence (including post‑breach developments such as SIGA’s later BARDA contract), adjusted the valuation inputs in SIGA’s favor, and awarded PharmAthene $113 million in lump‑sum expectation damages.
- SIGA appealed again, arguing the law‑of‑the‑case barred revisiting the earlier speculative‑damages ruling and that the remand award remained too speculative and improperly relied on post‑breach evidence; the Supreme Court affirmed the remand award.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether law‑of‑the‑case barred reconsideration of the 2011 denial of lump‑sum expectation damages | SIGA I expressly invited reconsideration of damages and reevaluation of expert evidence; court should reassess on remand | Law of the case should have bound the trial court to its previous finding that lump‑sum damages were too speculative | Court may reconsider: SIGA I remanded the damages question and authorized reevaluation of expert testimony; law of the case did not preclude fresh analysis |
| Whether expectation damages are available for breach of a Type II preliminary agreement | Expectation damages are available where (1) the agreement is Type II and (2) the plaintiff proves but‑for agreement and damages with reasonable certainty | Cautions that such awards are often speculative for preliminary agreements and should be limited to reliance damages | Type II agreements can support expectation damages when the trial court finds (supported by record) that parties would have contracted but for bad faith and damages are proven with reasonable certainty (as clarified in SIGA I) |
| Whether PharmAthene proved expectation damages with reasonable certainty | PharmAthene’s expert modeled lost profits using the LATS economic terms, conservative assumptions, and the parties’ contemporaneous expectations; post‑breach BARDA contract corroborated feasibility | SIGA contended the model was sensitive to timing/pricing assumptions, relied improperly on post‑breach facts, and remained speculative | Affirmed: trial court did not abuse discretion. It adjusted the expert’s inputs (largely in SIGA’s favor), limited speculative categories (e.g., foreign sales), and found the fact of damages proven with reasonable certainty though amount is an estimate |
| Proper use of post‑breach evidence and the “wrongdoer” rule | Post‑breach developments may be used sparingly to confirm what parties reasonably expected at time of breach; where breach caused uncertainty, doubts can be resolved against wrongdoer | SIGA argued post‑breach evidence (e.g., BARDA contract) improperly cured preexisting speculation and the court overapplied the wrongdoer rule to shift risks not caused by SIGA | Held: limited use of post‑breach evidence to corroborate contemporaneous expectations was permissible; the court applied the wrongdoer rule narrowly — resolving uncertainties traceable to SIGA’s breach against SIGA but excluding uncertainties that were not caused by the breach |
Key Cases Cited
- SIGA Techs., Inc. v. PharmAthene, Inc., 67 A.3d 330 (Del. 2013) (SIGA I) (Type II preliminary agreements may support expectation damages if but‑for agreement and damages proven with reasonable certainty)
- Duncan v. TheraTx, Inc., 775 A.2d 1019 (Del. 2001) (expectation damages measure reasonable ex ante expectations; lost profits require proof with reasonable certainty)
- Beard Research, Inc. v. Kates, 8 A.3d 573 (Del. Ch. 2010) (trial courts may award estimated damages where wrongdoer induced uncertainty; responsible estimates permissible)
- Goodstein Constr. Corp. v. City of N.Y., 604 N.E.2d 1356 (N.Y. 1992) (courts generally disfavor transforming agreements to negotiate into awards of lost profits where final agreement was uncertain)
- Cede & Co. v. Technicolor, Inc., 884 A.2d 26 (Del. 2005) (law‑of‑the‑case principles govern duties on remand to follow appellate mandate)