Delaware Chancery Court Awards Expectation Damages

By: Joseph C. MarrowSecurities and Corporate Attorney Joseph Marrow

On January 15, 2015, the Delaware Chancery Court awarded PharmAthene, Inc. approximately $195,000,000 in damages stemming from a failure of SIGA Technology, Inc. to negotiate a license agreement in good faith.  See PharmAthene, Inc. v. Siga Technology, Inc., No. 2627-VCP (Del. Chancery Court Jan. 15, 2015).  The decision describes the damages phase of a case previously reported in our publication M&A Today (March 2014), SIGA Technologies, Inc. v. PharmAthene, Inc., 2013 WL 2303303 (Del. May 24, 2013) (the “SIGA Case”).

As we reported concerning the SIGA Case:

“In the SIGA Case, the Delaware Supreme Court held that a party’s agreement to negotiate the terms of a license in good faith in accordance with a term sheet was enforceable.  Additionally, the breaching party could be held accountable for expectation (“benefit-of-the-bargain”) damages as a result of negotiating the license in bad faith.” (emphasis added).

The Delaware Supreme Court held that the obligation to negotiate in good faith, as described in the term sheet, was enforceable even though the term sheet indicated that it was non-binding.  Equally important, the Delaware Supreme Court held that the breaching party could be liable for the more punitive expectation or benefit-of-the-bargain damages, as opposed to reliance damages.  The Delaware Supreme Court remanded the case to the Chancery Court which imposed the damages award described above.

The decision of the Delaware Chancery Court once again signals a warning to parties negotiating term sheets governed by Delaware law.  Parties to non-binding term sheets should carefully consider whether to include obligations to negotiate in good faith.  Parties may either want to remain silent on the issue or affirmatively state that there is not an obligation to negotiate in good faith.  Additionally, the parties may want to consider language limiting the remedies available to the other party in the event of the breach of the term sheet.

For more information please contact Joseph C. Marrow.

 

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