Technologies, Inc. v. PharmAthene, Inc., Del. Supr., No. 314,
2012 (May 24, 2013) [an enhanced version of this opinion is available to lexis.com
subscribers]. This Delaware Supreme Court decision was the subject
of a BloombergBusinessweek
article on Sunday, May 26. The Court
of Chancery's opinion was highlighted
on these pages. Also, several other prior Chancery decisions in this case
were also outlined
on these pages.
Issue Addressed: Is
an agreement to negotiate in good faith in accordance with a term sheet an
Yes, and a court may award expectation damages if the record supports a finding
that an agreement would have been reached but for the defendant's bad faith
negotiations. This aspect of the trial court's 117-page decision was upheld,
but Delaware's high court reversed and remanded the damages award to reconsider
damages in light of this opinion.
One Takeaway from this Supreme Court Opinion:
The detailed facts must be tethered to any lesson or principle of law taken
from this opinion, but at least one ineluctable result of this ruling is that
any attorney or businessperson who sends a term sheet to another party in the
context of having a duty to negotiate in good faith, must read this opinion in
order to determine whether liability will attach as a result of refusing to
finalize a definitive agreement in a manner that may be construed, based on
this opinion, to be based on less than good faith.
The prior decisions linked above provide more background,
but a bare bones distillation of the factual setting involves SIGA and
PharmAthene negotiating simultaneously for a license agreement and a merger
agreement, with the goal that if the merger was not consummated that at least a
license would result. After trial, the Court of Chancery found that the term
sheet contained the essential terms for the license and that if a merger was not
consummated, that a final and formal license agreement would be entered into. See
Court Slip op. at 9.
Key fact: The parties signed
a merger agreement which provided that if the merger were terminated, the
parties agreed to negotiate in good faith a definitive license agreement based
on the term sheet. (Notably, at the bottom of the two-page term sheet was a
"footer" that stated: "non binding terms". In the context of the other
overwhelming facts, that footer was not determinative.)
Bullet Points on Legal Principles from
"not simply bad judgment or negligence, but rather
it implies the conscious doing of a wrong because of dishonest purpose or moral
obliquity; it is different from the negative idea of negligence in that it
contemplates a state of mind affirmatively operating with furtive design or ill
will." See footnote 66 and related text.
Read more Delaware business
litigation case summaries and commentary on Delaware
Corporate and Commercial Litigation Blog, a blog hosted by Francis G.X.
Pileggi, of Eckert Seamans.
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