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SIGA Techs., Inc. v. Pharmathene, Inc.

SIGA Techs., Inc. v. Pharmathene, Inc.

Supreme Court of Delaware

March 5, 2013, Submitted; May 24, 2013, Decided

No. 314, 2012

Opinion

 [*333]  STEELE, Chief Justice:

A Delaware corporation appeals from the Vice Chancellor's finding that it breached a contractual obligation to negotiate in good faith and is liable under the doctrine of promissory estoppel. We reaffirm that ] where  [**2] parties agree to negotiate in good faith in accordance with a term sheet, that obligation to negotiate in good  [*334]  faith is enforceable. Where a trial judge makes a factual finding, supported by the record, that the parties would have reached an agreement but for the defendant's bad faith negotiation, we hold that a trial judge may award expectation damages. We reverse the Vice Chancellor's promissory estoppel holding because a promise expressed in a fully enforceable contract cannot give rise to a promissory estoppel claim. We also reverse the Vice Chancellor's equitable damages award based on his factual conclusion that the parties would have reached an agreement, so that he may reconsider the award in light of this opinion.

I. FACTUAL AND PROCEDURAL HISTORY1

A. Facts

Plaintiff-Appellee PharmAthene, Inc., and Defendant-Appellant SIGA Technologies, Inc., are both Delaware corporations engaged in biodefense research and development. In 2004, SIGA acquired an antiviral drug for the treatment of  [**3] smallpox, ST-246. At that time, the drug's viability, potential uses, safety, and efficacy were all unknown, but the drug had enormous potential.

By late 2005, SIGA had experienced difficulty developing the drug and was running out of money. NASDAQ threatened to delist SIGA's shares and SIGA's largest shareholder, MacAndrews & Forbes (MAF), was unwilling to invest additional money. SIGA estimated it needed approximately $16 million to complete the development process.2

As a result of SIGA's difficulties, SIGA's management began discussing a possible collaboration with PharmAthene. Thomas Konatich, SIGA's Chief Financial Officer, contacted Eric Richman, PharmAthene's Vice President of Business Development and Strategies. Richman desired a merger between the two companies, but SIGA resisted because of its past experience with PharmAthene.3 According to Richman's contemporaneous notes, SIGA insisted on framing  [**4] a license agreement before discussing a merger because of that past experience and because SIGA needed an immediate cash infusion to stabilize its financial situation. By the end of 2005, both SIGA's and PharmAthene's conservative estimates valued ST-246 at approximately $1 billion.

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67 A.3d 330 *; 2013 Del. LEXIS 265 **; 2013 WL 2303303

SIGA TECHNOLOGIES, INC., Defendant Below, Appellant/Cross Appellee, v. PHARMATHENE, INC., Plaintiff Below, Appellee/Cross Appellant.

Subsequent History: Case Closed June 11, 2013.

On remand at, Findings of fact/conclusions of law at, Costs and fees proceeding at, Claim dismissed by, Judgment entered by Pharmathene, Inc. v. Siga Techs., Inc., 2014 Del. Ch. LEXIS 142 (Del. Ch., Aug. 8, 2014)

Objection sustained by, in part, Objection overruled by, in part PharmAthene, Inc. v. SIGA Techs., Inc., 2015 Del. Ch. LEXIS 5 (Del. Ch., Jan. 7, 2015)

Prior History:  [**1] Court Below: Court of Chancery of the State of Delaware. C. A. No. 2627.

PharmAthene, Inc. v. SIGA Techs., Inc., 2011 Del. Ch. LEXIS 136 (Del. Ch., Sept. 22, 2011)

Disposition: AFFIRMED in part, REVERSED in part and REMANDED.

CORE TERMS

negotiate, parties, terms, good faith, license agreement, merger, term sheet, merger agreement, bridge loan, binding, promissory estoppel, damages, license, preliminary agreement, bad faith, termination, award damages, contractual, breached, attorney's fees, promise, costs, contractual obligation, changes, sales, economic terms, trial judge, provisions, Appeals, upfront

Contracts Law, Contract Interpretation, Good Faith & Fair Dealing, Civil Procedure, Appeals, Standards of Review, Abuse of Discretion, Preliminary Considerations, Equity, Relief, De Novo Review, Federal & State Interrelationships, Choice of Law, General Overview, Significant Relationships, Contract Conditions & Provisions, Appellate Jurisdiction, Final Judgment Rule, Interlocutory Orders, Business & Corporate Compliance, Contracts Law, Forum Selection Clauses, Express Conditions, Contract Formation, Consideration, Promissory Estoppel, Measurement of Damages, Foreseeable Damages, Attorney Fees & Expenses, Basis of Recovery, American Rule, Civil Rights Law, Procedural Matters, Costs & Attorney Fees, Reasonable Fees