Submitted: January 15, 2014
A. Richard Winchester, Esq., Christopher A. Selzer, Esq., McCARTER & ENGLISH, LLP, Wilmington, Delaware; Roger R. Crane, Esq., K&L GATES LLP, New York, New York; Attorneys for Plaintiff.
Stephen P. Lamb, Esq., Meghan M. Dougherty, Justin A. Shuler, Esq., PAUL, WEISS, RIFKIND, WHARTON & GARRISON LLP, Wilmington, Delaware; Walter Rieman, Esq., Jaren Elizabeth Janghorbani, Esq., PAUL, WEISS, RIFKIND, WHARTON & GARRISON LLP, New York, New York; Harold P. Weinberger, Esq., Seth F. Schinfeld, Esq., KRAMER LEVIN NAFTALIS & FRANKEL LLP, New York, New York; Attorneys for Defendant.
PARSONS, VICE CHANCELLOR
On May 24, 2013, the Delaware Supreme Court issued its decision (the "Supreme Court Opinion") in SIGA Technologies, Inc.'s ("SIGA") appeal of this Court's September 22, 2011 post-trial opinion (the "Post-Trial Opinion"). In its decision, the Supreme Court upheld my determination that SIGA had breached, in bad faith, its contractual obligation to negotiate a license agreement for the smallpox antiviral ST-246 with PharmAthene, Inc. ("PharmAthene") that would incorporate the details of a license agreement term sheet (the "LATS") to which SIGA and PharmAthene previously had agreed. The Supreme Court reversed my conclusion that SIGA also was liable under the doctrine of promissory estoppel and, in doing so, reversed my damages award to PharmAthene, which took the form of an equitable payment stream, on the basis that it was "unclear to what extent the Vice Chancellor based his damages award upon a promissory estoppel holding rather than upon a contractual theory of liability." The Supreme Court remanded the case for the purpose of enabling this Court to reconsider its damages award in light of the decision on appeal.
On remand, PharmAthene argues that all potential remedies for SIGA's breach, including those I rejected in the Post-Trial Opinion, are "back on the table." SIGA contends that, based on the Supreme Court Opinion, PharmAthene no longer is entitled to any equitable or non-contractual remedy and that it is not entitled to an award of contractual expectation damages because it failed to prove any such damages with the requisite certainty.
This Memorandum Opinion, which addresses the issues presented on remand, is divided into two sections. In Section I, I provide a brief background of the relevant history of this dispute and describe this Court's understanding of the scope of the Supreme Court's mandate on remand. In Section II, I consider PharmAthene's right to recover contractual damages for SIGA's bad faith conduct.
For the reasons that follow, I conclude that PharmAthene has proven adequately that it is entitled to an award of a lump sum as expectation damages for SIGA's breach of contract. Specifically, I find that PharmAthene has demonstrated that it is entitled to an award of expectation damages in the form of a lump sum for lost profits, which are to be calculated in accordance with the rulings set out in this Memorandum Opinion and the Order being entered concurrently herewith.
A. The Post-Trial Opinion
In January 2011, the Court presided over an eleven-day trial in this action. After extensive post-trial briefing, counsel presented their final arguments on April 29, 2011. On September 22, 2011, I issued my Post-Trial Opinion in which I found in favor of SIGA on Counts One through Four and Count Seven of the Complaint. Counts One through Four were premised on the notion that there was a binding agreement between the parties that encompassed the terms of the LATS, such that the LATS effectively constituted a license agreement. Based on the evidence presented at trial, I held that the LATS, viewed either as a stand-alone document or as later incorporated, in turn, into the merger term sheet, the Bridge Loan Agreement, and the Merger Agreement, was not a binding license agreement. PharmAthene, therefore, lacked the requisite underlying license agreement to prevail on its first four causes of action. As to Count Seven, PharmAthene's claim for unjust enrichment, I rejected that claim because it was subsumed by both its breach of contract and promissory estoppel claims in Counts Five and Six, respectively, of the Complaint.
In Count Five, PharmAthene argued that SIGA had breached its explicit contractual obligation to negotiate, in good faith, a license agreement with it for ST-246. In the Post-Trial Opinion, I held that SIGA had a contractual duty to negotiate, in good faith, a license agreement with PharmAthene with economic terms substantially similar to those contained in the LATS. I also held that SIGA's proposals to PharmAthene in that regard, namely, the various iterations of the Draft LLC agreement SIGA proposed in November 2006, reflected a "complete disregard for the economic terms of the LATS" and were made to PharmAthene in bad faith. Therefore, I determined that SIGA had breached its obligation to negotiate the terms of a license agreement with PharmAthene in good faith.
In Count Six of the Complaint, PharmAthene alleged it was entitled to damages based on promissory estoppel because: (1) SIGA promised PharmAthene that either the parties would merge or it would get a license to ST–246; (2) PharmAthene reasonably relied on that promise and undertook to assist in the development of ST–246; and (3) PharmAthene suffered harm as a result. I found that the evidence supported PharmAthene's arguments in this respect and, accordingly, also held SIGA liable for promissory estoppel.
As a remedy for SIGA's bad faith breach of its obligation to negotiate a license agreement in good faith and for its liability for promissory estoppel, I awarded PharmAthene an "equitable payment stream or equitable lien" based on SIGA's future profits from any successful commercialization of ST-246.
On October 4, 2011, SIGA moved for reargument, which I denied in a December 16, 2011 Memorandum Opinion. The parties then submitted competing forms of order. On May 31, 2012, I entered the Final Order and Judgment in this matter along with a
Letter Opinion explaining my rationale for the manner in which I resolved over thirty discrete points of disagreement reflected in the parties' competing orders. Thereafter, SIGA appealed, among other things, the Post-Trial Opinion and the Final Order and Judgment to the Delaware Supreme Court. PharmAthene promptly cross-appealed.
B. The Supreme Court Decision
On May 24, 2013, the Supreme Court issued its decision. Noting that, among other things, SIGA "began experiencing „seller's remorse' during the merger negotiations with PharmAthene, " the Supreme Court affirmed my conclusion "that SIGA acted in bad faith when negotiating the license agreement in breach of its contractual obligations under both the Merger Agreement and the Bridge Loan Agreement." The Court also upheld my finding that "but for SIGA's bad faith negotiations, [SIGA and PharmAthene] would have consummated a license agreement." Under these circumstances, the Supreme Court held that SIGA and PharmAthene had reached a "Type II" preliminary agreement to negotiate in good faith, and that PharmAthene was entitled to recover contract expectation damages for SIGA's bad faith breach of that agreement.
The Supreme Court, however, reversed my holding that SIGA also was liable for promissory estoppel. SIGA's promise to negotiate a license agreement in accordance with the terms of the LATS was included expressly in both the Bridge Loan and Merger Agreements. Consequently, the Supreme Court held that PharmAthene did not have a valid promissory estoppel claim because "fully integrated, enforceable, contract[s] govern the promise at issue." Citing the reversal of my holding as to PharmAthene's promissory estoppel claim, the Supreme Court also reversed my damages award because:
(1)the Supreme Court had "not previously addressed whether Delaware recognizes Type II preliminary agreements and permits a plaintiff to recover expectation damages"; and
(2)it was unclear to what extent my damages award was "based on a promissory estoppel holding rather than upon a contractual theory of liability predicated on a Type II preliminary agreement."  The Court, therefore, remanded the case to me for "reconsideration of the damages award" in light of its decision.
C. The Scope of the Remand
Before reconsidering my damages award in light of the Supreme Court's decision, I first must determine what portions of the Post-Trial Opinion are subject to reconsideration and what, if any, relevant portions are not. In addition to SIGA's appeal, PharmAthene cross-appealed certain of my holdings in the Post-Trial Opinion. Regarding PharmAthene's cross-appeals, the Supreme Court held as follows:
PharmAthene's claims that it is entitled to (1) an alternative payment stream based on the LATS's terms, (2) specific performance granting it a license in accordance with the LATS's terms because the LATS is an enforceable contract, or (3) recover damages under the doctrine of unjust enrichment. All those claims are alternative contentions advanced in the event we do not affirm the Vice Chancellor's judgment. Because we affirm the Vice Chancellor's finding that SIGA is liable for breaching its contractual obligations to negotiate in good faith in accordance with the LATS's terms, we do not reach these arguments. PharmAthene also contends that the Vice Chancellor erroneously failed to award PharmAthene its lump sum expectation damages on the basis that they would be too speculative. We do not reach this claim either, because we reverse the Vice Chancellor's damages award and remand for him to reconsider it in light of this opinion. 
Because the Supreme Court did not need to reach the issues PharmAthene raised in its cross-appeal, there are two questions I must address: (1) may I reconsider my conclusions in the Post-Trial Opinion on the issues raised in the cross-appeal; and, assuming I can, (2) is there any basis to change my holdings in these respects?
The plain language of the Supreme Court's decision indicates that I may reconsider my prior finding that an award of lump sum expectation damages to PharmAthene would be improper because such a measure of damages is too speculative. In addition to the language quoted above, the Supreme Court held explicitly that I am free to "reevaluate the helpfulness of expert testimony" when determining a new damages award. The Court's guidance in that respect would be rendered largely superfluous if the rest of its decision is read as prohibiting me from reconsidering whether PharmAthene is entitled to lump sum expectation damages for SIGA's bad faith breach. Moreover, SIGA itself recognizes that, based on the Supreme Court Opinion, my holding in the Post-Trial Opinion as to whether lump sum expectation damages are too speculative cannot be the "law of the case." Therefore, while I have the authority to reaffirm my previous decision in that regard, I am not required or bound by it to reach the same conclusion I did previously.
Similarly, I consider myself free to determine anew if PharmAthene is entitled to a payment stream from SIGA based on the terms of the LATS, although I could only do so in the context of SIGA's breach of contract. In the Post-Trial Opinion, I awarded PharmAthene a payment stream with terms that were significantly less favorable to it than those set out in the LATS. The Supreme Court's ruling that "SIGA and PharmAthene entered into a Type II preliminary agreement and that neither party could in good faith propose terms inconsistent with that agreement, " appears to place greater weight on the terms specified in the LATS than I afforded those terms in determining my prior damages award. At a minimum, therefore, if I again determined that PharmAthene is entitled to a damages award based on a payment stream or otherwise, the Supreme Court Opinion requires that I reexamine the role of the terms of the LATS in crafting any such award.
The effect of the Supreme Court's Opinion on the issue of specific performance is more complicated. Count One of the Complaint sought specific performance of a license agreement between SIGA and PharmAthene based on the terms of the LATS. After trial, I dismissed that claim on the merits, with prejudice. Although the Supreme Court reversed my conclusion as to Count Six (promissory estoppel) and my damages award, it did not comment on or disturb my holding as to Count One. I also consider it significant that the Supreme Court reversed my holdings as to Count Six and the appropriate measure of damages for reasons unrelated to my grounds for finding in SIGA's favor on Count One. Said differently, the Supreme Court did not disturb my holding that PharmAthene was not entitled to a judgment ordering SIGA to specifically perform a license agreement for ST-246 on the basis of the LATS because "a reasonable negotiator in the position of PharmAthene would not have concluded that the LATS, as attached to the Bridge Loan and Merger Agreements, manifested agreement on all of the license terms that SIGA and PharmAthene regarded as essential" and, "therefore, such a reasonable negotiator would not have believed that the LATS concluded the parties' negotiations." In that sense, I agree with SIGA that my conclusions regarding specific performance are, at this juncture, the "law of the case, " and that this Court lacks the authority to modify those holdings.
Even assuming, however, that I could reconsider my previous decision as to specific performance, PharmAthene has not presented any persuasive reason that would cause me to do so. At trial, "[t]he primary form of relief PharmAthene s[ought] [wa]s specific enforcement of a license agreement that strictly conforms to the LATS."Consequently, the Post-Trial Opinion addressed that issue directly and thoroughly.
The Supreme Court's holding that neither SIGA nor PharmAthene could propose terms that were inconsistent with the LATS does not compel a different conclusion. I recognized explicitly in the Post-Trial Opinion that the LATS was intended to capture "the key economic components" of any license agreement to which the two sides would agree regarding ST-246. I also held, however, that such agreement as to the key economic terms was insufficient for purposes of ordering specific performance because "[t]he issues SIGA and PharmAthene implicitly left for future negotiations [i.e., those issues beyond the key economic terms] involve[d] far more than simply „unresolved administrative issues'" and that "PharmAthene ha[d] not proven that the parties believed they had reached agreement on all essential terms." Therefore, although the Supreme Court's decision made it more certain that the key economic terms of any ST-246 license would closely track those set out in the LATS, it did not disturb my post-trial finding that PharmAthene was not entitled to specific performance of the LATS.
The same logic applies to PharmAthene's assertion that specific performance is an appropriate remedy because the passage of time has mooted the material omissions in the LATS that I found rendered it insufficient to serve as a license agreement itself. The Supreme Court Opinion did not fill any of those gaps. In addition, notwithstanding PharmAthene's assurances to the contrary, I am not persuaded that the LATS contains all of the elements that the two parties would consider necessary to include in a license agreement for ST-246 because SIGA unilaterally has resolved some of the open issues through its development of ST-246 to date. Moreover, even assuming counterfactually that with the passage of time there no longer are any "material" terms missing from the LATS and that, as a result, the LATS now could constitute an enforceable license agreement between SIGA and PharmAthene, I still consider specific performance inappropriate because it no longer is feasible to enforce the parties' intended bargain.
Had SIGA and PharmAthene actually consummated a license agreement in accordance with the LATS, that agreement would have entrusted PharmAthene with the primary responsibility for developing ST-246. One of the most significant consequences of SIGA's bad faith breach of its obligation to negotiate a license agreement in good faith is that up until today, SIGA, not PharmAthene, has controlled the development of ST-246. PharmAthene legitimately can claim to have suffered serious damage from being deprived wrongfully of the opportunity to control development of a promising drug such as ST-246. At the same time, as compared to the parties' presumed license agreement, SIGA has expended significantly more time and resources to develop ST-246 than the two sides had contemplated, and PharmAthene has expended significantly less. Accordingly, ordering SIGA to transfer control of ST-246 to PharmAthene now, and allowing PharmAthene to enjoy the fruits of SIGA's labors in developing ST-246 without undertaking most of the obligations that ...