Court of Chancery Imposes Remedies for Breach of Obligation to Negotiate in Good Faith

PharmAthene, Inc. v. SIGA Technologies, Inc., C.A. No. 2627-VCP (Del. Ch. Sept. 22, 2011) read opinion here.  See prior Chancery decisions in this case highlighted on these pages hereBloomberg/Businessweek posted an article about the case, available here.

Issues Addressed

This 117-page decision addressed the remedy for breaching a duty to negotiate in good faith, and other legal claims and remedies, including those for both breach of contract and the doctrine of promissory estoppel, which the Court observed as often overlapping.  The Court recognized that promissory estoppel may entitle a party to a recovery of its expectation interest.  See footnote 165.

The Court also addressed the equitable remedy of specific performance which, it reminded readers, is subject to the sound discretion of the Court and dependent on the circumstances of each case.

Certainty of Damages

Regarding the certainty with which damages must be proven, the Court observed that no recovery can be given for the loss of profits which are either uncertain, contingent, conjectural or speculative, but nevertheless, damages are “not speculative merely because they are difficult to calculate.  Rather than mathematical precision, the law requires only that there be a sufficient evidentiary basis for making a fair and reasonable estimate of damages . . ..”  See footnotes 181 and 182.

Damages for Breach of an Express Obligation to Negotiate in Good Faith

The Court acknowledged that there was little precedent to aid the Court in fashioning an appropriate remedy for breach of the obligation to negotiate in good faith, and relied on the maxim of equity that “equity will not suffer a wrong without a remedy.”  The Court discussed the equitable remedy of establishing “an equitable lien” which may be appropriate to recognize the equitable ownership of a plaintiff in only part of specific property.  See footnote 204.

The Court determined that the duty to negotiate in good faith was breached in part because of the insistence on unreasonable terms. The Court held that the breach of the obligations involved a “glaringly egregious instance of overreaching sufficient to warrant an award of attorneys fees under the bad faith exception to the American Rule.”  See footnote 260.

Award of Expert Witness Fees is Discretionary

Also useful as a practical tip was the Court’s reference to its discretionary authority to tax expert witness fees as among the costs generally borne by the non-prevailing party.  The Court observed that it had the discretion to decline to tax expert witness fees as costs if the testimony of the expert was not helpful. See footnotes 263 and 264 (citing 10 Del. C. Sections 5106 and 8906, as well as Ct. Ch. R. 54(d)).

Form of Remedy

The Court explained that the remedy it awarded was to be in the form of a judgment for “an equitable payment stream or equitable lien on profits or other qualifying proceeds associated with the commercial sale of ST-246 or products derived from it in accordance with the terms specified in part II.A.1.c. of this opinion.”  The Court also awarded PharmAthene one-third of its reasonable attorneys’ fees and expert witness costs, as well as its other costs under Rule 54(d).  The Court also specified that the form of final judgment should include a request for both attorneys’ fees and expenses in accordance with the procedures provided for in Court of Chancery Rule 88.