In Pharmathene, Inc. v. SIGA Technologies, Inc., 2008 WL 151855 (Del. Ch., Jan. 16, 2008), read opinion here, the Chancery Court addressed several key issues of great interest to those involved in business litigation–and civil litigation in general. The background of this case involved various documents entered into by two companies, some of which were formal and complete and others that were not, but all of which were initially intended to lead to additional collaboration that never happened.
Here is a quick list of the important issues decided, and statements of Delaware law explained, in what the court describes as "essentially an action for breach of contract".
1) In a Motion to Dismiss under Rule 12(b)(6), the court will not consider matters outside the pleadings and thus, refused to consider an affidavit submitted in opposition to the motion. The exception to this rule, that did not apply here, is when documents are integral to the claim, or are referred to in the complaint, or when not presented to prove the truth of their contents.
2) Delaware has a specific statute, Section 2708 of Title 6 of the Delaware Code, that authorizes the court to uphold a choice of law clause in a contract, despite contrary conflicts of law principles, if the contract involves more than $100,000. Such a provision is itself presumed to be a significant, material and reasonable relationship with the state. See Section 187(1) of the Restatement, Second, of Conflicts of Laws.
3) Faced with three separate agreements, one without a choice of law provision, one with a New York choice of law clause, and one choosing Delaware law, the court chose Delaware law to apply for deciding the Motion to Dismiss, for several reasons. For example, it was the last agreement signed by the parties and covered the broadest scope of matters compared with the other two. See also, the recent Chancery Court decision in Abry, 891 A.2d 1032, 1048 n.25 (Del. Ch., 2006), discussing the likely preference of a reasonable businessperson to have one state’s law apply to the same basic dispute involving various agreements.
4) Is an "agreement to agree" enforceable"? The parties entered into an agreement that provided for them to "negotiate in good faith with the intention of executing a definitive License Agreement in accordance with the terms set forth in a [term sheet, that included a footer that said it was ‘non-binding’]." The court found too many ambiguities to grant a Motion to Dismiss.
The court cited to Delaware cases holding that "a contract to make a contract may be specifically enforced if it contains all of the material and essential terms to be incorporated into the final contract and those terms are definite and certain." See footnotes 49 and 50. The court noted that even if the prerequisites are satisfied, specific performance is a discretionary form of relief. The factual issues made it premature to dismiss this claim at this preliminary stage of the proceedings.
5) The claim for breaching a duty to "negotiate in good faith a definitive license agreement in accordance with the …[term sheet] " was also allowed to proceed to trial based on the court’s finding that it could conceivably be proven that best efforts were not used to conclude a license agreement.