PharmAthene, Inc. v. SIGA Technologies, Inc., C.A. No. 2627-VCP (Del. Ch. Dec. 16, 2011), read opinion denying a motion for reargument here. The Court of Chancery’s original 117-page decision from September 2011 involving the award of damages for breach of an “agreement to negotiate in good faith” was highlighted on these pages here. Other Delaware decisions in this matter were summarized on posts available here.

The gist of this decision was to explain the doctrinal basis and justification for the wide range of discretion that a court of equity has in fashioning a customized remedy – – and clarifying why it is not bound by the more conventional rules that a court of law would be constrained by in awarding damages and determining lost profits with reasonable certainty.  As a remedy for breaching the express contractual obligation to negotiate a license agreement in good faith, in its decision a few months ago, the Court awarded the following remedy: “once SIGA earns $40 million in net profits or a margin from net sales of ST-246, PharmAthene shall be entitled to 50% of all net profits from such sales thereafter for a period from entry of this judgment until the expiration of ten years following the first commercial sale of any product derived from ST-246.”

Court’s Analysis

The Court determined its original remedy to be reasonable compensation for the lost expectancy of what PharmAthene would have received had a license agreement been negotiated in good faith, and was consistent with the Court’s broad discretion to form an “appropriate remedy for a particular wrong” and was necessary to provide “such relief as justice and good conscience may require.”

In addition to examining the nuances of Court of Chancery Rule 59(f), the Court distinguished the differences between waiving an argument that is not properly raised in a brief and the authority of a court of equity to fashion a remedy that may be different from what was specifically articulated by one of the parties.

The Court emphasized that it did not misapprehend the law of remedies, but to the contrary, it found the imposition of a constructive trust, and a judgment in the nature of an equitable lien in future profits, to be applicable to the circumstances of this case and was a tailored remedy necessary to redress a wrong and to prevent injustice.  See footnote 34 (citing to cases and commentary providing for a constructive trust or an equitable lien where one party advances money for the purchase of property which is titled in a name of another).


In this 19-page decision, the Court went to great lengths to describe why it did not misapprehend the facts and why there was a sound basis in both law and fact for the particular structure of the customized equitable remedy imposed in its original decision.

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.

PharmAthene, Inc. v. SIGA Technologies, Inc., C.A. No. 2627-VCP (Del. Ch. Nov. 23, 2010), read opinion here. See prior Chancery decision in this case summarized here.

Issue Decided
The issue decided in this 32-page decision of the Delaware Court of Chancery involved the enforceability of a term sheet for a licensing agreement and whether or not it had all of the essential elements of an enforceable agreement.

Brief Summary of Background Facts
This decision chronicles the latest stage in a long-running breach of contract case between PharmAthene and SIGA.  The opinion addresses a dispute over a Licensing Agreement Term Sheet (“LATS”). SIGA takes the position that the LATS was not binding, and was merely a “agreement to agree.” By contrast, PharmAthene claimed that the LATS was binding and sued to enforce the agreement. SIGA moved for summary judgment.

Highlights of Legal Principles Discussed
The Court began its legal analysis with a recitation of the standard for summary judgment and the important principle that the Court maintains the discretion to deny summary judgment “if a more thorough development of the record were helpful to clarify the law or its application.” Ultimately, that discretion was applied to deny summary judgment in this case.

The opinion focused on the essential elements necessary in order for a contract to be binding. Stated in another way, the Court had to decide what the essential terms are that contracting parties must agree on, in order for a contract to be binding. One general principle is that a contract cannot be enforced if it is subject to future negotiations which would make it, by definition, a mere “agreement to agree.” Sub-issues that must be addressed when discussing these applicable principles are as follows: (1) Whether the parties intended to be bound by the document; and (2) Whether the document contains all the essential terms of an agreement.

The Court recited the test stated by Chancellor Chandler in a previous decision for determining whether all essential terms have been agreed upon:

“Whether a reasonable negotiator in the position of one asserting the existence of a contract would have concluded, in that setting, that the agreement reached constituted agreement on all the terms that the parties themselves regarded as essential and thus that the agreement concluded the negotiations . . ..” See footnote 39. (emphasis in original).

Regarding the request for specific performance, the Court also noted that the same essential elements would be a prerequisite for specific performance. That is, under Delaware law, a party seeking the equitable remedy of specific performance “must prove the existence and terms of an enforceable contract by clear and convincing evidence.” The Court denied the summary judgment motion in order to allow for a more fully developed factual record and based on the well accepted equitable maxim that: “Equity will not suffer a wrong without a remedy.” See footnote 56. The Court reasoned that PharmAthene has adduced sufficient facts to support one or more of its claims that SIGA breached its agreement with PharmAthene.

The Court, however, expressed doubt that PharmAthene could adequately establish damages at trial based on the general rule that a plaintiff can only recover those damages which can be proven with reasonable certainty. See footnote 58. The Court also recognized that it is difficult to accurately predict damages related to a new business with an unproven technology. (citing Amaysing Techs. Corp. v. CyberAir Commc’ns, Inc., 2004 WL 1192602, at *4-5 (Del. Ch. May 28, 2004)).

On the issue of damages, the Court recognized the challenges but concluded that they were not insurmountable and allowed the claims to go to trial. Moreover, an issue arose about the general principle that damages must be established as of the date of the breach. The Court followed other case law which “suggests that courts must be circumspect about considering events that occurred after an alleged breach for purposes of calculating damages. Nevertheless, in limited circumstances, it is appropriate to do so.”

In this case, the Court concluded that PharmAthene would be allowed to show post-breach information relevant to determining appropriate damages or other form of relief. However, the Court rejected the argument that patent damages would be allowable because the Court held that this is not a patent infringement case, and therefore, patent damages would be inappropriate in this breach of contract action.

Boston Scientific Corporation v. Johnson & Johnson, Inc., D.Del., Nos. 07-333; 07-348; 07-409-SLR (Aug. 25, 2009), read opinion here.

This is a memorandum opinion of the U.S. District Court for the District of Delaware, following an evidentiary hearing, in which the Court denies a Motion to Disqualify the law firm of Howrey LLP from representing plaintiffs Boston Scientific Corporation and Boston Scientific Scimed, Inc. in these referenced cases.


Wyeth is a global pharmaceutical company with multiple divisions and subsidiaries. It sought the disqualification of the Howrey firm, which represents plaintiff Boston Scientific against Wyeth in the instant Delaware federal patent litigation, even though a European office of the Howrey firm represents Wyeth in a separate and unrelated patent matter in Europe. The Court discussed several different subsidiaries in the U.S. and in Europe that use very similar variations on the name Wyeth Pharmaceutical, such as Wyeth Pharmaceuticals, Inc. and Wyeth Pharmaceuticals Limited. There was no question that Howrey has handled several matters for what the Court referred to as the “Wyeth family of companies” between 2003 and 2009. However, the Court observed that there was some confusion about exactly which Wyeth entity or division Howrey had been representing, and the Court found that Wyeth contributed to that confusion because for example, in-house attorneys would supervise the work of attorneys in various subsidiaries. Howrey contributed to the confusion by failing to distribute client representation memoranda in each matter it handled for Wyeth. Importantly, however, the Howrey attorneys in the U.S., none of whom worked on the adverse matter in Europe, maintained an ethical wall and the instant case compared to the matter in Europe were completely unrelated.


The Court summarized the arguments on which the instant Motion to Disqualify Howrey was based, as follows: (i) Attorney conduct before the Court is governed by the Court’s local rules; (ii) The Court’s local rules provide that attorneys must adhere to the American Bar Association’s Model Rules of Professional Conduct; (iii) The Model Rules provide that an attorney shall not, without consent, represent a client if doing so places the attorney in a position directly adverse to another client; (iv) Howrey’s representation of plaintiffs in the instant cases violates the Model Rules because it places Howrey, without the consent of Wyeth, in a position directly adverse to Wyeth, which is a client of Howrey in another matter; and (v) The appropriate remedy in these circumstances is disqualification. The Court agrees with Wyeth’s arguments only with respect to (i) through (iv), but not with the last argument regarding the need for disqualification.

Review of Applicable Law

The Court referred to Local Rule 83.6(d) of the United States District Court for the District of Delaware as the starting point in its analysis for the application of the ABA’s Model Rules as the governing standards for attorneys admitted to practice before the Court. The Court recognized its power to disqualify attorneys for violation of the Model Rules, but nevertheless observed that such motions to disqualify are generally disfavored. See U.S. v. Miller, 624 F.2d 1198, 1201 (3d Cir. 1980); Integrated Health Services of Cliff Manor, Inc. v. THCI, Co. LLC, 327 B.R. 200, 204 (D.Del. 2005). Moreover, the Court emphasized that disqualification was never automatic (citing Elonex I.P. Holdings, Ltd. v. Apple Computer, Inc., 142  F.Supp. 2d 579, 583 (D.Del. 2001)) (See  here for a short article I wrote some time ago about another case that discussed the issues addressed in the Elonex case and cited to the decision).

Violation of Model Rule 1.7

In sum, the Court found that Howrey did violate Model Rule 1.7, but that violation did not warrant disqualification in this case.

The Court summarized the requirements of the relevant parts of Model Rule 1.7 as follows: Rule 1.7(b) provides that a lawyer shall not represent a client if the representation involves a concurrent conflict of interest. Rule 1.7(a) provides that a “concurrent conflict of interest” occurs where the representation of one client will be directly adverse to the other client. There was no dispute in this case that the representation by Howrey of the plaintiffs in this case places it in a position directly adverse to Wyeth. The Court also found that through one of Howrey’s European offices, Wyeth was a client of Howrey.

The U.S. District Court for the District of Delaware in this decision relied on Delaware Chancery Court cases for the Delaware law which recognizes that in the absence of an express contract or a formal retainer agreement evidencing an attorney-client relationship, courts “look at the contacts between the potential client and its potential lawyers to determine whether it would have been reasonable for the ‘client’ to believe that the attorney was acting on its behalf as counsel.” See, e.g., PharmAthen, Inc. v. SIGA Technologies, Inc., 2009 WL 2031793, * 1 (Del. Ch. July 10, 2009) (See summary of that decision on this blog here).

Whether Disqualification Is Appropriate In This Case

Despite the Court’s finding that Model Rule 1.7 was violated by Howrey, the Court nonetheless concluded that disqualification was not an appropriate remedy under the circumstances. The Court reasoned, based on Elonex, supra, that despite the concurrent representations by Howrey in unrelated matters, they were “being done out of different offices and different cities” and were being done with an ethical wall in place between the two matters. See 142 F.Supp. 2d at 583-84.

Importantly, the Court added that the failure of Howrey to comply with Model Rule 1.7 was “to a significant degree, due to Wyeth’s conduct. Among other things, Wyeth’s naming conventions, its use of the same in-house attorneys on matters involving different subsidiaries without consistently identifying to Howrey which entity those in-house attorneys were representing, and the willingness of it and its subsidiaries to receive billing invoices for matters on which they were not directly engaged with Howrey, together created significant confusion for Howrey as to which entity or entities it was representing, confusion which is evident from Howrey’s timesheets, its mailing of billing invoices, and the averments of its attorneys in Europe. Wyeth should not now benefit from such obfuscatory conduct.” In closing, the Court noted that it was aware of case law in other jurisdictions suggesting that a violation of Model Rule 1.7 should result in disqualification, but the Court did not find those decisions persuasive.

PharmAthene, Inc. v. SIGA Technologies, Inc., No. 2627-VCP, (Del. Ch., July 10, 2009), read letter decision here.  Read summary of prior opinion of the Chancery Court in this case here.

Issues Addressed

This ruling addressed two issues: (i) under what circumstances is an attorney/client relationship created; and (ii) whether the attorney/client privilege applies to in-house counsel whose communications might include business advice in addition to legal advice.


The first issue focused on whether communications between in-house counsel for MacAndrews & Forbes Holdings, Inc. (MAF) and the defendant, SIGA, were privileged. In making its initial analysis, the Court discussed the factors considered to determine when an attorney/client relationship exists. The money quote follows:

… in determining whether an attorney-client relationship exists, “courts look at the contacts between the potential client and its potential lawyers to determine whether it would have been reasonable for the ‘client’ to believe that the attorney was acting on its behalf as counsel.” (citing 3Benchmark Capital Partners IV, L.P. v. Vague, 2002 WL 31057462, at *3 (Del. Ch. Sept. 3, 2002)).

Regarding the first issue, the Court concluded that:

… communications between attorneys employed by MAF and representatives of SIGA may qualify as privileged. Under Rule 502(b)(3) of the Delaware Rules of Evidence:

A client has a privilege to refuse to disclose and to prevent any other person from disclosing confidential communications made for the purpose of facilitating the rendition of professional legal services to the client . . . by the client or the client’s representative or the client’s lawyer or a representative of the lawyer to a lawyer or a representative of a lawyer representing another in a matter of common interest.  

The Court observed the MAF was a substantial but not controlling shareholder of SIGA, thought they had a "common interest" in the success of SIGA, and MAF attorneys often provided legal advice to SIGA. Thus the ruling was that the communications between MAF attorneys and SIGA representatives on matters of common interest would be privileged.

The second issue focused on the standard for determining what types of communications should be protected by the attorney/client privilege. The Court emphasized that the attorney/client privilege protects legal advice as opposed to business or personal advice. (see case cited at footnote 4). Therefore, a communicaiton by an attorney that included business advice would not be privileged. (fn 5). To the extent a communication is inseparably inclusive of different categories of advice, it "may" be privileged. (fns 6-8).

The Court reviewed in camera certain documents identified in a privilege log because it was asked to determine if they included discoverable facts about business advice involving a transaction at issue in the case. After reviewing the documents in issue, one by one, the Court made a ruling on each document’s "status".


In Welsh v. Heritage Homes of DeLaWarr, 2008 WL 442549  (Del. Ch., Feb. 15, 2008), read opinion here, the Chancery Court refused to enforce a builder’s "tie-in" agreement as an agreement to agree in the future without sufficiently definite or complete terms. The court ruled that:

“Delaware law requires that, ‘to be enforceable, a contract to enter into a future contract must specify all its material and essential terms, and leave none to be agreed upon as the result of future negotiations….’"

Compare this with the very recent Chancery Court decision in Pharmathene, Inc. v. SIGA  Technologies, Inc., summarized here on this blog, which–based on the facts of that case, denied a motion to dismiss an action to enforce an "agreement to agree in the future".

The Welsh case also regales its readers with a modern analysis of a claim based on the hoary  "rule against perpetuities".

 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.